Covid-19 will help align interests of shareholders and management

COVID-19 has wreaked havoc with supply chains and devastated businesses everywhere, and there is no doubt that many corporate bottom lines will be badly hit for the foreseeable future.

However, not all the consequences are negative. There are some silver linings to look forward to, including from a governance perspective. This is because with corporate survival now a top priority, there is a good chance it will force shareholders and companies to work much more closely than before towards common goals.

Management-shareholder goal alignment has not always been a given, even if one accepts that the "correct" model of the firm is the agency theory, where shareholders are the principals who have delegated the running of their companies to managers who act as their agents. Here, the task of agents is primarily profit maximisation and ultimately, success is measured in terms of share price performance and dividends.