Transcript Corporate Governance in Thailand

Corporate Governance
in Thailand:
More Done Than Talked
January 2003
1
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
Comparison table
– appendix 1
international levels – some language
barrier exists
 Measures include both carrot and stick :
incentives and tightening enforcement
2
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
3
National CG Committee
 High powered committee
– 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
4
Measures Taken to
Reinforce Practice of CG
Principles
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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
6
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
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II. Market Disciplines: (cont.)
 Promotion of CG rating: first in Asia
– Help investors differentiate companies
Rating criteria
– Peer and social pressure to enhance CG
appendix 2
– Rating done on actual practice of all CG principles
– Incentives for firms rated 7& up from govt. agencies
– 3 rated companies and 10-12 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.
8
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
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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
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III. Regulatory Disciplines: (cont.)
 Transparency & Disclosure
Thai GAAP VS.
– Thai GAAP consistent or similar to IAS IAS - appendix 2
– 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
11
Concerns Frequently Raised by
Foreign Investors
I.
Thai listed companies are family-owned
and managed
II.
Governance of privatized companies
III. Lack of law enforcement
12
I. Thai listed companies are
family-owned and managed
13
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
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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
25-50% independent directors
 22% of companies had an independent
chairman, compared to 15% in the US
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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
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II. Governance of Privatized
State-Owned Enterprises
17
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.
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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
19
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
20
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
21
III. Lack of Law
Enforcement
22
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
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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. 2. Increase administrative and civil sanctions.
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Appendix 1
Sarbanes-Oxley VS. Thai Laws
25
Sarbanes-Oxley Act comparing with Thai Practice
Sarbanes-Oxley Act
Oversight of
auditors
Thai situation
- 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
26
Sarbanes-Oxley Act comparing with Thai Practice
Sarbanes-Oxley Act
Thai situation
Auditor Independence
- non-audit service
- rotation of auditor
- former employee of
accounting firm
- Currently, no such provision exists.
- audit committees’
approval of services
- One of the duties of audit committee
stated in Code of best practice is appointing
auditors.
ICAAT is considering such a change.
27
Sarbanes-Oxley Act comparing with Thai Practice
Sarbanes-Oxley Act
Corporate
Responsibility
Audit committee
Thai situation
- Independency : under SEC & SET
regulations
- Duties : under Code of Best Practice
CEO/CFO
- certify reports
- Authorized directors certify reports
- Board of directors evaluate the internal
control system
Bar unfitness directors or SEC & SET regulations prohibit backlist and
officers
improper persons to be directors or
executives
28
Sarbanes-Oxley Act comparing with Thai Practice
Sarbanes-Oxley Act
Disclosures
- off B/S transactions
Thai situation
follow the Thai GAAP which comply
with IAS
- personal loans for executives prohibited by Public Company Act
- securities holding report
report within 3 working days
- internal control report
include in annual reports
- rapid disclosure in plain
English
Most of annual reports prepared in
English version and disclose promptly
via electronic means e.g. website
29
Sarbanes-Oxley Act comparing with Thai Practice
Sarbanes-Oxley Act
Disclosures (cont.)
- periodic disclosures review
Thai situation
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
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