English (United States) CGAndSustainableBusinessDevelopment

Overview

CG and sustainable business development

What is Sustainability Development?

The capital market is important to the economic and social development; it is not only a source of fund mobilization for public and private sectors, but also helps to balance the financial system and drives economic growth, employment, income distribution, and investment alternatives for the general public. As globalization has more impacts on economic growth, it is more urgent for the capital market and all related parties to make self-adjustment and improvement to meet international standards in all areas.

It is undeniable that to achieve sustainable growth, the capital market and involved parties must take into account benefits and impacts of its operations on the society, the environment and stakeholders. The way of doing business should not further focus only on profits or benefits for specific groups of people. Business strategies for the capital market’s sustainable development should include creating long-term growth for the society, the environment, and the world we live in.

Corporate Social Responsibilities (CSR)

The term, “Corporate Social Responsibility: CSR” or “Environment, Social, Governance: ESG”) has become increasingly popular since the past decade or so. However, the concept was conceived and cultivated at both national and international levels long before that.

In Thailand, His Majesty the King’s initiative of the Philosophy of Sufficiency Economy has been introduced to the public and applied to all economic levels since the 1970’s. In business context, the philosophy is applied based on moderation, reasonableness, and risk management. Business decisions and activities must be carried out at a sufficient level depending on knowledge and virtue to achieve the goal of balance, prosperity and sustainability of individual well-being and the society at large. In other words, by adhering to this philosophy, businesses should operate on the basis of fair advantage without seeking excessive profits at others’ expenses or overlooking possible social consequences or crises. Ethical and effective use of resources is also an indispensable priority.

At the international level, CSR concept was recognized at the Earth Summit in 1992, where the concept of “Sustainability Development” was introduced, giving more tangible emphasis on social and environmental concerns besides economic gains.

In 1999, CSR development made further progress when then United Nations Secretary General Kofi Annan urged businesses to adopt Good Global Citizenship and announced the UN Global Compact as a framework for Sustainable Development of business enterprises.

In the following year, the Organisation for Economic Co-operation and Development (OECD) launched the OECD Guidelines for Multinational Enterprises, which primarily advised that multinational enterprises of OECD members do business only with partners that were also committed to CSR. Increasingly, CSR concept and activities are becoming recognized and applied on a wider, international scale alongside the CSR promotion in the Thai capital market.

CSR Development in the Thai capital market
2006	Establishment of Listed Company's Social and Environmental Responsibility Working Group
2007	Establishment of Corporate Social Responsibility Institute (CSRI)
2008	CSRI published "Corporate Social Responsibility Guidelines"
2009	Setting up of CSR Club
2012	CSRI published "CSR Guidelines" and "Sustainability Guidelines"
2013	The SEC revised rules on information disclosure. The rules requires listed companies and companies applying for approval of issuance and offering for sele of securities to disclose imformation on CSR in the poblicly disclosed document, e.g., annual report, annual registration statement (56-1), registration statement for offering of securities (69-1), which has com into effect on January 1, 2014. The SEC supports Thaipat Institute to develop "the first CSR and Anti-corruption progress indicators for Thai listed companies", with a six level assessment of 0-5.

Anti-corruption

The term, “corruption” comes from the Latin word, “corruptio,” which has different meanings depending on the user’s objective. Basically, it may be applied to moral, political, economic views (Magavilla, 2012). Corruption may be considered one type of crime and can be distinguished from ‘fraud’, ‘embezzlement’ and ‘extortion’. The essence of corruption is that two individuals or groups act in cooperation for their own interest at the expense of a third party, e.g., bribery.

The United Nations defines corruption as a complex social, political and economic phenomenon that affects all countries (UNODC, 2009), while Transparency International (TI) defines corruption as an abuse of entrusted power for private gains, in both public and private sectors.

The European Union defines corruption as the abuse of public power for private gains, bribery or an act of authorized persons that violates duties for own interest or others.

In conclusion, corruption is an abuse of power or bribery to gain private interest that may or may not be a breach of laws. Corruption can occur in both public and private sectors, including company executives misusing their power or position to seek personal gains.

Alliance against corruption

Corruption is a global phenomenon, particularly in developing economies where a large, various number of factors are causative to corruption. Such negative environment is a serious obstacle to social and economic growth and sustainable development in the long run.

Countries around the world have collaborated in the fight against corruption. One of the significant milestones is the establishment of Transparency International (TI) – an international non-profit, non-partisan agency supported by the World Bank, governments and multinational organizations. TI’s primary objectives are: (1) to put corruption issue on the global agenda, (2) to play a major role in the creation of anti-corruption conventions, and 3) to raise public sector standards in solving corruption issues. In 1995, TI introduced the Corruption Perceptions Index (CPI) as an indicator of the perceived levels of corruption in each country. The assessment has been conducted annually since then.

