Governance challenge: a critical issue facing Thailand

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Governance challenge: a critical issue facing Thailand
The Nation

People walk under brightly coloured umbrellas and ribbons decorating a walkway into a large shopping centre in Bangkok on June 3.

BANGKOK: -- Former interim prime minister and chairman of Siam Commercial Bank Public, Anand Panyarachun, spoke at the 2nd National Directors' Conference on June 12 at the Plaza Athenee Hotel, Bangkok. The following are highlights of his speech.

We meet today to reflect upon our roles and duties as company directors, rising to the challenges of an increasingly complex business, economic, social and political environment.

I used the word "duties" as the fiduciary role of company directors has, in recent years, evolved into a much more demanding and participatory function. This is due to several factors. First, the issues facing the board are more varied and complex, requiring greater attention and scrutiny. They also demand a decision-making process that is thorough, transparent and accountable.

Second, investors have become more governance-conscious - they are interested in how well companies are being managed. In this regard, timely and accurate information from management is critical to enable the board to carry out its oversight function.

Third, the regulatory demand on corporate boards is also increasing, requiring members to have varied and diverse expertise as well as independence.

All these factors make company directorship a much more demanding responsibility, not to mention rising stakeholders' expectations for company boards to have a greater sense of public responsibility when it comes to issues that affect society at large.

Reflecting on and anticipating these developments, the Thai IOD has successfully positioned itself as a key institution providing company directors with a platform to discuss issues, share experience and build a shared knowledge of company directorship and best practices.

I am pleased to note the strong and steady progress that the Institute has made over the past years, and am confident that it will continue to take corporate governance to even higher levels of excellence in Thailand. These are significant achievements that need to be acknowledged. Effectively addressing the issue of corporate governance in Thailand requires us to look at the broader picture of governance in the public as well as private sectors.

The first occasion I spoke on this issue goes as far back as 1998. At that time, the country was in the throes of the Asian financial crisis. I had attributed the 1997 crisis specifically then to the failure of institution-building.

Our key economic, political, and social institutions were badly in need of reform. They lacked the capacity to deal with the challenges of globalisation and risks associated with an increasingly interdependent world. What followed was an especially dark period for Thailand, characterised by haphazardness, weak policy responses, poor governance and lopsided development, deepening the crisis even more.

The establishment of the IOD and the subsequent development of a corporate governance framework were a direct response to that experience. Thanks to the substantial efforts made in training thousands of company directors, and in promoting corporate governance awareness, many Thai companies - from banks to manufacturers - have made remarkable strides in enhancing their professionalism and management and governance structures. Some have even become leading regional and global players. These achievements have provided us with a comforting sense of assurance that some important lessons have been learned from that dark experience in our history.

Yet at the same time, we must acknowledge that significant gaps still remain, both in the private and public sectors. Improvements in corporate governance have been generally limited to listed companies, and even in that category, more can and needs to be done.

Amongst the listed companies, improvements are concentrated in the top echelon of companies that have diversified ownership or shareholder structures. Outside of these companies, corporate governance remains relatively weak, especially in the following three groups:

First, the large listed companies that are family-owned;

Second, the listed government-controlled state enterprises whose governance practices are becoming more worrisome;

The third - comprising the largest group - is the mid-size listed companies whose gaps in corporate governance are the greatest. We need to seriously encourage better governance of these companies, as they play a vital role in the long-term prosperity of the Thai economy.

The challenge is to instill a more uniform and widespread adoption of corporate governance best practices amongst these companies. This will help lift the overall quality of governance in our capital market and provide momentum for corporate governance to extend into a wider part of the private sector, including small and medium enterprises, which are the backbone of our industries and economy.

I would like to turn now to another worrisome trend - the state of public governance, which I believe, in recent years, has been deteriorating. This is evidenced by the decline in national competitiveness that has been driven by a large drop in public-sector performance and what appears to be increasing political interference, cronyism, favouritism and other forms of unacceptable behaviour that occur when the line between public service and private interests gets blurred.

To this end, past efforts to adopt new constitutions and enact new laws to increase check-and-balance mechanisms and ensure a fair degree of social justice have failed to make the expected impact due to obstacles in their enforcement. So, while the Thai economy seems to be going well, and has even proved resilient to the effects of external shocks, and while many leading Thai companies have made a name for themselves on the world stage, overall as a country, we have not fared so well.

Of most concern is our unstable and polarised politics. Our politics has not served the country and our people well. The pursuit of power and personal interest over the public interest continues to dominate Thai political life.

