Another important factor is that current market constraints cause companies to review their priorities, agendas and investment strategies. At this time of a global threat – when resources are even more limited, interests are diverse, and risks are high – priorities shift beyond shareholder preferences to embrace broader policy and social welfare considerations.
The current situation reinforces debates around the narrative of a broad corporate purpose and, as a result, the raises questions about the legitimacy of adopting Anglo-American “good” corporate governance standards, which govern the separation of ownership and control in the Berle and Means company model (outlined in the 1932 book The Modern Corporation and Private Property by lawyer and diplomat Adolf Berle and Harvard University economist Gardiner Means) of multiple shareholders and powerful managers. In the diverse institutional contexts of many Asian jurisdictions where dispersed ownership is an exception not a general norm, adopting those standards has appeared to be the main driving force behind legal and policy reforms. Countries in the region, however, supported by a significant body of academic literature, are recognizing more and more the idiosyncrasies of their corporate governance systems and are setting alternative standards that align with their own institutional frameworks and market conditions instead of transplanting those from the Anglo-American world.
The growing expansion of the state as a dominant shareholder
The pandemic has heated the discourse around the state’s role in national development. While still early days, management experts claim that the past months have demonstrated that Asian economies such as Singapore, Taiwan, Hong Kong and South Korea are effectively weathering the crisis. These jurisdictions tend to have a strong public sector and invest significant state funds in education, healthcare, infrastructure, industrialization, R&D and innovation. The state’s presence increases the focus on the public good, socio-economic development, and economic self-sufficiency, particularly when the movement of people, goods and services is limited.
To fulfill their agenda, governments prefer to set up state-owned enterprises and deal with unexpected contingencies through their internal governance and capital structures. State-owned enterprises often manage critical infrastructure, energy, financial and public-utility systems. Controlling positions of the state in many large and often strategic firms in Asia will strengthen even more after the pandemic. The Covid-19 crisis will, therefore, bolster the role of state-owned enterprises across Asia and beyond.
Although the pandemic rocked the foundation of many legislative systems, forcing them to introduce new legal norms, there is no “one-size-fits-all” approach. The choice of an applicable legal framework depends on the socio-economic, capital, and institutional context of an individual country or even the allocation of power and ownership in any individual company. Firms may have various objectives, ownership structures, risks and market conditions, which lead to different organizational forms and governance systems.
This divergence might widen and broaden in the future, imposing an additional challenge to a single-minded regulatory approach to corporate governance. Asian countries will continue to adopt alternative narratives that help their corporate laws to evolve into systems designed for their own specific purposes. The influence of autocratic state-driven systems will also continue to rise. As these trends play out, additional empirical studies and academic discussions are needed to assess the pandemic’s systemic impact on corporate law across Asia.