2006 Asian Roundtable on Corporate Governance
CG Development in Thailand: the Three Disciplines
Regulatory Discipline Fostering Enforcement Mechanisms:
The Regulatory Challenge
Chalee Chantanayingyong
Securities and Exchange Commission, Thailand
Bangkok, Thailand
September 13, 2006
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Presentation Overview
 Overview: CG Development
in Thailand
 Enforcement: Difficulties
& Measures
 An Unfinished Agenda
3
Overview:
CG Development in Thailand
CG: National Agenda in 2002
Chaired by
Prime Minister
Subcommittee on Law
Amendments and
Enforcement
Subcommittee
on Accounting
Standard
Subcommittee on Best
Practices of Listed
Companies
Subcommittee on
Improvement of
Corporate Governance
of Commercial Banks,
Finance Companies
and Insurance
Companies
Subcommittee
on Improvement
of Corporate
Governance
of Securities
Companies
Subcommittee on
Investors Education
and Public Relations
and on Corporate
Governance in
Thailand
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3 Pillars for Better Corporate Governance
Regulatory Disciplines
Good
CG
Market Disciplines
Self Disciplines
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Symptoms
 CG culture
 Family-owned business and
lots of related transactions
 Inadequate level of knowledge
among directors
Investors activism
 Both retail and institutional
investors are not active
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Symptoms (Cont’d)
 Enforcement
 Insufficient enforcement mechanism
 Legal proceedings involve too many
agencies
 Lack of understanding for capital
market fraud among agencies
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International View Points
 World Bank
 Report: CG – ROSC
 Published: September 2005
 Countries participated: 37 countries
 ACGA + CLSA (Hong Kong)
 Report: CG Watch
 Published: annually (September-October)
 Countries participated: 10 Asian countries
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CG – ROSC
Source: CG-ROSC assessment of Asian countries during 2001-200510
CG – ROSC (cont’d)
Overall assessment
• Significant corporate governance reforms
have been introduced in recent years
• Thailand continues to make progress in
improving corporate governance
• The reform agenda, however, remains
incomplete
• Changes in the regulatory framework need to
be translated into actual practices
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CG – ROSC (cont’d)
Recommendation – law enforcement
• Establish corporate governance
enforcement priorities
• Improve enforcement for violation of laws
• Introduce administrative and civil
sanctions
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CG Watch (Oct. 2005)
Countries
Rules
&Regulations
Enforcement
Political/
Regulatory
environment
Adoption of
IGAAP
Institutional
mechanisms
&CG culture
Country
score
Singapore
7.4
5.6
7.3
9.5
5.7
7.0 (1)
Hong Kong
6.4
5.8
7.8
9.1
5.4
6.9 (2)
India
6.6
5.6
6.5
7.5
4.3
6.1 (3)
Malaysia
5.9
4.9
6.0
7.5
3.8
5.6 (4)
Taiwan
5.3
4.9
6.5
5.9
3.3
5.2 (5)
Thailand
5.8
4.0
5.0
7.3
3.5
5.0 (6)
Korea
5.1
4.0
4.3
8.2
3.9
5.0 (6)
Philippines
5.3
2.2
5.0
8.2
3.1
4.6 (7)
China
4.3
4.0
5.0
6.8
2.2
4.4 (8)
Indonesia
3.3
2.9
3.0
6.8
2.8
3.713(9)
CG Watch (cont’d)
Thailand’s assessment during 2001-2005
Year
Rules&
Regulations
Enforcement
Political/
Regulatory
Environment
Adoption
of IGAAP
CG
Culture
Country
score
2001
7.0
2.0
3.0
5.0
4.0
3.7
2002
7.5
2.0
3.0
5.0
4.0
3.8
2003
7.5
3.0
4.0
6.0
4.5
4.6
2004
6.1
3.8
5.0
8.5
3.5
5.3
2005
5.8
4.0
5.0
7.3
3.5
5.0
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Enforcement:
Difficulties & Measures
Difficulties
Criminal Proceedings
 Power of authorities
SEC
Police
Public
Prosecutor
Court
• SEC does not have sole authority
to proceed criminal crimes
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Criminal Proceedings (cont’d)
 Lengthy legal process
 Many steps and many agencies involved
 long duration of process
 Frequent rotation of officials
 lack continuity
 Complicated cases
 need knowledge and understanding of
business activities
 Problems in bringing offenders to justice
 Difficulties in proving criminal crime
 need high standard of prove
 Witnesses unwilling to get involved
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Measures
3 Steps Scheme
The SEC’s alternative measures
to strengthen enforcement power
Prevention
Intervention
Sanction
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I. Prevention
 Review financial statements
 100% review of auditors’ report
(quarterly & yearly financial statements)
 In-depth review for irregularities
 Extensive monitoring of auditors
 100% review of auditors’ working papers
of IPO companies
 Inquiry auditors for unclear or
ambiguous messages
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I. Prevention (cont’d)
 Stringent monitoring of audit
committee’s performance
 Updating on “connected transactions”
rule
 Closely monitoring connected
transactions
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II. Intervention
 Re-issuance of financial statements
 Result:
In 2004, 25 companies
In 2005, 37 companies
In 2006, 13 companies
 For questionable RPT, top management
needs to clarify
 Result:
In 2004, stopped 6 inappropriate
transactions worth 3,000 million baht
In 2005, stopped 1 inappropriate
transactions worth 350 million baht
In 2006, stopped 1 inappropriate
transaction worth 180 million baht
•
•
•
•
•
•
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II. Intervention (cont’d)
 Share price manipulation
 On-site inspection of securities
companies to break market rumour
 If there is rumour or leakage, listed
company needs to clarify
 Closely monitor listed companies’
disclosure to prevent financial statement
cosmetic
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III. Sanction
Besides the criminal proceedings,
the SEC introduces an administrative
proceedings to be an alternative tool
 Introduction of “Director Registration
System”
 Appointment of “Directors
Responsibility Committee”
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What is Director Registry?
 All listed + IPO companies have to
register their directors and top
executives in “Director Registry”
through the SEC website
 List of directors & top executives
shown on the SEC website
Whitelist
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What is Director Registry? (cont’d)
 Persons who conducted a malpractice
e.g. breach of fiduciary duties or fraud
or dishonest management are
unqualified persons
 SEC will “remove” such persons from
whitelist to prevent any further damage
to investors
Blacklist
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Director Registry: Result
Whitelist
~ 8,000
persons
Blacklist  126 persons
* Corporate fraud  43
* Unfair securities trading  24
* Operating securities business
without license  24
* Denounced by other
regulators (BOT, SET)  35
Source: Director Registry System as of Aug 31, 2006
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Directors Responsibility Committee
 Objective
 To provide check & balance
mechanism
 Duties
 To advise SEC on sanctioning
of directors
 Composition
 9 members comprising both
regulators and business leaders
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An Unfinished Agenda
An Unfinished Agenda
 Public’s perception & expectation
on enforcement power
 Continuous training and education
among enforcing agencies
 Modernizing the range of regulatory
enforcement power
 Empowering investors with more
efficient tools
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