Regarding financial transparency, Thailand has not directly address the weakness in the valuation method for long-life fixed assets which enables companies to carry out creative accounting by revaluing these assets upward to strengthen their balance sheet and to report gain on the income statement.  To prevent such creative accounting, the valuation of these assets should be based upon historical cost instead of allowing both historical cost and fair market value.    

In terms of self-restraint, a strict application of Buddhism principles to the conduct of businesses could greatly enhance corporate governance.⁶  In particular, if Thai managers strictly adhere to two of the Buddhism’s five precepts, no stealing and no false statements, there would be no misappropriation of companies’ assets and no fraudulent financial reporting.

Another cornerstone for good corporate governance is good governance among government officials.  Because Thailand has relatively high concentration of companies that have connections to politicians, there may be doubt regarding the integrity of directors and the effectiveness and impartiality of regulators in enforcing the laws (Phuvanatnaranubala, 2004a).  The recent trend of a concentration of power around the current Prime Minister, Thaksin Shinawatra, is also not healthy for good governance because the check and balances are being eroded.  Thaksin is showing increasingly autocratic tendencies and has been progressively expanding his control over the country’s major political and economic institutions (Business Asia, 2003).  Some of the banking sector’s most recalcitrant debtors are associated with his ruling party, Thai-Rak-Thai.  There is also lack of transparency in many areas including the long-term costs of his populist economic policies such as a revolving fund of one million baht ($23,380) per village to over 70,000 villages, a 30-baht-a-visit national healthcare program and a three-year debt moratorium for farmers.  Thaksin’s serious aversion to criticism, which has led to the suppression of press freedom since he came to power in early 2001, is also not good for democracy, a cornerstone for good governance (The Nation, 2002).  All of these and his anti-foreign sentiment could make foreign investors uneasy.   To address this concern and to exemplify good governance for the corporate sector, the Thai government needs to improve its own governance and transparency, and curb crony capitalism.

Conclusions

Thailand has done much to improve its corporate governance since the 1997 financial crisis.  The SEC and the SET have become more vigilant in protecting the rights of minority shareholders by revising their rules regarding connected transactions.  To further enhance shareholder rights, the SEC has proposed four important amendments to the Securities and Exchange Act of 1992.  The SEC has also become more proactive in enforcing securities regulation.  In addition, the SEC and the SET have tried to educate investors by providing valuable information about investments on their web sites.  As a result, small investors seem to be more cautious in making their investment decisions, and have become less passive in monitoring management.

The structure and responsibilities of the board of directors have also been greatly improved by the joint efforts of the Thai Institute of Directors Association (IOD), the SET and the SEC.    The IOD, which is a professional organization, is responsible for providing directors several training programs including Directors Certification Program.  Since 1999, the SET has required Thai listed companies to have: (1) at least one third of the board comprised of independent directors, and (2) an audit committee composed of at least three independent directors.  The SET also established the Code of Best Practice for Directors and the Best Practice Guidelines for Audit Committee, and has since 2002 required companies to disclose in their annual reports the implementation of 15 principles of good corporate governance.  The SET has also conducted workshops on these 15 principles and established a Corporate Governance Center to offer advisory services to listed firms.  The SEC’s approach to strengthening corporate governance is mainly voluntary by conducting campaign, distributing educational materials, and providing 50% discount on offering fees and annual fees to companies with high corporate governance rating.  Although the SEC has established “Director Responsibilities Steering Committee” to monitor directors’ activities, no directors have been sanctioned as of September 2005.  The SEC has also proposed an amendment to the Securities and Exchange Act of 1992 which will spell out clearly the directors’ fiduciary duty, legal responsibilities, and penalties for failure to carry out their duty.

With respect to the role of creditors, the Bank of Thailand (BOT), which has the oversight power over Thai financial institutions, has established since 2002 seven measures to promote corporate governance among commercial banks and finance companies.  These measures covers lending practices, duties of directors, external auditor, internal audit, disclosure of directors’ and executives’ compensation, limitation of directorship, and the board of directors and its committees.  Creditors could become more active in monitoring their debtors’ corporate governance if they themselves have and are aware of the benefits of good governance.  Bond market has also been promoted to enhance the competitiveness and the efficiency of the financial sector.  In addition, the new Bankruptcy Act was enacted in 1998 to provide better protection for creditors.    

Footnotes

6. Over 90% of Thais are Buddhists.