Very much related to this issue is the increasing inequality in Thai society - not just between the richest and the poorest, but also between the richest and the middle class. According to a reliable estimate, Thailand's Gini-coefficient - a widely accepted measure of income distribution - increased from 42 in 2002 to 54 in 2009. The rising income and wealth disparities threaten the fabric of society and have the potential to fuel social unrest, as we have seen in other regions of the world.

Against these developments, the current situation gives me cause for concern and discomfort. While the economy may yet again be on a high growth path, this growth is unsustainable. It is fuelled by cheap foreign money, unchecked public spending and a lax business ethos. This is a lethal combination, posing risks that have proven fatal in the past, and which could set the stage for another financial crisis.

Like much of Asia, we have been enjoying robust growth in recent years. But we must not be complacent. We should learn what we can from the latest financial crises in the US and Europe, particularly with regard to excessive credits, runaway budget deficits and rapid build-up of public debts.

Why, in such a short space of time, have we come to this state of affairs?

The answer, I believe, lies squarely in our failure to use the crisis in the late 1990s as an opportunity to undertake thorough and meaningful reforms of our institutions and power structures. With weak institutions and ineffective rule of law, the capacity of the people to determine their own future is reduced.

Another reason is the contradiction, self-inflicted by all of us, between the outward-looking and market-based economic doctrine that we have sought to promote on the one hand, and the inward-looking and narrowly-based politics on the other.

Over time the contradiction has ossified into institutional inertia and, worse, has morphed into entrenched patronage networks and cronyism, through which the country's resources are now unfairly allocated. Such a modus operandi breeds inefficiency, rent-seeking and corruption, a sure recipe for national disaster.

It is clear that for the future of Thailand, this contradiction has to stop.

One of the key reforms to change this course is a rigorous push for better governance in all sectors of society. We must advocate good governance in all areas and levels of society, be it government, business or civil society.

For the business community, directors of companies must see it as a core duty. They must push for good corporate governance. In doing so, they must focus on real substance that will change attitudes, behaviour and culture, not just "form".

Good governance is crucial to better management of human and capital resources, and to greater efficiency and balanced and sustainable growth and development. At the national level, good governance must be built on three pillars:

The first and most crucial is that government must respond to, and serve, the real needs of the people.

The second pillar is an open and transparent decision-making process.

And the third is the system of checks and balances, based on accountability and active participatory roles for private individuals and civil society.

Rebuilding our country’s governance must take place at all levels. It calls for leadership grounded on the values of integrity, accountability and performance.

We need a public sector that is responsive to the people's needs. The private sector too must do its part by promoting clean business and adhering to ethical codes of conduct. And private individuals must engage in good citizenry, which means recognition of what is "right" and "wrong". According to Theodore Roosevelt, all citizens "shall be able and willing to pull his or her weight". So, we must all pull our weight, do our part, and tackle head-on the country’s most important and urgent task.

To do our part as company directors in rebuilding governance, we directors must assume a leadership role and advocate good corporate governance by example. This includes demonstrating that good corporate governance does matter for our institutions and the country, living that value by word and deed, being open to other people's views, and constantly evaluating our own actions. All these actions will go a long way towards showing our commitment as company directors to corporate governance.

Thailand is again at a crossroads. We have a task ahead of us - to rebuild the country's governance. Failure to do this can, and will have, devastating consequences for our future as a nation.

The scenario depicted in William Yeats' apocalyptic poem could indeed become a reality. "Things fall apart; the centre can no longer hold.… The best lack all conviction, while the worst are full of passionate intensity."

This is the time for all of us to act, to reverse course. Failure can not be an option. We can and must succeed.

-- The Nation 2013-06-18

[reiltin]

Forward looking,comprehensive and ya gotta respect a Yeats aficionado.

[WhizBang]

That photo is Terminal 21, for those that don't know.

But, what has that photo got to do with the article?

[Robby nz]

Short translation.

Corruption is dragging the country down and it has to stop.

The private sector must take the lead in this as the Govt will not.

[Aussie Paul]

Probably the best PM Thailand has had in the last 30 years.

[manstr23]

Probably the best PM Thailand has had in the last 30 years.

I hope you mean the best looking PM ????

[Aussie Paul]

I was talking about Anand. But if he floats your boat, all luck to you.

[Aussie Paul]

Probably the best PM Thailand has had in the last 30 years.

I hope you mean the best looking PM ????

I was talking about Anand. But if he floats your boat, all luck to you.