Board roles and responsibilities
Q: Who does the term, “executive" mean in the Securities and Exchange Act B.E. 2535 (1992) (SEA)?
A: The term, “executive" means a manager or a person responsible for the management of the company, whether de facto or as authorized by the board of directors. Pursuant to Section 89/1 of the SEA, the Notification of the Capital Market Supervisory Board No. Tor Jor. 23/2551 defines the term, “executive" as the manager or the next four executives succeeding the manager, the persons holding equivalent positions to the fourth executive, and the persons holding the managerial or equivalent positions in the Accounting or Finance Departments.
Q: Who does the term, “executive of subsidiary" mean?
A: “Executive of subsidiary" has the same meaning as executive of company.
Q: Does the term, “director" include “director of creditor" in case of a company entering the rehabilitation process?
A: In case of a company entering the rehabilitation process in compliance with the Bankruptcy Law, the provisions in relation to duties and responsibilities of director and executive under Section 89/22 shall apply to the following persons:
(1) Interim executive, planner, plan administrator and interim plan administrator under the law on bankruptcy. In case that such persons are a juristic person, it shall include relevant directors and executives of such juristic person;
(2) Liquidator. Therefore, in case that the creditor is the plan administrator or director/executive of the plan administrator, he or she shall have the same duties and responsibilities as director/executive of the company.
Q: What are specific duties of directors according to the SEA?
A: The SEA does not stipulate any specific duties for directors but provides a safe harbor for directors and executives who have performed their duties with care and loyalty and more severe penalties may be imposed on directors or executives who commit a fraud.
Q: In case where the board of directors hires an adviser (e.g., financial adviser and legal adviser) and makes a decision based on the given advice, will the board be considered to have performed duties with care? If the decision has been made based on the information honestly believed to be sufficient, will the adviser be responsible to shareholders?
A: Directors' decision based on the information received from an external adviser may constitute performance of duties with due care if it can be demonstrated that the decision has been made in reliance on the information honestly believed to be sufficient. Nevertheless, to prove duty of care must take into account the following two conditions:
(1)The decision has been made with honest belief and reasonable ground that it is for the best interest of the company and;
(2)The decision has been made without own interest, whether directly or indirectly. In hiring any adviser to give advice to the board of directors under the duty of care, the board should consider (a) knowledge and ability of the adviser, and (b) reasonableness of the assumption (Section 89/9). The adviser hired by the board must be responsible to the board. Should the adviser is found to have provided false information, the board may pursue civil proceedings to obtain a compensation. In any case, financial advisers and legal advisers must comply with their respective professional standards, and failure to do so would subject them to penalty imposed by their respective regulators.
Q: What does the term, “making a decision for the best interest of the company" mean?
A: It means that the decision has been made with honest belief and reasonable ground that it is for the best interest of the company, which includes the interest of the shareholders.
Q: In case an executive director commits a dishonest act without being detected by the auditor and the internal auditor, but later is found out by the public, will the independent director be held responsible for such misconduct as well?
A: An independent director is also a company director and therefore must perform duties with care and loyalty. In any case, if the independent director can prove that he or she has performed duties to the best of his or her knowledge and experiences that could be a safe harbor for him or her.
Q: To provide a safe harbor for directors and executives, how detailed should the minutes of meetings be? Should the opinions of each director and executive be recorded?
A: Meeting minutes can be a reference to directors' opinions. Therefore, directors should ensure that significant issues raised in the meeting are completely recorded, particularly in the case that any director disagrees with the overall resolution, as such record can be used as a proof that the director has expressed his or her disagreement in the meeting.
Q: Would a director who has performed duty with “honest belief," whether on a reasonable ground or negligence, without wrongfully seeking benefits, be considered guilty?
A: In considering whether each director or executive has performed duties responsibly with due care pursuant to Section 89/9 of the SEA, the following factors must be taken into account:
(1) Decision has been made with honest belief and reasonable ground that it is for the best interest of the company;
(2) Decision has been made in reliance of information honestly believed to be sufficient; and
(3) Decision has been made without own interest, whether directly or indirectly, in such matter.
To obtain protection under the provisions above, directors and executives must have all of the above characteristics in their decision.
Q: What is the objective of the requirement for directors and executives to report their interest in relation to the management of the company according to Section 89/14?
A: The objective of such requirement is to provide company secretary with information for monitoring directors' and executives' fiduciary duty performance in accordance with the SEA to prevent decision making influenced by personal interest, whether directly or indirectly. Reporting on conflicts of interest of directors and executives shall be in accordance with the regulations prescribed in the Notification of the Capital Market Supervisory Board.
Q: What is the form for reporting the interest of directors and executives? How often is the reporting required? (e.g., monthly, quarterly or upon consideration of each related party transaction.)
A: The Notification of the Capital Market Supervisory Board allows the board of directors to determine specific details for reporting of interest suitable for the company's business and specifies that company directors and executives report their interest in compliance with the rules and procedures laid out by the board of directors.
Q: If the board of directors of a listed company has resolved to approve or has approved in principle to allow the management to enter into a related party transaction or an agreement under a general trading condition, whereby a pre-approval from the board of directors is required, how often should the board of directors review such resolution or principle?
A: The resolution or principle can be perpetually applied. However, the management should propose to the board of directors a review of such resolution or principle if the company views that the approved resolution or principle is unfit for the company's current situation, e.g., a larger transaction size and a new type of transaction in response to business expansion.
In any case, a listed company may seek advice and request the board of directors to review the appropriateness of the resolution or principle annually.
Q: How should the company entering into a related party transaction disclose the board of directors' opinion?
