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2006 Asian Roundtable on Corporate Governance2006 Asian Roundtable on Corporate GovernanceCG Development in Thailand: the Three DisciplinesCG Development in Thailand: the Three Disciplines
Regulatory Discipline -Regulatory Discipline -
Fostering Enforcement Mechanisms: Fostering Enforcement Mechanisms: The Regulatory ChallengeThe Regulatory Challenge
Chalee Chantanayingyong Chalee Chantanayingyong
Securities and Exchange Commission, ThailandSecurities and Exchange Commission, Thailand
Bangkok, ThailandBangkok, ThailandSeptember 13, 2006September 13, 2006
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Presentation OverviewPresentation Overview
Overview: CG Development Overview: CG Development in Thailand in Thailand
Enforcement: DifficultiesEnforcement: Difficulties & Measures & Measures
An Unfinished AgendaAn Unfinished Agenda
Overview: Overview: CG Development in ThailandCG Development in Thailand
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CG: National Agenda in 2002CG: National Agenda in 2002
Subcommittee on Law Amendments and Enforcement
Subcommittee on Accounting Standard
Subcommittee on Best Practices of Listed Companies
Subcommittee on Improvement of Corporate Governance of Commercial Banks, Finance Companies and Insurance Companies
Subcommittee on Improvement of Corporate Governance of Securities Companies
Subcommittee on Investors Education and Public Relations and on Corporate Governance in Thailand
Chaired by Prime Minister
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3 Pillars for Better Corporate Governance
Regulatory Disciplines
Market Disciplines Self Disciplines
Good CG
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Symptoms
CG culture Family-owned business and
lots of related transactions Inadequate level of knowledge
among directors Investors activism
Both retail and institutional investors are not active
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Symptoms (Cont’d)
Enforcement Insufficient enforcement mechanismInsufficient enforcement mechanism Legal proceedings involve too manyLegal proceedings involve too many
agencies agencies Lack of understanding for capitalLack of understanding for capital
market fraud among agencies market fraud among agencies
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International View PointsInternational View Points
World Bank Report: CG – ROSC Published: September 2005 Countries participated: 37 countries
ACGA + CLSA (Hong Kong) Report: CG Watch Published: annually (September-October) Countries participated: 10 Asian countries
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CG – ROSC
Source: CG-ROSC assessment of Asian countries during 2001-2005
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CG – ROSC (cont’d)(cont’d)
Overall 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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CG – ROSC (cont’d)(cont’d)
Recommendation – law enforcement• Establish corporate governance enforcement priorities• Improve enforcement for violation of laws• Introduce administrative and civil sanctions
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CG Watch (Oct. 2005)
Countries Rules&Regulations
Enforcement
Political/Regulatory environmen
t
Adoption of IGAAP
Institutional
mechanisms
&CG culture
Country score
Singapore 7.4 5.6 7.3 9.5 5.7 7.0 (1)
Hong Kong 6.4 5.8 7.8 9.1 5.4 6.9 (2)
India 6.6 5.6 6.5 7.5 4.3 6.1 (3)
Malaysia 5.9 4.9 6.0 7.5 3.8 5.6 (4)
Taiwan 5.3 4.9 6.5 5.9 3.3 5.2 (5)
Thailand 5.8 4.0 5.0 7.3 3.5 5.0 (6)
Korea 5.1 4.0 4.3 8.2 3.9 5.0 (6)
Philippines 5.3 2.2 5.0 8.2 3.1 4.6 (7)
China 4.3 4.0 5.0 6.8 2.2 4.4 (8)
Indonesia 3.3 2.9 3.0 6.8 2.8 3.7 (9)
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CG Watch (cont’d)(cont’d)
Thailand’s assessment during 2001-2005Year Rules&
Regulations
Enforcement
Political/Regulatory Environmen
t
Adoption of IGAAP
CG Cultur
e
Country score
2001
7.0 2.0 3.0 5.0 4.0 3.7
2002
7.5 2.0 3.0 5.0 4.0 3.8
2003
7.5 3.0 4.0 6.0 4.5 4.6
2004
6.1 3.8 5.0 8.5 3.5 5.3
2005
5.8 4.0 5.0 7.3 3.5 5.0
Enforcement: Enforcement: Difficulties & MeasuresDifficulties & Measures
Difficulties
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Criminal Proceedings
Power of authorities
SEC Police Public Prosecutor
Court
• SEC does not have sole authority SEC does not have sole authority to proceed criminal crimes to proceed criminal crimes
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Criminal Proceedings (cont’d)
Lengthy legal processLengthy legal process Many steps and many agencies involvedMany steps and many agencies involved
long duration of processlong duration of process Frequent rotation of officials
lack continuity lack continuity Complicated cases
need knowledge and understanding of need knowledge and understanding of business activitiesbusiness activities
