Thai Bourse Aligns Firms’ Governance Closer To OECD Standards

The Stock Exchange of Thailand (SET) has improved its corporate governance (CG) guidelines for listed companies to be more in line with OECD’s principles. Emphasis is on shareholders’ rights, equitable treatment of shareholders, roles of stakeholders, information disclosure and transparency, and director’s responsibilities. Listed firms are requested to comply to and annually report their implementation starting from 2007.

The SET Board of Governors resolved to adjust the 15 good CG principles it has provided as guidelines for listed companies since 2002 to be more in line with those of the OECD (Organization for Economic Co-operation and Development) and the World Bank’s Corporate Governance-Reports on the Observance of Standards and Codes (CG-ROSC).

In 2005 the Thai listed companies scored 69% in their overall CG rating, increasing from 60% in 2003. The SET50 companies performed even better: their overall score rose from 66% to 79%.

The SET board therefore viewed that the adjustments to its guidelines would bring Thai CG more in line with international standards, hence creating greater confidence in the Thai capital market.

The adjustments made to the CG principle guidelines include an expansion to the existing principles. The SET has actually been improving its guidelines to enable firms to have a clearer understanding of, and be better able to conform to, the base principles. The new additions are concerned with directors’ responsibilities, an area that Thai companies need to develop further.

The revision to the CG principles for listed companies is a collaborative effort of the Listed Companies Association and representatives from listed companies in making the draft, and the advisory team of the SET’s CG Center.

The objective of providing this guideline is to enable companies to better ‘comply or explain’, i.e., each of the CG principles can be adopted or adapted according to each company’s individual conditions. Firms are requested to report their compliance or their substitute policy(-ies) in any case(s) where they have not comply with a specific principle or principles.

Companies should report their implementation of CG principles in their annual information report form (or 56-1 form) as well as their annual reports starting with their 2007 documents, to be submitted by March and April 2008, respectively. Meanwhile the SET’s CG Center will be providing advisory assistance, producing practical guidelines on the added principles, as well as educating the companies’ management.

The additions to the SET’s CG principles for companies in 2006 can be summarized as follows:

1. Shareholders’ Rights: Additional good practices concerned with providing information about shareholders’ meetings on the companies’ websites, so that shareholders will be able to study information before obtaining the hardcopy, and submit questions before the meeting.
2. Equitable Treatment to Shareholders: Additional good practices concerned with providing opportunities for minor shareholders to propose meeting agenda items and nominate board members in advance as well as disclosing information on the stakes of directors, management, and related persons so that board members can consider if any conflicts of interest exist. Other issues include the provision that, unless absolutely necessary, non-executive directors should not be allowed to add issues to the meeting agenda without advance notice; requesting the use of voting cards for important agenda issues, and selecting individual board members.
3. Roles of Stakeholders: Additional good practices concerned with notifying board members about law violation issues, correctness of financial statements, problems with the internal audit system or unethical conduct, providing a protective mechanism for whistle blowers who report problems in the company, plus setting a policy on environmental and social responsibilities.
4. Information Disclosure and Transparency: Additional good practices concerned with disclosure of the performance of board members and sub-committee members over the previous year, corporate policy on environmental and social responsibilities, website information, and the remuneration received by directors for acting as directors on related companies’ boards.
5. Directors’ Responsibilities: Additional good practices concerned with the transparency process of selecting directors. There should be a nomination committee appointed, and other additions to this category are:
   1. Board structure: There should be clear term periods specified, specified qualifications for independent directors, limitations on the number of companies directors can hold positions in, policies and rules concerning taking on additional positions as a director, CEO, or corporate secretary in other companies.
   2. Sub-committee: Most of the members should be independent directors. The committee chairman shouldn’t chair any of its sub-committees.
   3. Roles and responsibilities: There should be a review of corporate CG policy, internal audit, and risk management at least once a year.
   4. Meetings: If a company doesn’t meet on a monthly basis, it should produce a performance report to the directors each month. The company’s chairman and CEO should jointly select the meeting agendas. Each director can independently propose meeting agendas. The senior management should attend board meetings to explain issues they are directly responsible for. The directors may request more information from the CEO and corporate secretary as part of accepted practices. Non-executive directors can meet amongst themselves as deemed necessary.
   5. Self-assessment: There should be an annual self-assessment of directors.
   6. Remuneration: Remuneration of the CEO should be based on an assessment by the board’s non-executive directors or by a remuneration committee, using the documented agreement made in advance with the CEO.
   7. Development of the directors and management: There should be training and education for new directors about the company’s business, so that they understand their roles and responsibilities. There should also be plans so that the future directors can carry on the company’s work seamlessly.