The Future of Corporate Governance in Capital Markets Following the COVID-19 Crisis

Report

30 June 2021

3. Corporate sector COVID‑19 measures by OECD and G20 governments

Abstract

This chapter provides an overview of the measures taken by OECD and G20 governments in response to the pandemic concerning the corporate sector, both in terms of regulatory changes and financial support. This offers a comparative perspective on how the crisis has been addressed in different countries and helps to identify both similarities and differences between government responses in a range of policy areas. It also gives an indication of the scale of the withdrawal of support (and restrictive) measures as many COVID‑19 related initiatives are viewed as temporary in nature and will eventually be terminated.

The COVID‑19 crisis has put many companies and entire industries under severe financial pressure. As a consequence of extraordinary circumstances beyond their control, otherwise sound businesses often found it difficult to meet their obligations, for example with respect to payments and disclosure. To help corporations navigate through the crisis, all countries adopted a range of measures spanning from regulatory adjustments to both indirect and direct financial support. Government fiscal support has been crucial and underpins the recovery from the crisis. Appropriately, such support measures have been and continue to be large. In particular, the USD 1.9 trillion support set out in the United States’ American Rescue Plan will significantly affect economic growth, both in the United States and globally. The American Rescue Plan is estimated to boost world GDP growth by more than a percentage point (OECD, 2021[1]). Companies themselves have also put in place measures to cope with the situation and to respond to requests from shareholders and stakeholders.

Several of these measures are considered temporary in nature and introduced for the purpose of mitigating the immediate impact of the crisis. However, some of these measures may also have a long‑term and lasting impact on how companies are governed, their capital and ownership structure and how they manage their relationship with their shareholders and stakeholders. Certain measures may also affect the day‑to‑day activities of the companies with respect to corporate reporting practices and the procedures for decision‑making, including shareholder meetings.

This chapter provides an overview of regulatory and financial support measures related to corporate governance and corporate finance. The information is summarised in a set of tables with comparative information covering OECD and G20 countries. The commentary to the tables primarily illustrates different principal approaches to support measures and related initiatives from shareholders and companies. It is important to note that, as circumstances evolve, countries continue to consider adjustments of policies and regulations.

3.1. Government support programmes

Policy makers around the globe have introduced fiscal support packages to the corporate sector to alleviate the effects of the pandemic and to stimulate the economy. Some countries have provided general support whereas others have focused their efforts on the most affected industries. These government support programmes are classified as indirect support measures and direct support measures.

The majority of indirect measures are to alleviate and ease the liquidity needs of corporations. To this end, authorities have provided payment deferral for tax obligations or simply lowered the tax ratios. Indeed, 34 countries introduced a deferral in corporate income taxes and/or VAT payments (Table 3.1). Twenty countries also allowed a deferral for social security contributions. Argentina, China, the Czech Republic, Hungary, the Slovak Republic and Spain went further by waiving social security contributions paid by companies. Others, including Norway, Russia and Sweden lowered the social security contributions instead, whereas Poland provided a subsidy for social security contributions.

Another 11 countries introduced provisions for faster tax refunds or changes in corporate income tax calculations to provide companies with more liquidity. For example, France, Greece, Ireland, Israel and Mexico established an accelerated refund process of tax credits. Some countries also established a carry back loss system allowing companies to use 2020 losses and carry them back against previous years’ profits. This is the case in the Czech Republic, Ireland, New Zealand, Norway, Poland and the Slovak Republic. Others, including Chile, allowed COVID‑19 related expenses to be deducted from corporate tax income filing and immediate depreciation for investments in fixed assets.

Tax exemptions related to payroll taxes and/or property taxes have been used in 10 countries to improve the liquidity conditions in the corporate sector. In Australia, Colombia, the Slovak Republic, Sweden and the United States, either a deferral, payment relief or a subsidy for payroll taxes has been introduced. The Czech Republic, Israel and the United Kingdom helped companies by alleviating the property tax payments. In 14 economies, banks were advised or required to extend a debt payment moratorium to companies. Some countries introduced a 3‑month moratorium period while others extended it until the end of 2020 to reduce the short‑term financial pressure on companies. With respect to penalties, only five countries mentioned waiving or reducing the penalties from late payments that could result or have resulted because of the pandemic.

In some countries, measures that support companies with rent and utility payments have been used to facilitate continuity. Canada, the Czech Republic, Japan and the Slovak Republic provided a rent subsidy for affected corporations, whereas Greece reduced rent payments and Ireland suspended rent increases during the COVID‑19 emergency. Spain adopted a mechanism for renegotiations and deferment of rent payment. Similarly, Israel introduced a deferral in utility payments, Slovenia reduced the price of electricity and Saudi Arabia provided subsidies for electricity.

