Karin Zarifi, an independent consultant to the Securities and Exchange Commission Thailand, contributes the following post (the second in a two-part series on combating corporate corruption among Thai public companies):
In my last post, I discussed how the Thai Securities and Exchange Commission (SEC) was undertaking innovative measures, in conjunction with private sector initiatives, to fight corruption and encourage good corporate governance in Thai public companies. One of the SEC’s most important partners in its efforts is the Stock Exchange of Thailand (SET), on which approximately 600 companies are listed. The SET and the SEC have been promoting their own and each other’s initiatives, as well as those of private sector organizations like the Thai Institute of Directors (IOD) and the Thaipat Institute, in ways that are encouraging, and seem to be helping Thailand to become a corporate sustainability leader among Association of Southeast Asian Nations (ASEAN) member countries.
The role of the SET in fighting corruption cannot be overlooked. Stock exchanges are uniquely positioned to use their listing and disclosure requirements to encourage sustainable practices, including anticorruption, by listed companies and allow consideration by investors. The role of stock exchanges in wealthy countries — most notably the New York Stock Exchange — in imposing ethics and disclosure requirements on listed companies is already well-known. The SET’s recent initiatives demonstrate that stock exchanges in developing countries can also play this role. Although a stock exchange’s anticorruption initiatives cannot substitute for appropriate action by government regulators, they are a vital complement to government efforts to prohibit bribery and corruption.
The SET has taken action to promote good governance and anticorruption in several different ways:
- In 2012 the SET adopted the Principles of Good Corporate Governance for Listed Companies (2012 Principles). The 2012 Principles are based on international standards (including OECD standards), World Bank recommendations, and feedback from key industry stakeholders, such as the Thai Listed Companies Association, the SEC, and the Thai National Corporate Governance Committee. The 2012 Principles cover the rights and equitable treatment of shareholders, the role of stakeholders, the importance of disclosure and transparency, and the responsibilities of the board. In the specific context of anticorruption, under the 2012 Principles companies should provide an explanation of their anticorruption programs, including policies, codes of conduct and training, on their websites and elsewhere. Given the imminent creation of the ASEAN Economic Community ASEAN Economic Community, as well as ongoing ambitions to link exchanges in ASEAN, the SET also ensured that the 2012 Principles were compatible with the ASEAN Corporate Governance Scorecard used to assess ASEAN listed companies.
- To try to give more teeth to the 2012 Principles, as of last year the SET (and SEC) have required Thai listed companies and those seeking to issue new securities to disclose and explain their (non-)compliance with the 2012 Principles, including anticorruption policies and measures, to the SEC and SET.
- The SET, together with the Thai SEC, also sponsored the IOD’s development of the IOD’s annual Corporate Governance Report of Thai Listed Companies (CGR). Like the SET’s 2012 Principles, the CGR criteria are aligned with the ASEAN Corporate Governance Scorecard and adapted from international standards. Companies with top CGR scores (currently nearly 90) are included in a hypothetical portfolio of companies that make up the IOD CG Investment Index. The Index links corporate governance performance to stock performance and shows the market that it pays to invest in companies with good sustainability practices.
- The SET further promotes and prepares Thai public companies for assessment and inclusion on other international corporate sustainability indexes, such as the Dow Jones Sustainability Indices (DJSI). (In 2014, ten Thai listed companies were included in a DJSI index, compared to four in 2013.) Moreover, SET is also developing its own sustainability index.
- The SET also sponsors training for investors and companies, as well as promotes dialogue about compliance, corporate social responsibility, and good corporate governance. As part of these efforts, the SET (together with the Thaipat Institute) has launched “corporate citizenship” initiatives and “creating shared value” strategies to stimulate the private sector to adopt good corporate governance and anticorruption cultures.
The above initiatives illustrate how stock exchanges can play a constructive role in encouraging good corporate governance and anticorruption compliance, even in developing countries with a history of serious corporate corruption problems. As I noted in my last post, it is still too soon to assess how successful these initiatives will be, but the early signs are encouraging, and Thailand’s experience may provide a model for effective collaboration between government regulators, national stock exchanges, non-governmental certification bodies, and the private sector in the fight against corporate corruption.
This seems like a natural complement to the purely public-sector activities of the NGO that you mentioned in your last post; looks great! A partnership that stretches from the government (SEC) to private (the SET) to civil society (the aforementioned NGO) — ideal. I wonder what is motivating the SET to undertake these initiatives? Is it too cynical of me to guess that more capital would form on their exchange if their listing standards were less stringent? Hopefully that is indeed too cynical. Maybe listing requirements that encourage transparent and responsible corporate practices will have the effect of clearing out the riff-raff and attracting high-quality listers and investors. A related thought: I wonder if these initiatives go beyond what exchanges in Singapore or Hong Kong have undertaken? I understand that those countries are known for their clean and efficient capital markets, but some of these initiatives that the SET is involved with sound like they go beyond the goal of merely establishing well-functioning stock markets.