Rapee Sucharitkul, a member of the State Enterprise Policy Commission, warned investors that using corporate governance (CG) scores to select stocks is unreliable.
Rapee: CG scores can be like a time bomb
The CG score given by the Thai Institute of Directors (IOD) to listed firms does not reflect their real performance in making profits or in CG, so investors are recommended to study further before making a decision, he said.
The IOD's score is largely based on checklists, so any companies that completely comply with all items would get a high score.
"It is like a time bomb if investors truly trust only the IOD CG score without studying other risks of those companies. However, the CG score remains essential as investors can use it as a glimpse before screening and studying in detail," said Mr Rapee.
In developed markets, institutional investors conduct a CG assessment themselves. In the Thai market, where most investors are retail investors, they cannot afford such a sophisticated method.
Pornanong Budsaratragoon, a lecturer at Chulalongkorn University, said the university will arrange in-depth research about Thai listed firms’ CG to include more criteria such as management strategy.
However, it could take more than one year to complete research. The research will not be publicly published, but the Stock Exchange of Thailand (SET) could consider disseminating the results through available channels.
Mrs Pornanong said CG reform in Thailand should improve boards' independence and strengthen audit committees to enhance transparency in corporate activities and reliability of public accounting.
According to the IOD, the objectives of studying CG are to reflect development of listed companies' practices, publicise reports of CG performance, provide recommendations for improvement, give input to regulators for setting a CG framework and provide information to securities analysts to help their work.
The results are also used to promote good CG in the IOD's Board of the Year Awards and the SET Awards.
The scoring criteria for CG are based on the principles of good corporate governance by the Organization for Economic Cooperation and Development and by the SET.
There are 148 criteria in the following five categories — Rights of Shareholders with 24 items, Equitable Treatment of Shareholders with 16 items, Role of Stakeholders with 18 items, Disclosure and Transparency with 36 items and Board Responsibilities with 54 items.