A: The board of directors should express an opinion explicitly whether or not a related party transaction is reasonable and for the best interest of the company. If the Audit Committee or any director has a different opinion, the company should disclose such opinion as well, and if the transaction size requires an approval from the shareholders' meeting, the board of directors and the Audit Committee must clarify beyond such statement as “it is deemed appropriate to seek an approval from the shareholders' meeting."
Q: What is the method for calculating a transaction size for a listed company providing financial aid and guarantee for a related person?
A: As the listed company providing financial aid and guarantee to a related person carries the risk of loan default, the calculation should cover all damage that may incur on the guarantor, including the principal and interest and/or the guaranteed amount. Moreover, if the listed company's related person is a company that has another related person holding a certain amount of shares, the method for calculating a transaction size is the same as the aforementioned without the need for separate calculation according to the amount of shareholding in such company.
Q: In a capital increase that the existing shareholders are given the right to subscribe new shares in proportion to their existing holding (right offering) and major shareholders subscribe for additional shares exceeding their right, will this be considered as entering into a related party transaction?
A: The transaction will not be considered as a related party transaction if every shareholder is given the right to subscribe new shares in excess of their right. The allocation of the remaining shares to shareholders who subscribe in excess of their subscription right must be in proportion to the existing shares held by the shareholders (Pro Rata Basis).
Q: Is the stock option plan (ESOP) for directors and executives considered a related party transaction?
A: ESOP for directors and executives is considered a related party transaction but exempted from compliance with the requirements on related party transaction.
Q: A listed company plans to construct a new office and enters into a land lease contract with major shareholders. The lease contract specifies that the ownership of the building will be transferred to the land owner upon expiration of the contract. The company hires a third party contractor to build the office. How should the transaction size for the acquisition of assets and related party transaction be calculated?
A: In calculating the transaction size for the acquisition of assets, the company should combine the land's lease value throughout the contract maturity with the construction value for the new office.
As the contract specifies that the ownership of the construction and the assets will be transferred to the landlord who is a major shareholder and related person of the company when the contract expires, the transaction size should include the rent payment throughout contract maturity and construction costs for the new office.
Q: How should the term of office of the independent director be stated?
A: According to the best practices regarding board structure, the board of directors should clearly state the term of office of the independent director, for example, a three-year maximum for each term and a limit of three consecutive terms unless the board of directors views that holding an office more than three consecutive terms would not affect the director's independence. In that case, the board should publicly disclose their opinion for the shareholders' acknowledgment.
Q: If the independent director of the parent company is also a director of a subsidiary company, is he or she still considered independent?
A: Independent director of the parent company may hold the position of non-executive director or independent director of a subsidiary company. However, the information of independent directorship in the group of companies and the total amount of the accumulated remunerations must be disclosed in the annual registration statement (Form 56-1) and annual report (disclosure of separate remuneration from each company is not required. However, if the independent director of the parent company also serves in the audit committee and its subsidiary is also listed, such independent director is not allowed to serve in the audit committee of the subsidiary to prevent a conflict that may arise from monitoring and protecting shareholders' interest of both companies.
Q: What are the criteria for the consulting firm of an independent director to provide services for the company?
A: If the consulting firm provides services after the independent director has taken office, such action will be considered a related party transaction and the independent director will be considered a person with a conflict of interest and therefore no longer independent unless the board of directors views that the service value is immaterial and does not affect the independence of the director.
Q: Is it permissible for a listed company to pay more than 2 million baht for the services of the independent director's firm?
A: According to the independent director's rule, a listed company is not allowed to use services such as legal advice from the independent director's firm, including the firm where the independent director is the major shareholder and the listed company has paid an annual service fee of more than 2 million baht. However, to grant flexibility for different types of businesses, the board of directors may consider relaxing such requirement if such relationship does not affect the independent view of the independent director. In any case, if such independent director's term of office is extended, the following information must be included in the agenda attached onto the shareholders' meeting notice, the annual registration statement and the annual report:
- Business relationship or professional services provided to the company;
- Reasons and necessity for reappointing such independent director;
- Board's opinion regarding the independence of such independent director's duty performance and opinion giving.
(More information in the Notification of the Capital Market Supervisory Board No. Tor Jor. 28/2551 Re: Application for and Approval of Offer for Sale of Newly Issued Shares dated 15 December 2008).
Q: What should the company do if the same person holds the positions of Chairman and CEO?
A: The company should clearly state the roles and responsibilities of each position, particularly regarding the power of decision making and the approval for credit limit, to prevent the absolute power of either CEO or Chairman as it may impose risks to the company, especially in a significant matter that should involve the board of directors' consideration and decision making.
Q: Is a small company required to appoint the Nomination Committee and the Remuneration Committee?
A: The appointment of such committees depends on the necessity, appropriateness, and complexity of the business. A small company may choose to appoint an ad hoc committee instead to consider a matter on the agenda. A bigger concern is the stipulation of rules, procedures, and methods for clear and transparent consideration of board remuneration and nomination.
Q: Is it permissible for either of the said committees to consider the remuneration and the nomination of senior executives as well?
A: Yes. However, the board of directors should specify the scope of power and responsibilities of both committees clearly.
Q: Is it permissible for the board of directors to appoint a third party to serve in the Remuneration and Nomination Committees?
A: Yes. However, the company should note that the commitment of a third party can be an issue. To ensure transparency of duty performance, it is recommended that the majority members of these sub-committees comprise independent directors, and third parties could join as minority.
Q: What is a recommended criterion for specifying an appropriate board remuneration?
A: An appropriate remuneration should reflect the level of responsibilities and the performance of the board. It should also strike a balance between an attractive and reasonable incentive industry-wide for effective work delivery and the prevention of an unfair advantage over shareholders. In any case, the board remuneration needs the shareholders' approval.