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Published on August 13, 2007

Speaking at the "Asian Financial Outlook: The next 10 years" conference hosted by the Thai Institute of Directors and The Nation this past Friday, Barton said a review of 10 warning signs for financial crises indicated a much stronger overall situation today than in the period before 1997.

Macroeconomic indicators have all improved. Meanwhile, microeconomic gauges in the corporate and financial sectors are, for the most part, more positive - but can be better, he said.

Corporate-governance reform, after great strides following the crisis, has generally waned. More Asian corporations are listed and are relying more on the equity markets, but they still lag significantly behind international levels, Barton said.

On the other hand, a globalising and inter-linked world, combined with rapid growth and change, presents a higher level of challenge and risk for corporate Asia, its financial institutions and government policy makers.

The "global forces at work", said Barton, include liberalisation, mobility of capital, digitisation and standardisation. Cross-border capital flows, for instance, increased by 10.7 per cent annually from 1990 to 2005, though Asia still remains a small piece of the global flow.

To pinpoint the rising speed of change in the marketplace, Barton showed his favourite charts, showing the expected life expectancy of a corporation fell from 90 years in 1935 to 22 in 1995 and only 15 years in 2005.

As supply chains disperse across Asia, companies increase the risk of supply-chain disruption. The "ripple effect" of a crisis in another region could significantly impact the Asia-Pacific region due to its susceptibility to global flows. Meanwhile, there are new external risks such as bird flu and terrorism.

Instituting scenario planning, stress-testing, shoring up of funding and capital structures and looking for advantage in turbulence should be an imperative for corporations, financial institutions and government policy makers, concluded Barton.

Siam Cement president Kan Trakulhoon said his company was committed to good corporate governance and financial discipline, and set the ratio of net debt to earnings (before interest, taxes, depreciation and amortisation at) no more than three times.

That ratio skyrocketed to nearly 10 times during the 1997 crisis.

A more focused Siam Cement is now concentrating on two strategies - to "go regional" and to become more innovative.

Regionally, Thailand's largest industrial group is expanding within Southeast Asia only, he said.

"We're building our brand in Asean. Building good experiences for consumers and our good reputation," said Kan.

About 2,400 of its workers are outside Thailand, constituting about 10 per cent of its total. More than 2,000 employees are non-Thai, he said.

Kan said Siam Cement saw the need to develop more technologies itself, boosting its research-and-development spending from Bt100 million baht - or 0.05 per cent of sales a few years ago - to 0.3 per cent next year, or Bt1.4 billion.

"We have to respond ourselves," he said.

Siam Cement's business structure is now weighted 45 per cent towards petrochemicals, which is more vulnerable to international volatility, added Kan.

In his keynote remarks, Charnchai Charuvastr, president of the Thai Institute of Directors, said overall corporate governance scores of listed Thai companies increased from 60 per cent to 71 per cent between 2003 to 2006. But in some areas, such as board responsibility, its score is still below 60 per cent - although that increased "tremendously" from 45 per cent to 57 per cent during the same period.

"I think we have come a long way," he said.

Looking ahead, Charnchai said companies needed to balance corporate governance and performance, short- and long-term goals, profit and environmental responsibility and risk aversion and risk taking.

National University of Singapore assoc professor of economics Dr Shin Jang-sup said Korean companies implemented structural reform through reducing debt ratios, refocusing on core businesses and improving governance systems.

Thanks to reforms, debt-to-equity ratios of listed Korean companies reduced to 0.8 times compared with four times in 1998, lower even than United States companies, which average one.

Ordinary profits increased following reform as debt was cut. However, operating profit is deteriorating, while sales growth falls. There have been stagnant investments and an increase of foreign ownership, said Shin.

Foreign ownership in listed Korean companies has increased from an average stake of 13.7 per cent in 1997 to 40 per cent in 2006, one of the highest in the world, he said. This compares with 17.7 per cent in Japan, 28.7 per cent in Australia, 23.1 per cent in Taiwan and 10.3 per cent in the United States.

Pichaya Changsorn

The Nation