Global Corporate Governance and Risk-Taking Issues
Global business attention has been fixed on the tension between risk-taking and corporate governance stakeholder expectations which manifested themselves in relation to the activities of the aggressive investment group, Softbank [1]. The issues in relation to falling values of investments have been attributed to reports on corporate governance issues [2] which range from alleged over-reliance on a primary source of debt; risk-taking investments on cash-burning entities as a trade-off for speculation on scaleability and market share ambition; placing too much control in the hands of co-founders such as at We-Work; failing to factor the impact of loss-making in investments such as Uber; and most recently – deciding to run with a plan to invest in T-Mobile at the same time as planning a share buyback [3].
South-East Asian Perspective
This is interesting to watch from a South-East Asian perspective, where there is often criticism levelled at the degree of concentration of ownership and corporate governance structures which accommodate family holdings and control. Thailand is known for its powerful family structures, which has been subject to some criticism in relation to the fallout from the Asian Economic Crisis [4], some fair and some naïve to the benefits and longevity of investment decisions which can mitigate the highly volatile and large bet-oriented decisions in more widely dispersed shareholding jurisdictions where accountability is also widely dispersed and no one family will be heading up the meeting to investigate investment decisions.
Thailand’s Family Concentration – Benefits and Challenges
Thailand’s family concentration structure has been said to have benefitted the ability of stronger upper-tier banks to navigate financial stress [5] and there are many benefits identified in principal-agency theory to using a concentrated ownership structure such as greater incentive and lowered costs for monitoring, reduced information asymmetry, ability to make strong strategic decisions in a speedier manner albeit with potentially less debate, and a clear vested interest in positive outcomes over the long-term even if short term issues such as the use of information inside the business may pop up creating conflicts of interest with minority shareholders.
Continued Rise of Sustainability Practice Measurement in Thai Firms
Thailand continues to move forward with its corporate governance initiatives including the SET and public and private sector endorsement to focus on more sustainable investment practice in the investment and corporate governance aspects of firms [6]. Corporate Governance systems must therefore adapt to take into account sustainability and criteria will be used to assess firm and board performance linked to such adaptation. There are Industry Specific Indicators for 8 Industry Groups that comprise Economic: Cyber Security and Information Security; Product / Service Quality Management; Environmental: Responsible Marketing; Responsible Sourcing; Operational Eco-Efficiency (Air Pollution / Hazardous Waste); Product Responsibility; Water-Related Risk; Biodiversity; Quality of Construction Material, Social: Responsible Finance; Financial Inclusion; Digital Inclusion. The SET reviews the performance of firms and places them into the index for investor and market information.
Whilst the Government continues to be under fire for poor performance for pandemic issue management, firms and investors continue in the private sector to allocate their resources and efforts into meeting increasingly challenging criteria measured against modern principles of sustainability.
How Can Small and Large Firms Continue to Increase Firm Value Through Corporate Governance
Busy board members must still take their duties seriously, and there is scrutiny from investors on the number of appointments that directors have on multiple boards, including independent non-executive directors who must ensure they are not too thinly spread to devalue potential monitoring and deployment of detached independent views onto boards to provide the balance that international and Thai domestic frameworks demand.
One of the critical time and labour saving devices for assisting board members is quasi-automated tech systems which list compliance tasks in an easy and accessible format, provide structured and manageable deadline reminders, and can also provide important legal and regulatory guidance for directors in relation to each task to minimise the need for repetitive resource sapping interactions with in-house and/or external legal counsel other than for difficult complex situations.
Hughes Krupica and Quant Legal Tech’s Partnership Designed to Embrace Compliance Tech Disbursement in Thailand
Hughes Krupica recently agreed with the developer and owner of “Complius”, Quant Legal Tech, to assist with the prospective use of Complius in the Thai market. This demonstrates support for the widely proven fact that corporate governance improvements enhance value over short to long term time horizons and they may be adapted to suit the introduction of new corporate governance criteria, particularly in the sustainability arena. We look forward to being able to deliver toolkits and compliance-enhancing tech to our clients.
For more information, kindly see:
- https://quantlegaltech.com/complius
- https://www.hugheskrupica.com/tech
- https://www.linkedin.com/posts/quantlegaltech_thailand-compliancesupport-complianceprofessionals-activity-6821675491318083584-I2Zl
[1] If Masa said yes, who am I to object?: inside Softbank’s compliance debate (Financial Times Online, Due Diligence, 10 August 2021 see: https://www.ft.com/content/dfed9c06-c090-4404-9983-648c1dbaa045 last accessed 23 August 2021)
[2] Arash Massoudi & Leo Lewis Softbank: Blind spots threaten Masayoshi Son’s $100bn Vision (Financial Times Online, 4 November 2019 see: https://www.ft.com/content/25f76710-fbde-11e9-98fd-4d6c20050229 last accessed 23 August 2021)
[3] ibid 1.
[4] Surachai Chancharat & Nongrit Chancharat Board Structure, Ownership Structure, and Performance of Thai Listed Companies (Australasian Accounting, Business and Finance Journal, Volume 13, Issue 3, Article 5, 2019, https://www.ft.com/content/25f76710-fbde-11e9-98fd-4d6c20050229) see 1. Introduction pp.54-56 and 2. Background and Literature Review s.2.1 Corporate Governance in Thailand: The Significance and Reform pp.56-57
[5] Pramuan Bunkanwanicha, Jyoti Gupta & Yupana Wiwattanakantang Family Business Groups, and Organizational Structure: A Study of Bank Pyramidical Ownership in Thailand (ECGI Working Paper Series in Finance, Working Paper No. 434/2014, July 2014, see http://ssrn.com/abstract=2465165 ) pp.1-41
[6] Stock Exchange of Thailand Thailand Sustainability Investment (THSI) (see https://www.setsustainability.com/page/thsi-thailand-sustainability-investment for an explanation of the initiative and awards and assessment criteria) last accessed 23rd August 2021
