Thailand
The
concept of shareholder's protection is first appeared in Thailand in 1993
when the Public Limited Companies Act B.E.2535 was introduced. The law
offers a relative comprehensive protection of basic shareholders' right.
(1)
Negative Control
Major
transactions matters i.e., the alteration of articles of association,
reduction of capital etc., requires mandatory shareholder approval (75%
of votes present).86 Nonetheless, the law
is silent in the provisions for shareholder's right protection in the
interested transactions, the transactions that one or more directors have
an interest on. These transactions are approved by the board of directors
but do not require mandatory shareholder approval. Such transactions are
the most common means by which corporate funds in Thailand are expropriated
by majority shareholders who appoint the board of directors.87 As a result, the provisions of negative control in Thailand still have
much room to improve.
(2)
Securities Laws and Regulations
Over
the past two years, the SET and the Securities and Exchange Commission
(SEC) have greatly attempted to strengthen shareholders' protection. For
example, in 1998, the SEC formed a working group to study the possibility
of allowing groups of minority shareholders to instigate class action
lawsuits against management.88 However,
the present regulations are still far behind satisfactory. For examples,
two listed companies posted a lot of profits but one paid a little dividends
and the other refused to pay them. Goodyear (Thailand) posted profits
of 381.01 million bath in 1999.89 Major
shareholders approved dividend payments of just 14.8 million or 2 baht
per share, but approved payments of 36 million bath to their board representatives,
at the expense of the minor shareholders.90 Carpet International posted profits of 68 million baht, or 6.82 baht per
share in 1999 but refuse to pay dividends to the shareholders. In both
cases, the SET and the SEC could not do anything.91 However, these cases would certainly have an impact on investor confidence.
As a result, if the SET and the SEC would like to attract investors to
high-performance firms, they must ensure investors that once their investment
would not be taken advantages of by other major shareholders.
(3)
Statutory Action
In
practice, minority shareholders rarely exercised their rights, since they
have been driven mainly by speculative motive rather than a long-term
investment.92 Most are looking for the opportunity
to make a quick profit.93 Only few are aware
of and pay attention to their rights and duty.94
Besides,
minority shareholders seeking redress and compensation through the courts
are facing free-rider problems.95 That is
all shareholders would benefit from any successful action initiated by
a few. Moreover the SEC lacked sufficient power to prosecute directors
who breached their duties. For example, in case of directors' fraud, a
criminal offence, the SEC must prove beyond reasonable doubt that there
is an intention to defraud a company, which is extremely difficult to
do.96 As a consequence, it takes time for
the minority shareholders to proceed and win the case.97
The
more serious problem is that Section 94 of the Public Limited Companies
Act clearly provides that the directors are jointly responsible for clear
violations of the rules of law.98 When it comes to the board's accountability to its fiduciary duty, however,
the law is very much vague.99
With
bar fraud an clear violations of the written rules and regulations, it
would be difficult to prove whether a director has performed his duty
in good faith and with care to preserve the interests of the company.
The court has had little experience in interpreting such sections. As
a result, legal interpretation of the scope of a board's accountability
to the shareholders is still unclear.
Learn?
Even though the legal system in Hong Kong is Common law whereas that in
Thailand is Civil law, there is much room to learn from each other.
First,
in case of negative control, in order to protect minority shareholders'
interests in Thailand, interested transactions must be required mandatory
shareholder approval (75% of the votes).
Secondly,
in case of listed companies posting a lot of profits but paying a little
or refusing to pay dividends without acceptable reasons, the SET can learn
from the SEHK by issuing a public statement of criticism or a public censure
and to report the conduct to the Securities and Exchange Commission or
other regulatory authorities.
Lastly,
in case of statutory action, Thailand can learn from Hong Kong by simplifying
the laws and regulations to be more accessible to minority shareholders.
E.
Remuneration Committee
Hong
Kong
In
Hong Kong as note earlier, many boards of listed companies are controlled
by a dominant or controlling shareholder, who also commonly performs the
dual role of the dual role of Chairman of the board and Chief Executive
of the company.100 The board of directors
approves the remuneration of the directors in total while only the Chief
Executive is the one who knows how the total amount of remuneration of
the board is allocated among the directors.101 This lack of transparency and accountability in the process of determining
directors' remuneration is a concern to other shareholders and investors.102
In
order to enhance transparency and accountability in directors' remuneration,
in late 1999, the Hong Kong Society of Accountants (HKSA) published a
new report titled "Directors' Remuneration-Recommendations for Enhanced
Transparency and Accountability (1999)", the report compared the
disclosure requirements of directors' remuneration covering Hong Kong,
and other principal financial markets including USA, UK, Singapore and
Australia.103 It recommended that board
of directors should establish a remuneration committee, with the majority
of members being independent non-executive directors to recommend the
remuneration for executive directors and this requirement should be stipulated
in the Code of Best Practices.104
Thailand
In
Thailand, executive remuneration has become one of the most controversial
aspects of the current corporate governance debate. In 1998, the SET recommended
that all listed companies should establish a remuneration committee, which
determines executives' pay. A remuneration committee should be made up
wholly independent non-executive directors.106 Its objective is to enhance disclosures and accountability in director's
remuneration.107
Learn?