Governments have also provided different kinds of direct support to companies (Table 3.2). The most common measures have been loans and government loan guarantees. Fifteen countries1 established a guarantee scheme covering large companies, whereas another nine countries2 and the European Union expanded their credit programmes to allow them to grant loans or credit lines to corporations. Similarly, a further 16 countries3 extended guarantees while increasing the amounts available for loans and/or credit lines at the same time. Canada and Russia extended forgivable loans whilst Estonia granted special loans for investment and Japan extended concessional loans.

Table 3.1. Indirect state support measures

With respect to grants, the Czech Republic, Hungary, Russia and Slovenia have provided grants to specific industries such as agriculture, automakers and tourism among others. The EU has allocated EUR 390 billion from the Next Generation EU (NGEU) recovery fund to grants. Other countries, including Israel, Luxembourg, Norway, Sweden and the United Kingdom have extended temporal grants to businesses. Another form of support to companies has been to subsidise the interest rate paid for loans. This is the case in Argentina where subsidised loans were extended for construction‑related industries and in Greece, Hungary, Indonesia, Latvia and Poland where interest rates have been subsidised for all businesses.

Some countries have decided to provide capital injections to certain strategic companies. At the EU level, this was made possible by a Temporary Framework which allows member states to provide recapitalisations and subordinated debt to companies in need. In Germany, the Economic Stabilisation Fund (WSF) and KfW Development Bank have created facilities for public equity injection into firms with strategic importance. Similarly, Finland allocated EUR 700 million for share acquisitions by the state. France has allocated resources for equity investments or nationalisation of companies in difficulty. Indonesia and Sweden have set aside resources to inject capital into state-owned enterprises and Turkey has announced a plan to inject EUR 2.8 billion capital into 3 state‑owned banks. Slovenia is also supporting corporate liquidity through equity purchases.

The airline industry is one of the industries that has been hit particularly hard by the COVID‑19 pandemic. Many airlines are partially or fully state‑owned, and are sometimes considered of national interest. They have been given special direct support in 17 countries and the European Union. In some cases the support came in the form of capital injections. This is the case in Italy, where the government decided to nationalise Alitalia by injecting EUR 3.2 billion into the company. The Danish and Swedish governments agreed on a plan to contribute up to EUR 1 billion to the recapitalisation of Scandinavian Airlines. The Portuguese government increased its stake in TAP Air Portugal from 50% to 72.5%. Other countries provided support through loans and guarantees instead of injecting capital. Belgium and the United Kingdom provided state loans to Brussel Airlines and EasyJet respectively, and France extended loan guarantees and a state loan to Air France. Similarly, Norway provided loan guarantees (conditional on a debt to equity swap) to Norwegian Air. In addition, Norway provided subsidies to domestic air routes, similar to Russia which established subsidies for domestic airlines and airports. Finland extended a state guarantee for EUR 600 million to Finnair while New Zealand approved a NZD 0.9 billion debt funding agreement (convertible to equity) for Air New Zealand. Similarly, Korea, Latvia and Switzerland provided support to airlines and/or aviation‑related businesses. In North America, the United States provided grants, redeemable loans and warrants to the airline industry; and Canada provided support for air transportation by waiving ground lease rents from March through December 2020 for 21 airport authorities that pay rent to the federal government.

Table 3.2. Direct state support measures

In addition to the airline industry, countries have put in place measures to support key industries and/or local economies that depend on a particularly affected activity. In 29 countries and the European Union, a specific industry or activity has been targeted for dedicated support. The tourism industry has been hit hard by travel restrictions and 18 countries have implemented specific measures targeting tourism. Industry‑specific support has also been given to agriculture (nine countries), construction (five countries) and to the “export sector” (four countries).

Some countries have established funds or increased the amount available in existing funds in order to buy securities issued by companies. Japan for example, increased the annual pace of Bank of Japan’s purchases of ETFs and Japan‑Real Estate Investment Trusts. Similarly, Korea is using a bond market stabilisation fund to purchase corporate bonds, commercial papers and financial bonds. Korea also has an equity market stabilisation fund that invests in companies that are included in the KOSPI 200 index. In Latvia, the government set up a EUR 150 million fund that provides subsidised debt and recapitalisation instruments for large enterprises. Lithuania has in place a fund to provide liquidity to medium and large businesses through direct loans or investments in equity and debt securities. Norway introduced a similar mechanism by reinstating the Government Bond Fund that is mandated to help improve liquidity and provide capital in the bond market by purchasing securities issued by companies on market terms. Spain provided a temporary authorisation for Instituto de Crédito Oficial to participate in the purchase of new commercial papers issued on the alternative fixed income market (MARF) of the stock exchange.

