1. Corporate Governance in Thailand: Glancing Behind and Looking Forward
“CG Development in Thailand: The Three Disciplines”
September 13, 2006
Deunden Nikomborirak
Thailand Development Research Institute
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2. Outline of presentation
1. The face of Thai corporate governance
ownership structure
corporate conduct
governance performance
2.State and private sector initiatives in promoting good governance: the 3 disciplines
3. Economic, political and Social Challenges
4. Conclusions
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3. 1. The Face of Thai Corporate Structure & Governance
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4. Ownership Structure Concentrated ownership
family-control was prominent particularly in finance and securities and property
family-control declined in banking, finance and securities and property
foreign bank’s share increased in both banking and finance
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5. Corporate practices
Most common abuses were connected lending, connected transactions (siphoning of corporate funds).
More recent abuses: insider trading and share prices manipulations through custodian ot nominee accounts. According to Achavanuntakul (2006), 21.4% of total SET market capitalization is accounted for by nominees.
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6. Doing Business in Thailand (2006) by The World Bank
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7. Corporate Governance Report of Thai Listed Companies by Thai Institute of Directors
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8. 2. Initiatives taken to promote Good Corporate Governance
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9. 3 pillars supporting corporate governance
Regulation (SEC/SET)
Market discipline (SRI)
Self-restraint ( firm-level corporate conduct code)
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10. Regulations
Many legal loopholes exist (definition of connected transactions, connected persons, definition of price manipulation, lack of regulatory authority to demand disclosure of UBOs)
legal procedures not conducive to prosecution (criminal sanctions only, reliance on police force for investigation and attorney for to file a lawsuit)
legal amendments in the pipeline.
The SEC had resorted to preventive measures and administrative sanctions.
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11. Regulations
Examples of preventive measures for connected transactions : requirements for submission of transactions that received shareholders resolutions, review of connected transactions and auditors’ reports.
For illegal operation through nominees: “know your customer (KYC) & customer due diligence (CDD) requirement for brokers”
Example of administrative sanctions: fines and black-listing.
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12. Regulations
Shortcomings of administrative measures: lack of transparency, social sanctions, market discipline, case precedence and prone to discriminatory treatment
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13. Regulations
SET imposes many regulations governing disclosures and board structure -- i.e., audit committee, independent directors, governance assessment and shareholders’ resolution required for large connected transactions .
Shortcomings of SET measures: no clear penalties.
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14. Market-discipline corporate governance rating (by TRIS)
good governance awards, disclosure awards, popular awards.
reduction in fees and compensation for rating fees.
But too few companies participated.
Establishment of Institutional Investor Club and Investor Association.
IIC still has no investment criteria and IA
lacks personnel to pursue governance work
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15. Self-restraint
Only a handful of Thai companies have governance code. According to Corporate Governance Report of Thai Listed Companies 2005”
3/4 of surveyed listed companies explicitly mentioned obligations to shareholders
2/3 mentioned obligations to customers
< 1/3 mention safety and welfare of employees
1/5 mentioned environmental issues and compliance in their public communications
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16. 3. Economic, political and Social Challenges
Lack of law enforcement means CSR does NOT pay (although according to Corporate Governance Report of Thai Listed Companies 2005 – firms with higher governance scores performed better)
Certain government policies inconsistent with good corporate governance (Foreign business Act, Minister’s Equity Share act,etc.)
Culture of patronage contribute to widespread use of nominees.
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17. Major Obstacles to Business Growth
A Survey on Corruption and Bribery in the Business Sector : University of Thai Chamber of Commerce, 2000

18. Economic, political and Social Challenges
Limited long-term investment and active institutional investors means Socially Responsible Investment is RARE. (12% Institutional investor)
Lack of regulatory independence
government political agenda versus SEC’s regulatory agenda
investigation in cases involving politicians or large companies with strong political connections
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19. Economic, political and Social Challenges
More recently, boycotting and social pressures, rather than SRI, are playing increasing role in fostering CSR .
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20. 4. Conclusion
Independence of regulatory body and legal amendments are crucial for effective law enforcement.
SEC’s authority should be broadened with respect to prosecution and identification of UBOs.
“soft measures” can go a long way in regulation and in promotion of self-discipline, but has limited bite.
Market-discipline requires (1) disclosures of corporate misconduct and abuses and (2) SRI
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21. 4. Conclusion
In the absence of market-discipline, the task will inevitably fall heavily on SEC and SET.
SRI to be spearheaded by large state pension and investment funds.
NGOs and civil society can play very important roles in providing “social discipline” where regulatory oversight and SRI are absent or ineffective.
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22. THANK YOU
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