One
way of promoting transparency and accountability of the directors' remuneration
is by using remuneration committees. Both Hong Kong and Thailand have
initiated voluntary remuneration committees. This is a right direction
but there is still much room for improvement. In order to enhance the
standards of corporate governance in both Hong Kong and Thailand, the
compulsory remuneration committees are required.
IV. Conclusion
Whether
or not there is such a link between corporate governance and corporate
performance, corporate governance is of very importance. Since in the
globalization world where capital can move freely within a microsecond,
investors' confidence is always the motive of the funds movement. As a
result, countries wishing to attract foreign funds and investments must
inevitably develop and strengthen their corporate governance in order
to maintain investors' confidence.
Corporate
governance, however, is a part of culture, which reflects a society through
its language, beliefs and customs.108 Different
countries have different cultures. The development of corporate governance
in one country underlines the way in which ideas and expectations become
enshrined in the culture of that country. A system of corporate governance
suitable for one country may not work well in the other if it does not
entrenched into the underlying culture of the latter. As a result, the
system of corporate governance workable in Hong Kong may not work well
in Thailand and vice versa.
Even
though, however, the whole system could not be duplicated from Hong Kong
to solve the problems in Thailand and vice versa, details in some aspects
of corporate governance i.e., the scope of corporate governance, the independent
non-executive directors, the audit committees, the shareholder remedies,
and the remuneration committees might be imported from the former to solve
a certain problems in the latter and vice versa.
Bibliography
_______________________________________________________________
(86)
The Public Limited Companies Act B.E.2535 of Thailand, Section 107 provides
that:
Unless
otherwise stipulated by this Act, a resolution of the shareholder meeting
shall require:
(1)
in the following events, a vote of not less than three quarters of the
total number of votes of shareholders who attend the meeting and have
the right to vote:
(a)
the sale or transfer of the whole or important parts of the business of
the company to other persons;
(b)
the purchase or acceptance of transfer of the business of other companies
or private companies by the company;
(c)
the making, amending or terminating of contracts with respect to the granting
of a lease of the whole or important parts of the business of the company,
the assignment of the management of the business of the company to any
other persons or the amalgamation of the business with other persons with
the purpose of profit and loss sharing.
(87)
Nikomborirak, Deunden., and Tangkitvanich, Somkiat., (1999)., note 54
(88)
Asian Corporate Governance Association, note 27, at 39
(89)
Bangkok Post (June 2, 2000). 'Stock Exchange of Thailand: Many bargains
amid the bombs: Keep an eye on big shareholders and who gets the profits'
(90)
Ibid.
(91)
Ibid.
(92)
Nikomborirak, Deunden., and Tangkitvanich, Somkiat., (1999)., note 54
(93)
Ibid.
(94)
Ibid.
(95)
Asian Corporate Governance Association, note 27, at 40
(96)
The Criminal Procedure Code of Thailand, Section 227.
(97)
Asian Corporate Governance Association, note 27, at 41
(98)
The Public Limited Companies Act B.E.2535 of Thailand, Section 94 provides:
The
directors shall be jointly liable for any damage to the shareholders and
persons concerned with the company in the following cases, unless it can
be proven that they had no part in such wrongdoing:
(1)
making false statements or concealing any information that should be disclosed
about the financial condition and business operation of the company in
the offer for sale of shares or debentures or other financial instruments
of the company;
(2)
presenting or filling out a document submitted to the Registrar containing
false information or particulars or which does not correspond to the accounts,
registers or documents of the company;
(3)
preparing a false balance sheet, statement of profit and loss, minutes
of a shareholder meeting or minutes of a meeting of the board of directors.
(99)
The Public Limited Companies Act B.E.2535 of Thailand, Section 85 provides
that:
In
conducting the business of the company, the directors shall comply with
all laws , objects and the articles of association of the company, and
the resolutions of the shareholder meetings in good faith and with care
to preserve the interests of the company.
(100)
Corporate governance, 'Directors' Remuneration - Recommendations for enhanced
Transparency and Accountability', in Corporate Governance, Class materials
in Corporate Governance and Shareholder Remedies, CGSR.8/1000(ACa), Faculty
of Law, University of Hong Kong, 10 October 2000, at 130
(101)
Ibid.
(102)
Ibid.
(103)
Tsui, Judy., and Ferdinand A.Gul, note 26
(104)
Ibid.
(105)
Trairatvorakul, Prasarn., (November 10, 1998)., note 55
(106)
Ibid.
(107)
Ibid.
(108)
Tricker, Robert., (1994)., note 40 |