THAILAND Report on Observance of Standards and Codes ROSC Corporate Governance Country Assessment

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THAILANDReport on Observance of Standards and
Codes (ROSC) Corporate Governance Country
Assessment

• Behdad Nowroozi
• East Asia and the Pacific Region
• World Bank
• Bangkok, Thailand
• October 26, 2005

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Regional Context

• All countries in East Asia, particularly higher
  income countries, are moving forward in reforming
  corporate governance as part of improving their
  competitiveness
• As countries move toward convergence of basic
  principles of corporate governance
  (accountability, transparency and the rule of
  law), it makes it easier to integrate their
  capital markets at the regional level

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Background

• What is a ROSC? It is an assessment of actual
  practices and analysis of effectiveness of the
  mechanisms for ensuring compliance with
  international standards and best practices
• Corporate Governance
• Accounting and Auditing
• Creditors Rights and Insolvency

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Background (contd.)

• The main areas of the OECD Corporate
• Governance Principles
• Effective corporate governance framework
• Rights of shareholders
• Equitable treatment of shareholders
• Role of stakeholders in corporate governance
• Disclosure and transparency
• Responsibilities of the Board
• Methodology (collaborative process)

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Overall Assessment

• Principle-by-principle assessment using OECD
  principles as the benchmark is, in general,
  largely/partially observed
• Observed means all essential criteria are met
  without significant deficiencies
• Largely Observed means only minor shortcomings
  are observed, which do not raise questions about
  the authorities ability and intent to achieve
  full observance in the short term
• Partially Observed means that while the legal and
  regulatory framework complies with the principle,
  practices and enforcement diverge

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Thailand Country Assessment

• Significant corporate governance reforms have
  been introduced in recent years
• Thailand continues to make progress in improving
  corporate governance
• The reform agenda, however, remains incomplete
• Changes in the regulatory framework need to be
  translated into actual practices

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Key Findings

• Investor Protection
• Basic shareholder rights are protected, but
  concentrated control limits the influence of
  minority shareholders
• There are some constraints on shareholder
  participation in the AGM
• There is a lack of range of sanctions to
  facilitate effective enforcement
• Disclosure
• Thailand accounting standards are not fully
  consistent with international standards

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Key Findings (contd.)

• Company Oversight and the Board
• Limited understanding of duties of care and
  loyalty
• Boards are dominated by controlling shareholders
• Director independence is quite limited,
  particularly in smaller companies
• Legal enforcement remains a major challenge more
  aggressive prosecution is necessary

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Recommendations

• Legislation to strengthen minority shareholders
  rights should be adopted and additional reform to
  strengthen the corporate governance framework
  will be required in these areas
• Cost-effective legal channels for shareholders
  seeking redress
• Dismissal of directors
• Cross-border voting

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Recommendations (contd.)

• Regulatory and self-regulatory action is
  important, particularly in light of legislative
  uncertainty
• Expand the coverage of the rules on conflicts of
  interest and self-dealing
• Clarify the regulations governing the actions of
  institutional investors
• Increase the accountability of directors and
  management and further clarify the fiduciary duty
  of directors
• Further strengthen the Audit Committees role to
  increase its effectiveness
• Consider requiring the establishment of
  additional board committees
• Require codes of conduct for listed companies
• Require establishment of board evaluation
  procedures

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Recommendations (contd.)

• Further improve quality and reliability of
  financial information and disclosure
• Move to full convergence with international
  accounting and auditing standards
• Encourage disclosure by custodians
• Establish corporate governance enforcement
  priorities
• Strengthen the independence of the SEC
• Improve enforcement for violation of laws
• Introduce administrative and civil sanctions

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Conclusion

• Improving corporate governance is a long-term
  process and requires a collective effort by all
  market participants, including regulators,
  creditors, institutional investors, directors,
  management, accountants, and shareholders.
• Thank you