THAILAND Report 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 (cont’d.)
The main areas of the OECD Corporate Governance Principles
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2. 3. 4. 5. 6.
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 (cont’d.)
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 (cont’d.)
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 Committee’s 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 (cont’d.)
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 longterm process and requires a collective effort by all market participants, including regulators, creditors, institutional investors, directors, management, accountants, and shareholders. Thank you
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