There are also cases where pension funds have been used as a tool to provide additional capital to companies. In Finland, the State Pension Fund purchased commercial papers. Sweden introduced changes in the investment regulation of the First, Second, Third and Fourth National Pension Funds. The largest possible share the funds can own in a single company, has been temporarily increased from 10% to 15%, allowing them to participate in new share issues in Swedish companies that need capital as a result of the pandemic.

Countries have also used their direct assistance to promote specific objectives, for example with respect to environment and digitalisation. Eleven countries4 and the European Union directed support to green initiatives that would contribute to a more sustainable and environmentally friendly recovery. Another six countries5 established specific support for further development of technology and digitalisation of their economies. Slovenia directed resources to support R&D and innovation.

3.2. Regulatory measures

3.2.1. Annual general meeting

Listed companies are typically required to hold an annual general meeting within 3 to 6 months after the end of their financial year. With restrictions on social gatherings, border controls and travel restrictions, 2020 annual general meetings (AGMs) were either delayed or held in different formats. As presented in Table 3.3, 28 out of the 45 countries extended the deadline to hold the AGMs.

The most common measure has been for public authorities to temporarily allow all companies to hold shareholder meetings through remote participation, even in cases where there is a legal provision stating that the company bylaw should have authorised the remote participation. Indeed, all jurisdictions lifted previous prohibitions for virtual/hybrid annual general meetings to allow remote participation (Table 3.3). While a virtual AGM means that the meeting takes place exclusively online through the internet or other communication means, a hybrid AGM is an in‑person meeting that also permits shareholders to participate remotely.

The G20/OECD Principles of Corporate Governance recognise participation in general shareholder meetings as a fundamental shareholder right and encourage efforts by companies to remove any artificial barriers to participation in the meetings. In parallel to the global trend since the early 2000s to empower shareholders in corporate decision making and monitoring processes, such as the approval of related party transactions, the organisation of and participation in shareholder meetings has been greatly facilitated through information technology in many jurisdictions. This is confirmed by relatively high participation ratios at shareholder meetings, even in countries with a predominantly dispersed ownership structure such as the Netherlands, the United Kingdom and the United States (OECD, 2015[5]).

Out of necessity, the crisis has provided an opportunity for jurisdictions to advance or clarify their regulatory frameworks for remote participation in shareholder meetings. For example, Chile and Latvia have taken the opportunity to advance their current regulatory framework for remote participation in AGMs, and the voting process in shareholders meetings, including requirements for the certification of the identity of investors and for the secrecy of their votes. Germany and the Netherlands have clarified some requirements for shareholder meetings that take place exclusively through remote means, such as giving all shareholders an opportunity to watch or listen to the meeting on-line and to pose questions to corporate officers.

3.2.2. Disclosure practices

Thirty‑three countries allowed for extensions in the preparation of quarterly and annual financial statements and related accounting documents (Table 3.3). Both Argentina and Chile, for example, granted an extension of 15 to 20 days for submission. Likewise, the Netherlands granted a five‑month extension for private and public limited companies. China introduced a financial reporting extension for companies severely affected by the pandemic. The European Securities and Markets Authority (ESMA) released a public statement in March 2020 introducing actions to mitigate the impact of COVID‑19 on the EU financial markets regarding the publication deadlines under the Transparency Directive. The ESMA statement stressed that the pandemic generated important challenges for issuers and auditors. As a consequence, it was recommended that National Competent Authorities do not undertake supervisory actions against listed entities regarding annual and half‑yearly financial reports for a period of two months following the Transparency Directive deadline, but instead apply a risk‑based approach in the exercise of their day‑to‑day supervisory powers.

Table 3.3. Annual general meeting, disclosure practices and foreign investment measures

Fifteen countries introduced new requirements to disclose material facts, guidance and estimates related to COVID‑19 risks. For instance, in countries such as France, Greece and India, issuers have been required to incorporate a quantitative and qualitative description of the main COVID‑19 related risks and uncertainties to which they are exposed, and the potential measures taken to mitigate the economic exposure to the pandemic. Similarly, Portugal established recommendations concerning the adoption of sustainability principles and transparency regarding crisis management policies in the medium‑term. Additionally, both Austria and Japan established working groups addressing the COVID‑19 implications in reporting and auditing to support stakeholders' further engagement and have a proper information sharing process.

