Improving governance is key to reform

Improving governance is key to reform

The importance of governance as a key condition for sustaining growth is well and widely recognised, much more than it was a decade ago. Good governance leads to greater accountability and transparency — the two indispensable elements that create a business environment conducive to growth.

This is particularly true for emerging markets. Better governance and strong institutions will, among other things, make it possible for these countries to advance to a higher level of development, thereby avoiding the much dreaded middle-income trap. For governance to matter for growth, both public and corporate governance of the country have to be strong.

An anti-corruption campaign in the Ratchaprasong business area. Although corporate governance in listed companies has improved, this is not the case in the government sector with its strong bureaucratic and patronage culture. CHANAT KATANYU

Thailand has evidently made steady progress in corporate governance (CG) over the past 15 years, an achievement that is widely recognised. Thailand’s top-tier listed companies have recorded impressive performances, and have ranked above regional peers in the recent Asean CG scorecard assessments. Such progress, however, contradicts the perception of a worsening bribery and corruption problem in the country, Thailand’s corruption perception ranking having dropped sharply last year from 88 in 2012 to 102. This poses an interesting paradox: Why did corruption go up while corporate governance performance continues to improve?

Two possible explanations can be offered. First, improvement in corporate governance in listed companies alone is not enough to tackle corruption. Better governance practices must also happen in other parts of the private sector to achieve a broader impact on corruption. Second, the rise in corruption largely reflects the rapidly worsening condition of the country’s public governance.

According to the latest World Competitiveness Report by the World Economic Forum, Thailand’s competitive ranking in the areas of public institutions and administration slipped sharply. For example, indices such as wastefulness in government spending, transparency of government policy making, and public trust in politicians, all showed declines in rankings to alarming levels. The results are a tell-tale sign that major problems exist in the country’s public governance.

A crucial challenge to Thailand, therefore, is to address its governance problem. If we could rebuild the country’s public governance to levels we were at nine or 10 years ago, when the country’s corruption perception index was ranked at 59 and not the present 102, the feeling of a new and different country would surely emerge. So, governance reform is clearly a must for Thailand.

For corporate governance, the reforms must proceed on three fronts. First, listed companies must be the country’s leading example of good governance by continually improving their CG performance, especially in such areas as board responsibility and the role of stakeholders, and to close the gap between what is written as their CG policies and what is actually practised. This is a problem of form versus substance, a gap that could seriously hold down Thailand’s CG scores.

Second, good CG must be extended beyond listed companies to other parts of the private sector, to include non-listed companies, SMEs, family businesses, not-for-profit organisations, charities, and associations, which represent the backbone of Thailand’s trade and industry. This is one area that the Thai Institute of Directors is moving into, with offers of new courses and forums on SME governance and family businesses. But much more will need to be done by all concerned.

Third, the private sector must be part of the solution to corruption. This is where the real test of good CG lies. To this end, listed companies — which are the apex of Thailand’s industries — must be the agents of change that lead and support the private sector’s efforts in tackling corruption. The good news is that we are seeing it happening.

To date, 152 listed companies have voluntarily joined the Collective Action Coalition of the Private Sector Against Corruption (CAC). This is the initiative whereby signatory companies declare their commitments to have a clear policy on corruption and put in place high compliance standards to implement it. So far, a total of 323 companies nationwide have joined the initiative. And, out of the 152 listed companies that have joined, 18 have fulfilled the commitments and been certified by the CAC to that effect.

At this time, more listed companies are in the process of joining and being certified, while those already certified are enlarging the CAC network of clean business through companies in their supply chains. This adds further to the gathering momentum, led by listed companies as part of the private sector’s collective efforts to help the country tackle corruption and maintain the integrity of Thailand as a marketplace.

A more difficult reform is public governance. This is the area that is traditionally resistant to change because of Thailand’s strong bureaucratic and patronage culture. To that extent, the military intervention that restored peace and order offers a rare opportunity to implement serious public governance reform since it should more easily be able to bypass the otherwise lengthy legislation process under a normal civilian government.

Rebuilding public governance must be a top priority and must focus on raising the quality of decision making about public policy and streamlining government processes for greater accountability and transparency, especially the frontline government services that directly affect business and people to improve efficiency and reduce the risk of graft.

At the level of the national economy, given the large presence of government in the private sector in the form of state enterprises, the roles of state enterprises need to be overhauled.

We need to review the economic rationale for their existence, their mandate and involvement in the economy and financial market, the roles of the government as the owner, so as to ensure, from a public policy perspective, greater accountability between the government, state enterprises and the taxpayers.

These are important fundamental issues that need to be addressed, in parallel with the current focus on director appointment, board governance, and investment decisions, which are admittedly just as important.

Therefore, amid the current talk of reform, governance reform is a major reform that must not be overlooked. Success in governance reform will go a long way towards advancing the country and reducing corruption in a significant way. It is an important aspect of the real reform that Thailand needs, one in which all Thais must pull their weight.

Bandid Nijathaworn is President and CEO of the Thai Institute of Directors.

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