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The concept of shareholder's protection is first appeared in Thailand in 1993 when the Public Limited Companies Act B.E.2535 was introduced. The law offers a relative comprehensive protection of basic shareholders' right.
(1) Negative Control
Major transactions matters i.e., the alteration of articles of association, reduction of capital etc., requires mandatory shareholder approval (75% of votes present).86 Nonetheless, the law is silent in the provisions for shareholder's right protection in the interested transactions, the transactions that one or more directors have an interest on. These transactions are approved by the board of directors but do not require mandatory shareholder approval. Such transactions are the most common means by which corporate funds in Thailand are expropriated by majority shareholders who appoint the board of directors.87 As a result, the provisions of negative control in Thailand still have much room to improve.
(2) Securities Laws and Regulations
Over the past two years, the SET and the Securities and Exchange Commission (SEC) have greatly attempted to strengthen shareholders' protection. For example, in 1998, the SEC formed a working group to study the possibility of allowing groups of minority shareholders to instigate class action lawsuits against management.88 However, the present regulations are still far behind satisfactory. For examples, two listed companies posted a lot of profits but one paid a little dividends and the other refused to pay them. Goodyear (Thailand) posted profits of 381.01 million bath in 1999.89 Major shareholders approved dividend payments of just 14.8 million or 2 baht per share, but approved payments of 36 million bath to their board representatives, at the expense of the minor shareholders.90 Carpet International posted profits of 68 million baht, or 6.82 baht per share in 1999 but refuse to pay dividends to the shareholders. In both cases, the SET and the SEC could not do anything.91 However, these cases would certainly have an impact on investor confidence. As a result, if the SET and the SEC would like to attract investors to high-performance firms, they must ensure investors that once their investment would not be taken advantages of by other major shareholders.
(3) Statutory Action
In practice, minority shareholders rarely exercised their rights, since they have been driven mainly by speculative motive rather than a long-term investment.92 Most are looking for the opportunity to make a quick profit.93 Only few are aware of and pay attention to their rights and duty.94
Besides, minority shareholders seeking redress and compensation through the courts are facing free-rider problems.95 That is all shareholders would benefit from any successful action initiated by a few. Moreover the SEC lacked sufficient power to prosecute directors who breached their duties. For example, in case of directors' fraud, a criminal offence, the SEC must prove beyond reasonable doubt that there is an intention to defraud a company, which is extremely difficult to do.96 As a consequence, it takes time for the minority shareholders to proceed and win the case.97
The more serious problem is that Section 94 of the Public Limited Companies Act clearly provides that the directors are jointly responsible for clear violations of the rules of law.98 When it comes to the board's accountability to its fiduciary duty, however, the law is very much vague.99
With bar fraud an clear violations of the written rules and regulations, it would be difficult to prove whether a director has performed his duty in good faith and with care to preserve the interests of the company. The court has had little experience in interpreting such sections. As a result, legal interpretation of the scope of a board's accountability to the shareholders is still unclear.
Even though the legal system in Hong Kong is Common law whereas that in Thailand is Civil law, there is much room to learn from each other.
First, in case of negative control, in order to protect minority shareholders' interests in Thailand, interested transactions must be required mandatory shareholder approval (75% of the votes).
Secondly, in case of listed companies posting a lot of profits but paying a little or refusing to pay dividends without acceptable reasons, the SET can learn from the SEHK by issuing a public statement of criticism or a public censure and to report the conduct to the Securities and Exchange Commission or other regulatory authorities.
Lastly, in case of statutory action, Thailand can learn from Hong Kong by simplifying the laws and regulations to be more accessible to minority shareholders.