The International Accounting Standards Board (IASB) has provided some financial reporting guidance on how to continue applying IFRS Standards under extraordinary circumstances. Since the purpose of reporting information is to allow users to understand the extent to which the financial results can help them to make predictions about the future, it is key that financial statements are up‑to‑date during the crisis period. The high uncertainty in companies’ prospects is not sufficient reason to freeze forward looking statements at pre‑COVID‑19 levels and, despite the difficult environment, they need to be revised regularly. The users of financial statements expect that the assumptions used are in line with the management views and the operating environment. Moreover, it is highlighted that these assumptions should be based on reasonable information available to management and that users expect transparency about key assumptions that are made.

3.2.3. Limits on foreign ownership

As some companies have experienced price distortions and significant declines in their valuations, they have become vulnerable to unsolicited foreign takeovers. Moreover, there have been concerns about the foreign ownership in sectors that are critical to support the pandemic response, in particular health‑related industries and associated supply chains. Prior to the COVID‑19 crisis, several countries already had mechanisms to protect certain domestic strategic assets from foreign acquisition. As a response to the pandemic, policy makers have adjusted their screening mechanisms and control rules for foreign direct investments (FDI) in order to prevent potential acquisitions of strategic assets (see Table 3.3).

The European Commission has published guidance to Member States to improve the screening mechanisms of FDI and avoid any loss of critical assets and technology, especially in the healthcare and related industries. The guidance also encourages countries to introduce such screening mechanisms if they do not have them in place. In response, 12 European countries tightened their FDI review frameworks. For example, France, Germany, Hungary and Italy decreased the thresholds in terms of the deal value for the application of their screening mechanisms and also expanded the number of public interest sectors for which screening applies. Spain and the United Kingdom also broadened the sectors falling under the definition of public interest. Ireland and Slovenia introduced a brand new mechanism for the screening of the FDI as suggested by the European Commission.

Japan lowered the value of deals that triggers FDI reviewing mechanisms and modified further the associated procedural rules. Australia decided to review all the proposed FDI transactions by removing entirely the existing value threshold for screening. India broadened the list of countries by mandating government approval for all FDI inflows from countries that share land borders with India. Contrarily, for debt investments, China has instead moved towards allowing more foreign investment, lifting the restriction on foreign debt quotas that normally apply to Chinese enterprises in order to enhance liquidity (White and Case, 2020[7]).

Countries have also taken specific actions for investments by companies owned, controlled or linked to foreign governments. Spain now requires pre‑approval for investments regardless of the sector in which Spanish companies operate when the potential foreign investor is directly or indirectly government‑controlled, including sovereign funds or state bodies of a third country. Hungary and Slovenia underlined their view that a state‑owned acquirer is an additional risk factor during this time. The share of OECD countries that now single out state‑owned acquirers in the context of FDI screening has grown from eight to fourteen since the beginning of 2020 (OECD, 2020[8]).

3.2.4. Access to capital markets

For corporations, continued access to capital markets is a crucial component during the crisis that can help alleviate the fiscal pressure on governments as capital markets offer a direct link between companies seeking capital and investors supplying it. Capital markets can also complement, and reduce the dependence on, bank lending on the road to recovery. Further, by enabling its transmission, capital markets also complement monetary policy actions. Therefore, a number of countries have launched initiatives aimed at facilitating the use of both debt and equity capital markets in addition to other more direct support measures.

A notable example is the European Commission’s EU Capital Markets Recovery Package, which is part of the broader Capital Markets Union initiative. The package includes a proposal to create a new temporary short‑form prospectus for secondary equity issuances during 18 months. The standardised short‑form prospectus of a maximum of 30 pages is estimated to cost half that of a regular prospectus and would be available for issuers that have been listed for at least 18 months on a regulated or an SME Growth market. It also includes a proposal to temporarily (18 months) double the lower limit for which no prospectus is needed for credit institutions that issue non‑equity securities from EUR 75 million to EUR 150 million over 12 months. Additionally, it suggests extending the timing for issuing supplementary information about significant new factors to a prospectus from the same working day to one working day. It is considered that this increased time limit is suggested to be a permanent adjustment. Further, the package includes proposed amendments to the MiFID II framework to increase the amount of investment research on small and mid‑cap companies6 to increase the liquidity in their stocks. Specifically, it proposes an exception from the “unbundling rule” which mandates separation of research and execution costs (EC, 2020[9]).

In the United States, the Securities and Exchange Commission (SEC) provided temporary relief for companies raising funds through Regulation Crowdfunding.7 The temporary rules are intended to expedite the offering process by providing conditional relief from certain requirements related to the timing of the offering and the availability of required financial statements (SEC, 2020[10]). To promote investment in SMEs, the SEC also provided temporary relief to business development companies (BDCs) which channel capital to smaller companies that might otherwise not access capital markets. The initiative provides BDCs with greater flexibility to issue senior securities in order to provide capital to such companies (SEC, 2020[11]).

