Karin Zarifi, an independent consultant to the Securities and Exchange Commission Thailand, contributes the following post (the first in a two-part series on combating corporate corruption among Thai public companies):

In Thailand, despite increased focus on anticorruption, corporate governance and Corporate Social Responsibility (CSR) improvements in the private sector (see, e.g., here and here), the Thai business community does not seem convinced that anticorruption is in its interest, at least short-term. Only last April, companies listed on the Stock Exchange of Thailand (SET) were telling the Thai Securities and Exchange Commission (SEC) that they were unwilling to stay away from paying “tea money” (that is, bribes), for fear of losing out to competitors. Yet the last nine months have seen considerable progress on this front.

Some of the progress has been driven by private sector initiatives, including initiatives spearheaded by the SET. I will discuss these in my next post. But much of the progress has been driven by the Thai SEC. As Jeena Kim pointed out in a recent post on this blog (in the context of South Korea) securities regulators are well-positioned — and often better-positioned than public prosecutors — to take effective action against corporate corruption. But whereas Ms. Kim highlighted the Korean securities regulator’s ability to enforce South Korea’s foreign anti-bribery laws, the Thai example illustrates how securities regulators can encourage the development of a culture of compliance, good corporate governance, and corporate social responsibility more generally, using tools beyond simply enforcing the securities laws.

The Thai SEC’s initiatives to fight corruption, and to promote good corporate governance and corporate social responsibility more generally, have included several elements:

First, the SEC expressly made anticorruption a priority, and firmed up its commitment to cleaner capital markets through imposing stricter requirements on listed companies to disclose their anticorruption activities in their annual reports, registration statements and elsewhere (see, e.g., here, at page 27).

Second, and perhaps more interesting and innovative, the Thai SEC has supported key private sector initiatives that promote control of corruption through self-discipline and market discipline, rather than relying solely on regulatory discipline. For example:

• Realizing that anticorruption progress has to be quantifiable to reap market discipline benefits and attract international investors, last year the SEC, in collaboration with a public interest organization called the Thaipat Institute, created anticorruption self-assessment criteria to measure a listed company’s own progress in the adoption and implementation of anticorruption measures. This “Anti-Corruption Progress Rating” (described here and here) classifies each company’s anticorruption policy into one of five “levels” (committed, declared, established, certified, and extended). The SEC published results of the first listed company Anti-Corruption Progress Rating in October 2014. That rating shows that only 344 (60%) of the SEC’s targeted approximately 600 listed companies achieved Level 1 (“committed”) or higher, and only 28 listed companies achieved Level 4 (“certification” by the private sector Institute of Directors (IOD) Collective Action Against Corruption (CAC) program). The results caused the SEC to renew its call for anticorruption commitment by all listed companies, with the expectation that 60% of listed companies will be CAC certified by 2018.
• Furthermore, in addition to using the Anti-Corruption Progress Rating to encourage anticorruption progress by listed companies, the SEC recently increased pressure on financial intermediaries, such as banks and securities and asset management companies to adopt it. The SEC asked securities and asset management companies to include the Anti-Corruption Progress Ratings in their research on listed companies for the benefit of investors’ and their own investment decisions. The SEC further announced that it will publish Anti-Corruption Progress Ratings for the financial intermediaries themselves as of 2016, and has specifically asked these institutions to show anticorruption leadership by getting CAC certified (level 4 of the Progress Rating) before the end of 2014.

Third, the SEC has undertaken educational and outreach initiatives to support anticorruption efforts, and corporate compliance more generally. For example:

• Last year the SEC published guidelines for effectively exercising shareholder rights and previously published (with SET) two manuals containing corporate sustainability and CSR reporting guidelines based on the Global Reporting Initiative.
• The SEC also provides and supports anticorruption seminars and training.  And, it recently teamed up with four leading Thai business schools to create a platform for capital market research, including on the importance of corporate governance in protecting public companies against adverse market circumstances.

These initiatives, coupled with those of the SET, seem to be bearing fruit. As noted at the outset, in April 2014, many public companies were telling the SEC that eschewing all bribery was unrealistic. At that time, only 134 of 586 Thai listed companies had formally committed to adopting the IOD’s anticorruption compliance standards, and only nine companies had received CAC certification. Six months later, in October 2014, the number of CAC-certified companies had increased to 78 — almost a nine-fold increase — with 179 listed companies having declared intent. Although it is far too soon to declare the SEC’s initiatives a success, this evidence is an encouraging sign that the SEC’s innovative measures — particularly its partnership with non-governmental organizations and private sector initiatives — may succeed in fostering corporate anticorruption policies that promote sustainable corporate wealth creation, and by extension sustainable growth and development of the Thai capital market and economy.