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Published on April 9, 2008

 The new legislation is aimed at raising the standard of corporate governance in Thailand to an international level.

Improved corporate governance is essential if Thailand is to attract foreign capital and support economic growth. Foreign investors need to be confident that their money will be properly managed by qualified, trustworthy companies.

Before introduction of the new Act, the Stock Exchange of Thailand urged listed companies to comply with principles of good corporate governance. Now the new legislation makes some key areas of good governance compulsory - a "must" rather than a "should have" or a "nice to have". This will ensure that Thailand maintains internationally acceptable levels of corporate governance and, consequently, attracts foreign capital.

The Act embodies and emphasises principles of good corporate governance in two main areas: shareholders' rights and their equitable treatment; and the responsibilities of a firm's board of directors.

The legislation requires that shareholders receive adequate information from companies when they are expected to make decisions on major corporate transactions, such as mergers and sales of substantial corporate assets. Regar-ding related-party transactions, the Act provides for fair conditions, so that minority shareholders' interests cannot be transferred to people who are related to major shareholders or the firm's management. The statutes clearly specify that related-party transactions may have to be approved by shareholders before a firm can proceed with some business arrangements of this kind. Mandatory disclosure of related-party transactions ensures that shareholders are fully informed and able to make appropriate investment decisions. These obligations are no longer simply listing requirements, but rather legal requirements, the violation of which is interpreted as breaking the law rather than merely failing to meet contractual arrangements.

The new Securities and Exchange Act also focuses on the responsibilities of a company's board of directors - the legitimate authority to operate a business in the best interests of a company. The scope of "fiduciary" duties - those involving trust - is now extended to company executives. The criteria for the responsibilities of directors and executives - "duty of care" and "duty of loyalty" - are clearly defined. Accordingly, directors and executives should clearly understand their legal responsibilities in the performance of their duties.

Fraudulent actions by directors and executives now attract heavier and more enforceable fines and imprisonment. However, faithful directors and executives are provided with a "safe harbour".

Under the Act, an employee who becomes aware of illegal practices in a firm is encouraged to "blow the whistle" to the office of the Securities and Exchange Commission (SEC) and is now protected more effectively.

On the broader side of the corporate-governance framework, the new Act makes the SEC free from politics. Its chairman, for example, must be nominated by a nomination committee rather than by a government minister. As well, the process of issuing regulations is expected to be more timely and effective, because there will be a special committee to look after this task.

Hiran Radeesri is chairman of the Corporate Governance Centre at the Stock Exchange of Thailand.

Hiran Radeesri

The Nation