Other significant examples are the measures taken by Australia and India to facilitate rights offerings that give existing shareholders an opportunity to purchase additional shares in a company at a discount to market price. The Australian Securities and Investment Commission (ASIC) has made available “low doc” offers for rights offers and private placements, as well as share purchase plans, for companies that do not meet all regulatory requirements. Similarly, the Securities and Exchange Board of India (SEBI) has temporarily eased the requirements for rights issues with regard to market capitalisation (from INR 2.5 billion to INR 1 billion), the minimum listing period (from 3 years to 18 months) and the minimum subscription share of the total offer required (from 90% to 75%). Additionally, broker and filing fees for rights issues, public issues and share buybacks have been reduced. The validity of the approval of such issues expiring between 1 March and 30 September 2020 has also been extended by six months (IMF, 2020[2]).

With a view to facilitating the issuance of new share capital by listed companies, the Financial Conduct Authority (FCA) in the United Kingdom expanded its capacity to review prospectuses and highlighted existing possibilities for using shorter form prospectuses. Further, the approach to working capital statements has been amended and temporary modifications have been made to the requirements related to the general shareholder meetings under the Listing Rules on a case by case basis. In Italy, temporary measures have been put in place to waive the supermajority requirement for equity issuance by listed companies. In the case of related party transactions aimed at increasing equity capital, the pre‑existing exemption for urgency matters has been made temporarily available even in the absence of the necessary opt‑in. In China, the China Securities Regulatory Commission (CSRC) has removed the minimum requirement for profitability and leverage, and relaxed the pricing framework required to do secondary equity offerings aiming to facilitate capital access to listed companies.8

Focusing on bond issuances, the Chinese National Development and Reform Commission (NDRC) has launched a “Bond Issuance Optimisation Circular” which aims to support the issue of bonds in order to finance challenges related to the pandemic, including rollovers of old debt. Bond issuance procedures have also been simplified, with an extended validity period of approval documents (White and Case, 2020[7]). Further, a COVID‑19 bond label was introduced at the beginning of February 2020, allowing for a faster registration process for bonds where at least 10% of the proceeds are used for pandemic containment and control measures (Wall Street Journal, 2020[12]). In Chile, the Financial Market Commission (CMF) has promoted a series of initiatives to facilitate access to finance for companies raising capital through the securities market. Importantly, in January 2021, the automatic registering of any short or long‑term debt security was established to streamline the debt securities issuance process.

Table 3.4. Regulatory measures to increase capital market access

	Debt	Equity	Instrument(s)
Australia			Rights offers, placements and share purchases
Chile			Debt securities
China			Bonds, secondary equity issuances
EU			Secondary equity issuances, bonds (fixed income)
India			Rights offers, public issues, share buybacks
United Kingdom			Secondary equity issuances
United States			Crowdfunding, BDC senior securities

3.2.5. Insolvency

To ensure that viable firms have sufficient opportunities to survive the major disruptions caused by the COVID‑19 crisis without going bankrupt or becoming insolvent, many countries have introduced adjustments to their regulatory framework with respect to insolvency procedures and restructuring. As seen in Table 3.5, policy makers in 10 jurisdictions have used a temporary extension of thresholds to file for or respond to bankruptcy/insolvency notices. For example, Australia increased the minimum amount of debt required before a creditor can initiate an involuntary bankruptcy or insolvency proceedings against a debtor. The country also raised the timeframe threshold for debtors to respond to a bankruptcy or an insolvency notice.

In countries where a pre‑insolvency framework does not exist or where policy makers are aware that the judiciary system does not have the capacity to deal efficiently with an unusually large number of debt‑related processes, a temporary moratorium on debt payments has been introduced to ease the financial pressure on businesses. The most widely used measure, taken in 23 countries (Table 3.5), is a moratorium on debt payments as regulators simply suspended the creditor’s initiation of insolvency proceedings for a limited time period and/or suspended the debtor’s obligation to file for bankruptcy or insolvency. The moratorium is sometimes subject to certain conditions. For instance, in the Slovak Republic, only SMEs are allowed to benefit from the moratorium and, in Spain, only mortgage payments are included in the scope of the moratorium.

Table 3.5. Insolvency and bankruptcy regulatory measures

Some jurisdictions have provided temporary suspension of directors’ duties with respect to wrongful trading. In a number of countries, directors that continue to carry on business trading while the enterprise becomes insolvent are normally considered personally liable for wrongful trading. While such wrongful trading laws may be important during normal times to protect the interests of creditors, this suspension is intended to allow company directors to keep trading without the threat of personal liability while options to rescue or restructure a struggling business are explored. Several countries with wrongful trading laws have therefore introduced an exemption from personal liability for wrongful trading during the outbreak (Australia, Germany, New Zealand, Singapore and the United Kingdom).

