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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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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1. The Face of Thai Corporate Structure &
Governance
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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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Corporate practices


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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.
Doing Business in Thailand (2006) by The World Bank
10
8
10
5.2 6.3
4.4
6
4
5
6 6.1 6.6
6
5.2
6
Thailand
Regional
2
OECD
2
0
Disclosure
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Director Liability
Shareholder Suits Investor Protection
Corporate Governance Report of Thai Listed Companies
by Thai Institute of Directors
100
80
60
74.5
65.8
68.8
83.1
53.5
40
20
0
Rights of
Equitable Role of Stake Disclosure and Board
Shareholders Treatment of holders Transparency Responsibilities
Shareholders
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2. Initiatives taken to promote
Good Corporate Governance
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3 pillars supporting corporate
governance



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Regulation (SEC/SET)
Market discipline (SRI)
Self-restraint ( firm-level
corporate conduct code)
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
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administrative sanctions.

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
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black-listing.

Regulations

Shortcomings of administrative measures:
lack of transparency, social sanctions,
market discipline, case precedence and
prone to discriminatory treatment
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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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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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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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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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Major Obstacles to Business Growth
Violate copyrights
Avoid labour taxes/regulations
Subsidies
Unfair trade practice
Regulatory Avoidance
Predatory pricing by MNCs
Access to credit
Tax avoidance
Price undercut
0
0.5
1
1.5
2
2.5
3
A Survey on Corruption and Bribery in the Business Sector : University of Thai Chamber of
Commerce, 2000
3.5
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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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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4. Conclusion



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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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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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THANK YOU
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