1. Corporate Governance in Thailand: More Done Than Talked
January 2003

2. Current Status
Enhancement of CG becomes national agenda: National CG Committee
Existing laws and regulations cover most points in the US Sarbanes-Oxley Act
Disclosure standards close to international levels – some language barrier exists
Measures include both carrot and stick : incentives and tightening enforcement
Comparison table – appendix 1

3. Regulatory Disciplines
Policies to Go Forward
CG disciplines built from 3 dimensions to achieve protection of investors’ right, board accountability and transparency
Regulatory Disciplines CG
Market Disciplines
Self Disciplines
For investors: Need more communication - preparation for assessment from international agencies

4. National CG Committee High powered committee Objectives & Duties:
Chaired by Prime Minister
Comprise government & private leaders
Objectives & Duties:
Study and form policies to enhance CG of listed companies and financial institutions
Monitor policy implementation of relevant agencies

5. Measures Taken to Reinforce Practice of CG Principles

6. I. Self Disciplines Principle: Good CG has to come from within
Issuance of principles and best practice
Disclosure of compliance & non-compliance to principles in annual report
Setting up of CG Center to advise listed co.
Training programs:
Directors: IOD - voluntary with SET sponsored, 400 directors passed 5-day course
CFO: ICAAT to start training in early 2003
Other seminars

7. II. Market Disciplines Increasing roles of investors
Investors Association : monitor companies and exercise rights in shareholders’ meeting
Institutional Investors Club : declaration of members to use CG as part of investment factors to promote their own fiduciary duties to clients
Government Pension Fund: active player in CG of listed co.
Asset management co.: SEC to require disclosure of how CG is used in investment decision and voting policy

8. II. Market Disciplines: (cont.)
Promotion of CG rating: first in Asia
Help investors differentiate companies
Peer and social pressure to enhance CG
Rating done on actual practice of all CG principles
Incentives for firms rated 7& up from govt. agencies
3 rated companies and expected in 2003
Awards and Recognition:
Disclosure Award : SEC awarded 40 listed companies for good disclosure
Board of the Year Award : SET and IOD to award listed co. for having outstanding board of directors
Q-Mark : Chamber of Commerce and Industry Federation to award logo to “good ethics” co.
Rating criteria appendix 2

9. III. Regulatory Disciplines
Regulatory power: quite flexible – can compensate weaknesses in the laws
Shareholders’ rights: existing company law or SEC/ SET regulations covers most OECD principles e.g.
All basic shareholders’ rights – ownership, voting, etc.
Facilitation of voting by proxy – independent director as proxy, 2-way proxy, detailed disclosure of agenda
Material decision requires shareholders’ resolution – new share issue, ESOP, major acquisition, takeover defense device, material connected transactions, etc.
Voting power – interested shareholders be abstained, minority shareholders’ veto rights in various issues, e.g. ESOP, whitewash, share issuance below mkt price, etc.
Insider trading closely monitored – lists of cases fined
Class Action Law is being proposed

10. III. Regulatory Disciplines: (cont.)
Accountability of Board of Directors
Audit Committee required in all listed co.
comprise at least 3 independent directors
review the reliability of financial statement
comment whether connected transactions are fair and in the best interest of the company prior to commitment
review sufficiency of internal control system
Due care and loyalty required by law – breaching can lead to derivative suit
Company and securities laws are being amended to further increase accountability of director and management

11. III. Regulatory Disciplines: (cont.)
Transparency & Disclosure
Thai GAAP consistent or similar to IAS
Timely disclosure of financial statement (audited annual F/S within 60 days and reviewed quarterly F/S within 45 days) – leader among Asian countries
Auditors be in SEC approve list – subject to regular monitoring and serious sanctions for malpractice e.g. suspension of auditors from Big 5
Information disclosed in annual report up to international level – includes business background, risk factors, management structure and CG policies, connected transactions, MD&A
Regular and stringent SEC monitoring
Thai GAAP VS. IAS - appendix 2

12. Concerns Frequently Raised by Foreign Investors
I. Thai listed companies are family-owned and managed
Governance of privatized companies
Lack of law enforcement

13. I. Thai listed companies are family-owned and managed

14. Facts – Family business
1. Shareholding structure
Large differentiation among listed companies : average free float
Overall market : 37%
Large companies (SET 50) : 49%
Non-SET 50 : minimum of 15%
Large companies (SET 50) accounts for 75% of market cap

15. Facts – Family business (cont.)
2. Management structure
McKinsey survey (April 2002) of top 130 companies found strong performance in board practices e.g.:
76% of surveyed companies had a board with a majority of non-executive directors
68% of companies had boards that comprised % independent directors
22% of companies had an independent chairman, compared to 15% in the US

16. Facts – Family business (cont.)
3. Cross shareholding & Intra-group transactions
Less problems in large firms
Subject to disclosure requirements
Loans to directors prohibited under company law
Shareholders’ approval required for transactions of over 3% of equity with view from independent financial advisor. (FA subject to SEC supervision)
“unjustifiable” transactions are monitored and discouraged prior to commitment
Revised connected transactions rules to be in force by Q2 2003

17. Governance of Privatized State-Owned Enterprises

18. Facts – Governance of SOEs
Government as major shareholder of SOEs fully realizes that CG has direct impact on the value of its shares in SOEs. It is, therefore, in the government’s own interest to enhance CG and efficiency of these entities to maximize the long term value of its assets.
Hence, in making any decision relating to listed SOEs, the government shall give high regards to impact on the share price as well as fairness to the general shareholders.