On legal framework initiative, the United Nations held a meeting at the headquarters of the United Nations Office on Drugs and Crime (UNODC) to discuss possibilities of using legal tools to tackle corruption. In 2003,the General Assembly adopted the United Nations Convention against Corruption (UNCAC) and appointed the UNODC as the UNCAC Secretary. In addition, December 9 was officially designated as the International Anti-Corruption Day to raise the global awareness of corruption and the roles of the UNCAC in combating and preventing it. The UNCAC requires that member countries promulgate laws for the prevention of corruption, including infliction and cooperation for international legal framework and law enforcement. The court’s cooperation for inspection of assets and information exchange is also requested to support effective combat against corruption.

In Thailand, many agencies have been established to prevent and combat against corruption, for example, the Office of the National Anti-Corruption Commission (ONAC), the Office of the Public Sector Anti-Corruption Commission (PACC), the Anti-Money Laundering Office (AMLO), and the Office of the Auditor General of Thailand. While relevant laws and regulations on punishment of corruption are enforced, cooperation among private sectors is also essential for solving the issue. The leading alliance is the Private Sector Collective Action Coalition Against Corruption (CAC), which is endorsed by the Government and the Office of the National Anti-Corruption Commission (ONAC), and operated by seven leading organizations – (1) the Thai Institute of Directors, (2) the Thai Chamber of Commerce, (3) the International Chamber of Commerce, (4) the Thai Listed Companies Association, (5) the Thai Bankers Association, (6) the Federation of Thai Capital Market Organization, and (7) the Federation of Thai Industries.

Capital market development and corruption issue

To combat the major national issue of corruption at all levels is not only the government’s job; it requires commitment and collaboration among private sectors. The SEC, therefore, encourages listed companies, securities companies, and asset management companies to join the Private Sector Collective Action Coalition Against Corruption (CAC) to enhance integrity and transparency in the Thai capital market, and be a role model for non-listed companies and other business organizations when it comes to building capital market confidence and promoting robust economic growth.

The SEC also encourages listed companies to establish and implement anti-corruption measures and requires them to disclose such policy and performance in the annual report, the One Report (Form 56-1), and the registration statement for offering of securities (Form 69-1). Such disclosed information not only benefits investors but also helps listed companies self-assess their own progress and make necessary improvement.

In addition, five major institutional investors – the Government Pension Fund, the Social Security Office,theAssociation of Investment Management Companies, the Thai Listed Companies Association, and the Thai LifeAssurance Association – have joined force to fight corruption and announced the declaration of intent to set up the Ethical Investment Framework on 11 March 2013. The framework contains operating and investment guidelines for institutional investors such as Proxy Voting Guidelines, to promote good corporategovernance,corporate social responsibility and anti-corruption practices of listed companies and the international recognition of the capital market.

Corporate Governance :CG

Development of Corporate Governance

The economic crisis in 1997 essentially marked the beginning of serious awareness of the importance of corporate governance. Since then it has become a primary tool for building public confidence in the capital market, for example, in the forms of policy and framework. The Thai Government designated 2002 as the “Year of Good Corporate Governance.” The National Corporate Governance Committee (NCGC) was appointed in the same year. Chaired by the Prime Minister, the NCGC aims to promote the principles of good corporate governance and ensure delivery of concrete outcomes.

What is CG?

Corporate Governance refers to the system, practices, and process by which the company is directed and controlled to balance the interest of stakeholders, and to enhance efficiency, transparency and accountability of the company.

Corporate governance plays a significant role in a publicly listed company. Since not all shareholders can take part in the company’s operation, they have to appoint trusted persons to serve in the board of directors to monitor and supervise the company’s management on their behalf. To establish a circle of trust between the shareholders and the company, a corporate governance policy must be implemented and demonstrated. In essence, the board of directors has the duty to protect the interest of both the company and the shareholders, not take an unfair advantage by abusing their positions, and oversee the executives’ and the management’s performance to optimize corporate efficiency and investors’ returns. Meanwhile, the shareholders have the right to be well-informed, make decisions in material issues and review the performance of directors and executives.

Importance of corporate governance

Practicing good corporate governance offers benefits to the company and the capital market as follows:

Benefits to the company: Cost-effective fund mobilization and thus lower production costs and stronger competitiveness.

Benefits to the capital market: Market confidence and liquidity, higher purchasing demands and product prices, and thus more attractive channels for corporate finance.

