Leading the Way is a column written by PricewaterhouseCoopers professional staff. It appears in the Business section of the Bangkok Post twice each month. The column provides specialised advice to corporate decision-makers in Thailand on global and local business trends.
This article appeared in the January 23, 2007 issue of the Bangkok Post.
By Varunee Pridanonda, Marius Kunneke and Neil Thamotheram
This is the second in a series of two articles taking a close look at issues that affected business in Thailand last year, and what to expect from these issues in 2007. Today we will examine corporate governance.
At the start of 2006, there was favourable business sentiment in Thailand. The Stock Exchange of Thailand (SET) had finished 2005 with a 6.83% annual gain, improving markedly on the 13.4% loss of the year before. The year ahead looked good for the SET, with a forecast growth rate of 7% to 8%.
The year ahead, however, was turbulent. Throughout 2006, a number of significant events took place, such as the demonstrations against the elected government (Feb 4), the military coup (Sept 19), and the introduction of reserve requirement restrictions on short-term capital inflows (Dec 18). These events contributed in the loss of investor confidence in Thailand, its business practices and ethics.
The question today is how these events affected corporate governance practices over the past year, and what kind of impact they could have in the year ahead.
In 2006, most Asian countries, including Thailand, saw a rise in the number of corporate governance cases, such as share manipulation, insider trading, nominees, misleading statements and accounting fraud. Prompted by this increase, the SET revised its ''Principles of Good Corporate Governance for Listed Companies''. This document now covers all the important issues concerning good corporate governance, and describes the means to enable companies to implement the principles.
The 2006 corporate governance regulations have affected recruitment for high-level positions in Thailand. The law and listing standards now placed additional responsibilities, such as audit committees, on company directors. Such requirements clearly discouraged some people from taking on these positions, and thus companies throughout Thailand dealt with the challenges of trying to recruit directors.
Although the corporate governance practices of Thai companies have improved continually, they still have a long way to go in their development. In fact, not all SET-listed companies have corporate governance committees to drive and implement corporate governance into their practices.
More improvements are expected to be made in this sector in 2007, as the Thai government is clearly supporting the building of a culture of good ethics and integrity. On Jan 16, 2007 the cabinet approved a bill against corruption that will help root out conflicts of interest between politicians, state officials and their associates. The bill aims to prevent the abuse of power by individuals to gain personal and vested interest.
There is no doubt that regulators are committed to corporate governance, and will do as much as they can to promote and enhance the building of a culture of good ethics and integrity. These include redefining the roles and responsibilities of boards, board committees and management. This will provide them with a clearer focus on their primary responsibilities, guidance on what they need to do, and how to do it successfully.
Boards of directors will have their roles redefined in line with the needs of corporate governance. They will sharpen their focus on their primary responsibilities and develop a clearer understanding what they need to do, how to do it successfully, and which pitfalls to avoid.
The biggest driver for multinational companies in Thailand to improve governance comes from outside Thailand by way of the Foreign Corrupt Practices Act (FCPA) in the United States and other international anti-bribery legislation, e.g. the International Anti-Bribery Act of 1998 or the anti-bribery conventions of the Organisation for Economic Co-operation and Development (OECD). These acts require companies with publicly traded stock to comply.
The companies in the scope of these laws with operations outside their borders have to ensure all entities and associates comply with these acts. This will require some companies operating in Asia to amend their business practices and way of doing business to comply. These changes may affect local companies in Thailand and they may have to amend their business ethics and practices or lose business for themselves and even for the country.
It is our view that the challenges are:
- Adopting the OECD conventions on bribery and introducing similar laws as the FCPA;
- Monitoring compliance with good corporate governance and assessing its effectiveness; and
- Finding the appropriate sanctions through laws and regulations to reward or penalise directors if their companies or organisations do not have, or comply with, good governance principles.
We believe that it should be a core value of any organisation to implement, comply with and live by good governance principles, irrespective of the example set by peers, or the political and business environment in which they operate.