While insolvency laws in China are unchanged, the authorities have issued new bankruptcy guidance. Bankruptcy courts are now expected to encourage restructuring and settlement processes before liquidating a company. They are supposed to actively guide negotiation between creditors and debtors by means of instalment payments, extensions of the performance period for liabilities and changes of contract price. Similarly, Colombia created two new out of court bankruptcy mechanisms. In the first one, debtors will be able to negotiate their obligations with all or part of their creditors within three months. Subsequently, the bankruptcy judge will confirm the plan if it meets the requirements in the insolvency law. Under the second mechanism, chambers of commerce will offer a regulatory framework within which debtors and creditors, accompanied by an expert called mediator, during a three‑month period may solve their controversies and negotiate a plan.

In the same manner, Norway adopted a new temporary act to support the successful restructuring processes for viable companies. The new act allows early initiation of the restructuring process, requires lower majority requirement for adopting a restructuring plan, and broadens the range of tools available within the framework of a restructuring plan. The act also opens up the possibility to adopt a temporary exception for the public preferential right in relation to tax and value added tax, allows for a certain prioritised security on loans related to financing during reconstruction, and strengthens the debtors’ protection against bankruptcy and individual enforcement actions during restructuring negotiations.

3.2.6. Payout policy

To receive public support and ensure that corporations, in particular from the financial sector, have adequate capital buffers to stand the crisis and continue their activities, many governments and regulators have taken measures to limit or stop payouts during the pandemic. Further, governments may require companies that benefit from publicly funded support programmes to use that money for certain purposes, e.g. to limit layoffs or to maintain investment. In some countries, such government support has also been made contingent on restrictions with regard to payout policies. This type of conditional restriction applies in France and Korea. In Switzerland, the restriction on dividends and similar distributions applies to capital released as an effect of a capital relaxation by FINMA to ease banks’ leverage ratio.

It should be noted that, while most countries took initiatives to restrict buybacks, some took measures to facilitate them during the crisis, with a view to providing liquidity for investors who may be dependent on such payouts. This includes India, Indonesia, Korea and Russia.

The IMF has called for banks to stop buybacks and dividends to allow for adequate cash buffers during the recovery period (IMF, 2020[13]). Similarly, ECB Banking Supervision has recommended a temporary stop of bank payouts until January 2021 to increase their resilience (ECB, 2020[14]). Table 3.6 offers a summary of actions taken in different OECD and G20 countries related to payout policies. As the table indicates, measures to restrict payouts have primarily targeted financial institutions, and banks in particular. In addition, measures put in place to ease the coverage and/or leverage ratios, as well as reduced weightings of risky assets for credit institutions, have a dual purpose to strengthen their ability to absorb potential future losses and extend credit.

3.3. Shareholder engagement and conditionalities

In several cases, public support and shareholder engagement during the pandemic have been coupled with conditions and expectations with respect to corporate actions. The European Union has tied its financial support to the condition that the use of the funds must benefit employees and that recipient firms must refrain from awarding bonuses to management, tax evasion, paying out dividends or offering share buyback schemes for as long as they receive the support. Some governments have also made access to support conditional on companies meeting specific requirements. The Korean Development Bank has stated that supported businesses need to maintain employment and limit executive compensation, dividends and share benefits. Likewise, the Polish Development Fund confirmed that up to 70% of financing to businesses would be non‑returnable as long as the firms maintain employment and continue the business activity.

Measures
Hungary	Government: Wage subsidy program for new hires conditional on companies keeping these workers for at least nine months.
Korea	Korea Development Bank: As conditions for accessing support, businesses will be required to maintain employment, limit executive compensation, dividends, and other pay-outs, and share benefits from business normalisation in the future.
Poland	Polish Development Fund: Up to 70% of the financing may be non-returnable, upon fulfilling the relevant conditions related to maintaining employment, continuing business activity.
Slovenia	Government: Companies that claim reimbursement of personnel costs for short-time work may: not distribute profits in 2020, not distribute any profit in subsequent years of retained profits of the period 2020, not acquire own shares or not pay the management any bonuses or success bonuses with tax benefits in 2020 or for the period 2020.

Source: (IMF, 2020[2]).

Aside from measures aimed at employment stability and financial resilience, a number of governments have taken action to link their recovery strategies to the transition to greener economies. These efforts have primarily focused on the energy and surface transport sectors, while other environmentally important sectors such as industry, agriculture, forestry and waste management have been less targeted. Some countries included explicit environmental conditionality for support measures, e.g. in the aviation sector (OECD, 2020[17]).

