Practicing good corporate governance offers benefits to the company and the capital market as follows:
Benefits to the company: Cost-effective fund mobilization and thus lower production costs and stronger competitiveness.
Benefits to the capital market: Market confidence and liquidity, higher purchasing demands and product prices, and thus more attractive channels for corporate finance.
Corporate Governance International Standards
The OECD Principles of Corporate Governance is an international standard adopted by many countries. The Stock Exchange of Thailand, for example, applied them to the making of the SET Corporate Governance Guidelines for Listed Companies, which were launched in 2006 and revised in 2012 to further meet the criteria of ASEAN CG Scorecard. The OECD Principles comprise five categories as follows:
1. The Rights of Shareholders
Principle: As an owner of the company, shareholders shall appoint the board of directors to be their representatives to oversee and manage the company. Shareholders are eligible to make decisions on any significant corporate changes. Therefore, the company should encourage shareholders to exercise their rights.
2. The Equitable Treatment of Shareholders
Principle: All shareholders, including those who are executives and non-executives and foreign shareholders, should be treated fairly and equally. Minority shareholders whose rights have been violated should be redressed.
3. The Roles of Stakeholders
Principle: Stakeholders of a company should be treated fairly in accordance with their legal rights. The board of directors should provide mechanisms to promote cooperation between the company and its stakeholders in order to create wealth, financial stability and sustainability of the firm.
4. Disclosure and Transparency
Principle: The board of directors should ensure that all important information relevant to the company, both financial and non-financial, is disclosed correctly, completely and transparently on a timely basis through easy-to-access channels that are fair and trustworthy.
5. The Responsibilities of the Board
Principle: The board of directors plays an important role in corporate governance for the best interest of the company. The board is accountable to shareholders and independent from the management
International Corporate Governance Assessment
The Thai capital market has participated in several internationally recognized assessment programs, including CG ROSC (Report on the Observance of Standards and Codes-Corporate Governance Country Assessment) by the World Bank and CG Watch by the Asian Corporate Governance Association in collaboration with CLSA Asia-Pacific Markets. The overall results have shown that the Thai capital market has made significant progress in corporate governance oversight of listed companies and has earned its leading position in the region thanks to the improvement of CG standards through revision of laws, regulations and guidelines in consistent with international benchmarks.
A continuing focus is also given to local assessment programs on corporate governance practices of individual listed companies in line with international standards, for example, the Corporate Governance Report of Thai Listed Companies by the Thai Institute of Directors and the AGM (Annual General Shareholders’ Meeting) Assessment by the Thai Investors Association.
Upon establishment of the ASEAN Economic Community (AEC) to create collaboration among ASEAN countries in many key areas including capital market, the ASEAN Capital Market Forum (ACMF) developed an implementation plan to connect ASEAN capital markets and create mutual recognition of regulations and standards among its members. The collaboration has also included raising quality of corporate governance practices of ASEAN companies to be on par with international standards. One of the useful tools initiated by the ACMF is the ASEAN CG Scorecard, which gauges the corporate governance practices of ASEAN companies and discloses the assessment results for the benefit of investors’ decision making.
Corporate Governance Code for Listed Companies 2017
Thailand’s capital market has been using the SET’s Principles of Good Corporate Governance as its main mechanism for creating corporate governance for listed companies, and with satisfying results. In the beginning, the SET issued 15 corporate governance principles, which then further developed into the Principles of Good Corporate Governance 2012, divided into five topics in accordance with the OECD Principles at that time. To motivate listed companies to comply with these CG principles, the SEC requires listed companies to disclose their information in Form 56-1 in accordance with such CG principles, based on ‘comply or explain’. The Thai Institute of Directors Association evaluated the results from complying with the corporate governance principles, based on publicly disclosed information, in the Corporate Governance Report (CGR), which gives ratings of one to five stars and discloses the name of companies that receives three stars and above. This evaluation has encouraged listed companies to focus on developing their corporate governance to achieve higher results, together with the supporting measures, training activities, and rewards from various organizations including the SEC, SET, IOD, the Thai Listed Company Association (Thai LCA), the Thai Investor Association, and other related organizations. As a result, the overall corporate governance of listed companies in Thailand has emerged as a leader in this region. Although the development of corporate governance has been successful so far, further improvements will mean overcoming changes in social structure and global environment deterioration, which is partly caused by industrial development, capitalism, and business expansion, has made many national and international organizations and investors demand more social and environmental responsibilities, in addition to good corporate governance.
Therefore, the SEC realized the need to issue a new CG Code as guidelines for a board, who is the leader accountable for corporate governance mechanisms. The CG Code would integrate social and environmental issues into the business process to set the company’s direction, strategy, operating process, monitoring, and reporting, providing a framework for the board to govern listed companies to operate responsibly for the environment and society and to create sustainable value.
Task Force for Sustainability in Listed Companies
Corporate Governance Code for Listed Companies 2017