Corporate Governance International Standards

The OECD Principles of Corporate Governance is an international standard adopted by many countries. The Stock Exchange of Thailand, for example, applied them to the making of the SET Corporate Governance Guidelines for Listed Companies, which were launched in 2006 and revised in 2012 to further meet the criteria of ASEAN CG Scorecard. The OECD Principles comprise five categories as follows:

1. The Rights of Shareholders

Principle: As an owner of the company, shareholders shall appoint the board of directors to be their representatives to oversee and manage the company. Shareholders are eligible to make decisions on any significant corporate changes. Therefore, the company should encourage shareholders to exercise their rights.

2. The Equitable Treatment of Shareholders

Principle: All shareholders, including those who are executives and non-executives and foreign shareholders, should be treated fairly and equally. Minority shareholders whose rights have been violated should be redressed.

3. The Roles of Stakeholders

Principle: Stakeholders of a company should be treated fairly in accordance with their legal rights. The board of directors should provide mechanisms to promote cooperation between the company and its stakeholders in order to create wealth, financial stability and sustainability of the firm.

4. Disclosure and Transparency

Principle: The board of directors should ensure that all important information relevant to the company, both financial and non-financial, is disclosed correctly, completely and transparently on a timely basis through easy-to-access channels that are fair and trustworthy.

5. The Responsibilities of the Board

Principle: The board of directors plays an important role in corporate governance for the best interest of the company. The board is accountable to shareholders and independent from the management

International Corporate Governance Assessment
The Thai capital market has participated in several internationally recognized assessment programs, including CG ROSC (Report on the Observance of Standards and Codes-Corporate Governance Country Assessment) by the World Bank and CG Watch by the Asian Corporate Governance Association in collaboration with CLSA Asia-Pacific Markets. The overall results have shown that the Thai capital market has made significant progress in corporate governance oversight of listed companies and has earned its leading position in the region thanks to the improvement of CG standards through revision of laws, regulations and guidelines in consistent with international benchmarks.

A continuing focus is also given to local assessment programs on corporate governance practices of individual listed companies in line with international standards, for example, the Corporate Governance Report of Thai Listed Companies by the Thai Institute of Directors and the AGM (Annual General Shareholders’ Meeting) Assessment by the Thai Investors Association.

Upon establishment of the ASEAN Economic Community (AEC) to create collaboration among ASEAN countries in many key areas including capital market, the ASEAN Capital Market Forum (ACMF) developed an implementation plan to connect ASEAN capital markets and create mutual recognition of regulations and standards among its members. The collaboration has also included raising quality of corporate governance practices of ASEAN companies to be on par with international standards. One of the useful tools initiated by the ACMF is the ASEAN CG Scorecard, which gauges the corporate governance practices of ASEAN companies and discloses the assessment results for the benefit of investors’ decision making.

Corporate Governance Code for Listed Companies 2017
Thailand’s capital market has been using the SET’s Principles of Good Corporate Governance as its main mechanism for creating corporate governance for listed companies, and with satisfying results. In the beginning, the SET issued 15 corporate governance principles, which then further developed into the Principles of Good Corporate Governance 2012, divided into five topics in accordance with the OECD Principles at that time. To motivate listed companies to comply with these CG principles, the SEC requires listed companies to disclose their information in Form 56-1 in accordance with such CG principles, based on ‘comply or explain’. The Thai Institute of Directors Association evaluated the results from complying with the corporate governance principles, based on publicly disclosed information, in the Corporate Governance Report (CGR), which gives ratings of one to five stars and discloses the name of companies that receives three stars and above. This evaluation has encouraged listed companies to focus on developing their corporate governance to achieve higher results, together with the supporting measures, training activities, and rewards from various organizations including the SEC, SET, IOD, the Thai Listed Company Association (Thai LCA), the Thai Investor Association, and other related organizations. As a result, the overall corporate governance of listed companies in Thailand has emerged as a leader in this region. Although the development of corporate governance has been successful so far, further improvements will mean overcoming changes in social structure and global environment deterioration, which is partly caused by industrial development, capitalism, and business expansion, has made many national and international organizations and investors demand more social and environmental responsibilities, in addition to good corporate governance.

Therefore, the SEC realized the need to issue a new CG Code as guidelines for a board, who is the leader accountable for corporate governance mechanisms. The CG Code would integrate social and environmental issues into the business process to set the company’s direction, strategy, operating process, monitoring, and reporting, providing a framework for the board to govern listed companies to operate responsibly for the environment and society and to create sustainable value.

listed companies enhance its business value to achieve sustainability

Task Force for Sustainability in Listed Companies

Corporate Governance Code for Listed Companies 2017