Unfortunately, TRIS terminated this rating service on July 15, 2005 because it has since started consulting services on corporate governance to listed companies.  A plausible explanation for the termination was a low participation rate with only ten companies participating and having their ratings disclosed during the three-year life time of this project.  All of the ten companies received the rating scores higher than seven.  Additionally, the rating process had a major flaw because if a company received an unsatisfactory rating, it could cancel the contract and terminate the entire rating process, or chose not to publicly disclose the rating.  Therefore, it was impossible for investors to identify companies with poor ratings.  Investors could not reasonably presume that non-participating companies had poor corporate governance because some of these non-participating companies had received high rating on governance from international organizations such as the Asian Development Bank.

The second project was initiated by the SEC to offer “Disclosure Award” for listed companies with outstanding disclosure of information in Form 56-1 annual filing.  There are three criteria for the award: (1) following the SEC requirements, (2) providing accurate and clear information for investors to understand the company’s operations and any significant changes, and (3) providing sufficient information for investors to evaluate possible risk.  In addition to the publicized honor via the award ceremony and the SEC’s web site, the SEC granted the awarded companies a fast-track process for their public offerings of securities.  Similar to the first project, this second project is also voluntary, and also took place in 2002 in response to the Thai government’s declaration of 2002 as the “Year of Good Corporate Governance”.  In addition, this “Disclosure Award” is a one-time project for only the year 2002 involving the SEC’s reviewing of only one prior year (2001) of Form 56-1.  Out of over 380 listed companies in 2002, 115 companies or about 30% of all listed firms participated.  Forty companies (35%) of those participated received the Disclosure Award.  Unfortunately, the SEC did not disclose the name of the other 75 companies which did not receive the award, and therefore, investors were not able to identify companies with low-disclosure standard.

Suggestions for Further Improvement

Regardless of much progress in Thai corporate governance, further improvement is needed with respect to the protection and the education of minority shareholders.  First, the Thai government should consider making an amendment to the SEA 1992 to grant the SEC power to investigate fraud in subsidiaries of listed companies.  Currently, the SEC has the power to investigate listed companies only.  The power does not extend to privately-owned subsidiaries of public companies.  Second, the SET web site should be expanded to include more than just one annual filing and one interim report to help investors better assess the trend in profitability and liquidity of listed companies.  Third, to enable investors to use corporate governance as part of their investment decisions, the Thai government should provide the IOD funding for rating corporate governance of all listed companies.  The rating should be publicly available on the IOD web site.  The availability and the widespread use of corporate governance rating in investment decisions should provide strong incentive for companies to improve their governance.  Similarly, funding should be provided to the IOD or the SEC to regularly rate the disclosures in Form 56-1 of all listed companies.

As discussed earlier, Thai regulators place much more emphasis on the board of directors (BOD) than on the top management when it comes to corporate governance.  Likewise, the BOD, the audit committee and the external auditors are spotlighted for the reliability of financial reports.  Such excessive emphasis on the BOD and the audit committee could make qualified individuals very reluctant to serve because they may be apprehensive of regulatory sanctions, investors’ lawsuits and the loss of their reputation.

It’s mainly the top management who should be responsible for maintaining good governance and reliable financial reports.  Regarding the audit committee, the SET may want to make the quality of audit committee members a requirement instead of the Best Practice Guidelines.  The SET should also require internal audit for all listed firms.  The internal audit is just a recommendation in the Best Practice.

There is also room for improvement on the board structure of Thai financial institutions.  Because the crisis is partially attributable to the poor lending practices of Thai financial sector, the BOT may want to strengthen its independence requirements of the board of directors of Thai financial institutions to be consistent with the SET requirements.   The BOT currently requires the board of financial institutions to have at least three independent directors or at least 25% of the board, whichever is higher, and an audit committee with at least three directors, two of whom must be independent.  On the other hand, the SET requires all listed firms to have at least one third of the board comprised of independent directors and an audit committee composed of at least three independent directors.  To increase the monitoring role of creditors, the BOT should also require financial institutions to use corporate governance as one of the lending criteria.

The new Bankruptcy Law should also be amended in the following four aspects to enhance the rights of creditors.  First, the debtor’s inability to pay debt when due (the cash flow test) should be used as the indicator of insolvency.  Second, the court should have the authority to review and modify the official receiver’ order regarding creditors’ voting right if creditors object to the order.  Third, the government may want to outsource an official receiver’s duties to an independent third party to speed up the collection process for creditors.  Fourth, creditors should be able to appeal if they disagree with the court’s decisions.  In addition, the law on liquidation and foreclosure should be revised to speed up the collection process for creditors.  To motivate employees to participate in corporate governance, Thailand also needs a whistle-blower law which provides protection and retribution to employees who expose a company’s questionable conduct to the public.