19. Facts – Governance of SOEs (cont.)
Intervention of business policies?
Sort SOEs with social objectives out of privatization programs
Cabinet resolution not to intervene business policies or management of listed privatized companies e.g. PTT
Require large SOEs to use electronic procurement to increase transparency and reduce cost – TOT, THAI
Policy to reduce government g’tee to SOEs’ loans - needs for SOEs to improve efficiency

20. Facts – Governance of SOEs (cont.)
Appointment of directors & CEO
Clear government policy to appoint only competent and professional persons
Management of appointed persons has to be transparent and subject to checking mechanism
Appointment of key positions in major SOEs go through independent nomination committee
Policy to have ESOP in privatized companies and large proportion of share distribution to the public to counter balance state ownership

21. Facts – Governance of SOEs (cont.)
Information disclosure for listed SOEs
Companies with share allotment to foreign investors has to issue IAS financial statement audited by independent auditing firm
Annual reports prepared in Thai & English
Company's website for investor information
Encourage CG rating

22. III. Lack of Law Enforcement

23. Facts – Law Enforcement
Enforcement was actual weakness i.e. no management of listed companies has been jailed,
BUT
Wrongdoings have been sanctioned by other means
Administrative sanctions: SEC has been active and quite effective in making changes, e.g.
Suspension of professionals that failed to meet their due professional standards – auditors, financial advisors
Blacklisting wrongdoers from being management of listed co. or co. seeking to offer securities

24. Facts – Law Enforcement (cont.)
Financial penalties: fines imposed on long list of important cases like insider trading. Wrongdoers included large investors, reputable businessmen in the top wealthy families, politicians, minister, etc.
Criminal punishment: Takes time and involves many parties but changes are happening.
Short-term: Order that decision whether to prosecute important financial cases be made collectively by police officer, public prosecutor and regulator (SEC/ BOT /MOF as the case may be)
Long-term: 1. law amendment to expedite process and let a special unit/regulators have more investigative power Increase administrative and civil sanctions.

25. Sarbanes-Oxley VS. Thai Laws
Appendix 1
Sarbanes-Oxley VS. Thai Laws

26. Sarbanes-Oxley Act comparing with Thai Practice
SEC approved for the auditors of listed co.
F/S of listed co. must sign by auditors in SEC’s approval list - ICAAT establishes accounting and auditing standards
SEC reviews the working papers of auditors in IPO cases, complaint cases and application to be an approved auditor - When shortcomings are found, SEC reprimands or suspends the approval in serious case
Oversight of auditors
Thai situation
Sarbanes-Oxley Act

27. Sarbanes-Oxley Act comparing with Thai Practice
- Currently, no such provision exists. ICAAT is considering such a change.
- non-audit service - rotation of auditor - former employee of accounting firm
- One of the duties of audit committee stated in Code of best practice is appointing auditors.
- audit committees’ approval of services
Auditor Independence
Thai situation
Sarbanes-Oxley Act

28. Sarbanes-Oxley Act comparing with Thai Practice
SEC & SET regulations prohibit backlist and improper persons to be directors or executives
Bar unfitness directors or officers
- Authorized directors certify reports - Board of directors evaluate the internal control system
CEO/CFO - certify reports
- Independency : under SEC & SET regulations - Duties : under Code of Best Practice
Corporate Responsibility Audit committee
Thai situation
Sarbanes-Oxley Act

29. Sarbanes-Oxley Act comparing with Thai Practice
Most of annual reports prepared in English version and disclose promptly via electronic means e.g. website
- rapid disclosure in plain English
include in annual reports
- internal control report
report within 3 working days
- securities holding report
prohibited by Public Company Act
- personal loans for executives
follow the Thai GAAP which comply with IAS
Disclosures - off B/S transactions
Thai situation
Sarbanes-Oxley Act

30. Sarbanes-Oxley Act comparing with Thai Practice
F/S : SEC review all quarterly and annual F/S
Form 56-1 (same as 10-K) and Annual Report : SEC review 1/3 of listed companies each year depending on high impact companies
Disclosures (cont.) - periodic disclosures review
Thai situation
Sarbanes-Oxley Act