In the News: 2002

Leading the Way

Bangkok Post
9 July 2002

Is business in Thailand prepared to review and revise long established boardroom and management practices that are not seen as reflecting good governance?

Are we still going to be challenging or questioning the benefits of good corporate governance in three years time?

These are concerning questions. The market regulators - the Stock Exchange of Thailand, the Securities Exchange Commission and the Bank of Thailand - each continue to appropriately and actively promote the need for and benefits of good
corporate governance.

The Thai Institute of Directors' Association offers a comprehensive and successful training programme that has heightened the awareness and understanding of corporate governance. But despite these efforts, the extent to which there is genuine acceptance of and commitment to best practice among listed companies and state-owned enterprises in Thailand is restricted to too few organisations.

Nowhere was this more apparent than at the recent awards ceremony for the Third Best Practices Award on Corporate Governance and Audit Committee of the Year 2001.

A worthy event for the country that should have had high priority on the Thai corporate calendar.

However, supporters were informed that just over 30 organisations participated in 2001, disappointingly, a decline on the previous year.

Those who participated are to be congratulated. They showed a willingness to be
assessed and will benefit from that experience. What does it take to be a corporate leader in local and global markets?

Six key principles were highlighted at the Best Practices' event: Accountability; responsibilities, management to the board and the board to shareholders; equitable treatment for shareholders; transparent disclosure; promotion of "Best Practices"; and creation of long-term value to all stakeholders.

For corporations in any part of the world, it can be challenging to incorporate these elements as guiding principles for management and their boards.

It's not easy to be open to change, and to be sufficiently committed to achieve high scores in all of these areas.

Moreover, the reality is, nobody is compelling organisations to change. But the world is changing, and companies that are not pro-active about embracing these principles today will simply fall behind and fail to secure competitive positions in the future.

I believe another factor that deserves attention in the good corporate governance
discussion is the responsibility of shareholders. We know that for an organisation to be successful and deliver value to shareholders, there must be a balance between board and management, with both working hard to represent shareholder's rights.

But shareholders have responsibilities too. They must be willing to participate in annual meetings and, if easy access to meetings is not available, they can lobby to change that pattern.

Shareholders must devote time and effort to ensure they receive and understand meaningful information about the companies they support.

In other countries, shareholder activism is thriving, and pressure is exerted by large and small shareholder groups to implement good corporate governance.

What about the bottom-line? What is the payoff for businesses that take up the
corporate governance challenge?

In commercial markets, there are tangible and achievable benefits: Easier options for raising capital, lower cost of funds, and improved business performance - all leading to a positive impact on share price.

And, if just the companies listed on the SET were to enjoy these benefits, the most direct beneficiary would be Thailand itself, as it became a preferred location for informed local and global investors.

There are motivating statistics to back up the rationale for these comments. Peter Sullivan, chairman and chief executive of Lombard Investments, in a recent presentation, referred to a survey undertaken in late 1999 in co-operation with the Institutional Investor's Asia Pacific Institute.

The survey showed what mark-up institutional investors were willing to pay for companies demonstrating good corporate governance.

Here are the results based on country and premium for good corporate governance: Japan 20%; Taiwan 20.2%; Korea 24.2%; Malaysia 24.9%; Thailand 25.7%; and Indonesia 27.1%.

These numbers speak for themselves. In Thailand, institutional investors were willing to pay a premium of over 25% for companies that exercised good corporate governance.

There isn't one solution for everyone. A successful corporate governance framework needs to reflect the culture, style, and issues of each company as it strives to remain or become tomorrow's leader.

The framework exists, and experienced advisers can partner leading companies to build the right model. With the right model there can be significant rewards for all stakeholders - for management, shareholders, customers, employees, creditors, the business community in general, and Thailand as a whole.