A number of global institutional investors have expressed the expectation that their investee companies pay increased attention to ESG issues while confronting the crisis. In this respect, eight investors, including BNP Paribas Asset Management, DWS and Comgest Asset Management, announced that tackling global warming must continue to be a priority for public companies despite the pandemic. Principles for responsible investment (PRI) supported by the United Nations published a guidance for investors including a set of questions with ESG‑related issues to ask investee companies - at annual general meetings (AGMs) and in follow‑up engagements - about their responses to the COVID‑19 crisis. Legal & General, the UK’s largest asset manager announced that it will take action if investee companies fail to show good corporate practices during the crisis with respect to sustainability, good governance and the fair treatment of employees.

With respect to compensation policies, some companies have announced that they will decrease director or executive pay or make adjustments to their bonus plans and annual compensation programmes that include changes to metrics, performance targets and measurement periods. The proxy advisor Institutional Shareholder Services (ISS) has published a guidance on how ISS U.S. Benchmark Research may approach the pay decisions by companies. They announced that adjustments regarding the changes in the annual compensation schemes and bonus plans should be complemented with necessary justifications and clear disclosure of rationales so that the resulting outcomes appear reasonable.

3.3.1. Anti-takeover measures

In the early days of the pandemic, companies expressed widespread concerns that investors could take advantage of temporary undervaluations to make unsolicited takeover bids. In response to these concerns, an increasing number of US companies have adopted shareholder rights plans. These plans give shareholders the right to buy more shares at a discount to the market price if one shareholder buys above a certain percentage of a company's shares. During the stock market downturn at the start of the pandemic, 27 US listed companies adopted such shareholder right plans.9 Sixteen of these plans were short‑term, for a duration of one year or less, which suggests that their adoption was caused by concerns about unsolicited bids in the near future. As industries such as travel and retail industries are most impacted by the pandemic, most shareholder rights plans are concentrated in these industries.

In the meantime, proxy advisers have updated their policy guidance regarding the adoption of these plans, taking into consideration a company’s rationale for adopting them, requiring that they are limited in time and that the ownership triggers need to be above a certain threshold.10 As these shareholder rights plans can reduce management accountability because they limit the opportunities for corporate takeovers, proxy advisers claim that they apply a case‑by‑case approach in examining the plans while taking the guidance mentioned above into consideration.

References

[15] BIS (2020), “Banks’ dividends in Covid-19 times”, http://www.bis.org/fsi/fsibriefs6.htm.

[9] EC (2020), “EU Capital Markets Recovery Package - Commission Staff Working Document”, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52020SC0120.

[14] ECB (2020), “Dividend payouts and share buybacks of global banks”, Financial Stability Review, https://www.ecb.europa.eu/pub/financial-stability/fsr/focus/2020/html/ecb.fsrbox202005_05~d3679873d3.en.html.

[13] IMF (2020), “Global Financial Stability Update - June 2020”, http://www.imf.org/en/Publications/GFSR/Issues/2020/06/25/global-financial-stability-report-june-2020-update.

[2] IMF (2020), “Policy Tracker”, Policy Responses to COVID-19, http://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19.

[1] OECD (2021), “Liquidity shortfalls during the Covid-19 outbreak: assessment and policy responses”, OECD Economics Department Working Papers, No. 1647, https://doi.org/10.1787/581dba7f-en.

[16] OECD (2020), “COVID-19 and responsible business conduct”, OECD Policy Responses to Coronavirus (COVID-19) Series, http://www.oecd.org/coronavirus/policy-responses/covid-19-and-responsible-business-conduct-02150b06/.

[4] OECD (2020), “Equity injections and unforeseen state ownership of enterprises during the COVID-19 crisis”, OECD Policy Responses to Coronavirus (COVID-19) Series, http://www.oecd.org/coronavirus/policy-responses/equity-injections-and-unforeseen-state-ownership-of-enterprises-during-the-covid-19-crisis-3bdb26f0/.

[17] OECD (2020), “Making the Green Recovery work for jobs, income and growth”, https://www.oecd.org/coronavirus/policy-responses/making-the-green-recovery-work-for-jobs-income-and-growth-a505f3e7/.

[6] OECD (2020), “National corporate governance related initiatives during the Covid-19 crisis”, http://www.oecd.org/corporate/National-corporate-governance-related-initiatives-during-the-covid-19-crisis.pdf.

[3] OECD (2020), “OECD country policy tracker”, https://www.oecd.org/coronavirus/country-policy-tracker/.