Problems in bringing offenders to justiceProblems in bringing offenders to justice Difficulties in proving criminal crimeDifficulties in proving criminal crime
need high standard of prove need high standard of prove Witnesses unwilling to get involvedWitnesses unwilling to get involved
Measures
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3 Steps Scheme3 Steps Scheme
The SEC’s alternative measures to strengthen enforcement power
Prevention SanctionIntervention
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I. Prevention
Review financial statementsReview financial statements 100% review of auditors’ report100% review of auditors’ report
(quarterly & yearly financial statements) (quarterly & yearly financial statements) In-depth review for irregularitiesIn-depth review for irregularities
Extensive monitoring of auditorsExtensive monitoring of auditors 100% review of auditors’ working papers 100% review of auditors’ working papers
of IPO companies of IPO companies Inquiry auditors for unclear or Inquiry auditors for unclear or
ambiguous messages ambiguous messages
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I. Prevention (cont’d)
Stringent monitoring of auditStringent monitoring of audit committee’s performance committee’s performance
Updating on “connected transactions”Updating on “connected transactions” rule rule
Closely monitoring connectedClosely monitoring connected transactions transactions
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II. InterventionII. Intervention Re-issuance of financial statements
Result:
• In 2004, 25 companies
• In 2005, 37 companies
• In 2006, 13 companies For questionable RPT, top management
needs to clarify Result:
• In 2004, stopped 6 inappropriate transactions worth 3,000 million baht
• In 2005, stopped 1 inappropriate transactions worth 350 million baht
• In 2006, stopped 1 inappropriate transaction worth 180 million baht
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II. Intervention (cont’d)II. Intervention (cont’d)
Share price manipulation On-site inspection of securities
companies to break market rumour If there is rumour or leakage, listed
company needs to clarify Closely monitor listed companies’
disclosure to prevent financial statement cosmetic
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III. SanctionIII. Sanction
Besides the criminal proceedings,Besides the criminal proceedings,
the SEC introduces an administrativethe SEC introduces an administrative
proceedings to be an alternative toolproceedings to be an alternative tool Introduction of “Director RegistrationIntroduction of “Director Registration
System” System” Appointment of “DirectorsAppointment of “Directors
Responsibility Committee” Responsibility Committee”
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What is Director Registry?What is Director Registry?
All listed + IPO companies have to All listed + IPO companies have to register their directors and top register their directors and top executives in executives in “Director Registry”“Director Registry” through the SEC websitethrough the SEC website List of directors & top executivesList of directors & top executives
shown on the SEC websiteshown on the SEC website
Whitelist
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What is Director Registry? (cont’d)What is Director Registry? (cont’d)
Persons who conducted a malpracticee.g. breach of fiduciary duties or fraudor dishonest management areunqualified persons
SEC will “remove” such persons from whitelist to prevent any further damage to investors
Blacklist
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Director Registry: ResultDirector Registry: Result
Whitelist
~ 8,000 persons
Blacklist 126 persons* Corporate fraud 43* Unfair securities trading 24* Operating securities business without license 24* Denounced by other regulators (BOT, SET) 35
Source: Director Registry System as of Aug 31, 2006
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Directors Responsibility CommitteeDirectors Responsibility Committee
ObjectiveObjective To provide check & balanceTo provide check & balance
mechanism mechanism DutiesDuties
To advise SEC on sanctioning To advise SEC on sanctioning of directors of directors
CompositionComposition 9 members comprising both9 members comprising both
regulators and business leaders regulators and business leaders
An Unfinished AgendaAn Unfinished Agenda
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An Unfinished AgendaAn Unfinished Agenda
Public’s perception & expectationPublic’s perception & expectation on enforcement power on enforcement power
Continuous training and educationContinuous training and education among enforcing agencies among enforcing agencies
Modernizing the range of regulatoryModernizing the range of regulatory enforcement power enforcement power
Empowering investors with moreEmpowering investors with more efficient tools efficient tools