[8] OECD (2020), “OECD Interim Economic Assessment - Coronavirus: Living with Uncertainty”, OECD Publishing, Paris, https://doi.org/10.1787/34ffc900-en.

[5] OECD (2015), “G20/OECD Principles of Corporate Governance”, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264236882-en.

[11] SEC (2020), “SEC Provides Temporary, Conditional Relief for Business Development Companies Making Investments in Small and Medium-sized Businesses”, http://www.sec.gov/news/press-release/2020-84.

[10] SEC (2020), “Temporary Amendments to Regulation Crowdfunding; Extension”, http://www.sec.gov/rules/interim/2020/33-10829.pdf.

[12] Wall Street Journal (2020), “China Opens a Coronavirus Bond Spigot, and Companies Rush In”, Wall Street Journal, March 4th 2020, http://www.wsj.com/articles/china-opens-a-coronavirus-bond-spigot-and-companies-rush-in-11583323208.

[7] White and Case (2020), “COVID-19: Chinese Government Financial Assistance Measures”, http://www.whitecase.com/publications/alert/covid-19-chinese-government-financial-assistance-measures.

Notes

← 1. Austria, Chile, Czech Republic, France, Germany, Greece, Indonesia, Ireland, Italy, Netherlands, Slovak Republic, South Africa, Russia, Spain and Turkey.

← 2. Argentina, Brazil, China, Colombia, Finland, India, Lithuania, Mexico and Saudi Arabia.

← 3. Belgium, Canada, Denmark, Estonia, Hungary, Iceland, Israel, Korea, Latvia, Luxembourg, Poland, Slovenia, Sweden, Switzerland, United Kingdom and United States.

← 4. Australia, Finland, France, Germany, Ireland, Korea, Lithuania, Luxembourg, Norway, Spain and the United Kingdom.

← 5. Canada, Colombia, Germany, Israel, Korea and Spain.

← 6. Companies with a market capitalisation of under EUR 1 billion over a 12-month period.

← 7. A capital raising method where the issuer, up to USD 1.07 million, is exempt from the registration requirements with the SEC that applies to regular securities.

← 8. To be eligible for an SPO on ChiNext, companies were required to be profitable for the last two years and have a debt-to-assets ratio above 45%. These two requirements were cancelled in the new regulation. Moreover, the pricing base date and lock-in periods became more flexible when the company targets strategic investors.

← 9. According to deal point data, 27 US listed companies have adopted the poison pills during 15 February 2020 to 12 April 2020.

← 10. International Shareholder Services’ official position is that defensive pills should have a trigger no lower than 20%.

	Deferral or lowering of tax payments	Deferral, waiver or lowering of social security contributions	Provision of faster tax refunds or carry back losses on CIT	Tax exemptions related to payroll taxes or property taxes	Debt service moratorium	Waiving penalties	Subsidies for rent and utility payments
Argentina
ustralia
Austria
Belgium
Brazil
Canada
Chile
China
Colombia
Czech Rep.
Denmark
Estonia
EU
Finland
France
Germany
Greece
Hungary
Iceland
India
Indonesia
Ireland
Israel
Italy
Japan
Korea
Latvia
Lithuania
Luxembourg
Mexico
Netherlands
New Zealand
Norway
Poland
Portugal
Russia
Saudi Arabia
Slovak Rep.
Slovenia
South Africa
Spain
Sweden
Switzerland
Turkey
United Kingdom
United States

	Annual general meeting		Disclosure practices		Tightening in FDI screening mechanisms
	AGM deadline extension	Permission to hold virtual/ hybrid AGMs	Defer presentation of their financial statements	Disclose material facts, guidance and estimates related to COVID-19 risks	Tightening in FDI screening mechanisms
Argentina
Australia
Austria
Belgium
Brazil
Canada
Chile
China
Colombia
Czech Rep.
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Iceland
India
Indonesia
Ireland
Israel
Italy
Japan
Korea
Latvia
Lithuania
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Mexico
Netherlands
New Zealand
Norway
Poland
Portugal
Russia
Saudi Arabia
Slovak Rep.
Slovenia
South Africa
Spain
Sweden
Switzerland
Turkey
United Kingdom
United States

	Bans/restrictions on dividends for:		Bans/restrictions on share buybacks for:
	Banks/financial institutions	Other companies	Banks/financial institutions	Other companies
Argentina
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Ireland
Israel
Italy
Japan
Korea
Latvia
Lithuania
Luxembourg
Malaysia
Mexico
Netherlands
New Zealand
Norway
Poland
Portugal
Russia
Saudi Arabia
Singapore
Slovak Rep.
Slovenia
South Africa
Spain
Sweden
Switzerland
Turkey
United Kingdom
United States

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