E. Remuneration Committee
In Hong Kong as note earlier, many boards of listed companies are controlled by a dominant or controlling shareholder, who also commonly performs the dual role of the dual role of Chairman of the board and Chief Executive of the company.100 The board of directors approves the remuneration of the directors in total while only the Chief Executive is the one who knows how the total amount of remuneration of the board is allocated among the directors.101 This lack of transparency and accountability in the process of determining directors' remuneration is a concern to other shareholders and investors.102
In order to enhance transparency and accountability in directors' remuneration, in late 1999, the Hong Kong Society of Accountants (HKSA) published a new report titled "Directors' Remuneration-Recommendations for Enhanced Transparency and Accountability (1999)", the report compared the disclosure requirements of directors' remuneration covering Hong Kong, and other principal financial markets including USA, UK, Singapore and Australia.103 It recommended that board of directors should establish a remuneration committee, with the majority of members being independent non-executive directors to recommend the remuneration for executive directors and this requirement should be stipulated in the Code of Best Practices.104
In Thailand, executive remuneration has become one of the most controversial aspects of the current corporate governance debate. In 1998, the SET recommended that all listed companies should establish a remuneration committee, which determines executives' pay. A remuneration committee should be made up wholly independent non-executive directors.106 Its objective is to enhance disclosures and accountability in director's remuneration.107
One way of promoting transparency and accountability of the directors' remuneration is by using remuneration committees. Both Hong Kong and Thailand have initiated voluntary remuneration committees. This is a right direction but there is still much room for improvement. In order to enhance the standards of corporate governance in both Hong Kong and Thailand, the compulsory remuneration committees are required.
Whether or not there is such a link between corporate governance and corporate performance, corporate governance is of very importance. Since in the globalization world where capital can move freely within a microsecond, investors' confidence is always the motive of the funds movement. As a result, countries wishing to attract foreign funds and investments must inevitably develop and strengthen their corporate governance in order to maintain investors' confidence.
Corporate governance, however, is a part of culture, which reflects a society through its language, beliefs and customs.108 Different countries have different cultures. The development of corporate governance in one country underlines the way in which ideas and expectations become enshrined in the culture of that country. A system of corporate governance suitable for one country may not work well in the other if it does not entrenched into the underlying culture of the latter. As a result, the system of corporate governance workable in Hong Kong may not work well in Thailand and vice versa.
Even though, however, the whole system could not be duplicated from Hong Kong to solve the problems in Thailand and vice versa, details in some aspects of corporate governance i.e., the scope of corporate governance, the independent non-executive directors, the audit committees, the shareholder remedies, and the remuneration committees might be imported from the former to solve a certain problems in the latter and vice versa.
(86) The Public Limited Companies Act B.E.2535 of Thailand, Section 107 provides that:
Unless otherwise stipulated by this Act, a resolution of the shareholder meeting shall require:
(1) in the following events, a vote of not less than three quarters of the total number of votes of shareholders who attend the meeting and have the right to vote:
(a) the sale or transfer of the whole or important parts of the business of the company to other persons;
(b) the purchase or acceptance of transfer of the business of other companies or private companies by the company;
(c) the making, amending or terminating of contracts with respect to the granting of a lease of the whole or important parts of the business of the company, the assignment of the management of the business of the company to any other persons or the amalgamation of the business with other persons with the purpose of profit and loss sharing.
(87) Nikomborirak, Deunden., and Tangkitvanich, Somkiat., (1999)., note 54
(88) Asian Corporate Governance Association, note 27, at 39
(89) Bangkok Post (June 2, 2000). 'Stock Exchange of Thailand: Many bargains amid the bombs: Keep an eye on big shareholders and who gets the profits'
(92) Nikomborirak, Deunden., and Tangkitvanich, Somkiat., (1999)., note 54
(95) Asian Corporate Governance Association, note 27, at 40
(96) The Criminal Procedure Code of Thailand, Section 227.
(97) Asian Corporate Governance Association, note 27, at 41
(98) The Public Limited Companies Act B.E.2535 of Thailand, Section 94 provides:
The directors shall be jointly liable for any damage to the shareholders and persons concerned with the company in the following cases, unless it can be proven that they had no part in such wrongdoing:
(1) making false statements or concealing any information that should be disclosed about the financial condition and business operation of the company in the offer for sale of shares or debentures or other financial instruments of the company;
(2) presenting or filling out a document submitted to the Registrar containing false information or particulars or which does not correspond to the accounts, registers or documents of the company;
(3) preparing a false balance sheet, statement of profit and loss, minutes of a shareholder meeting or minutes of a meeting of the board of directors.
(99) The Public Limited Companies Act B.E.2535 of Thailand, Section 85 provides that:
In conducting the business of the company, the directors shall comply with all laws , objects and the articles of association of the company, and the resolutions of the shareholder meetings in good faith and with care to preserve the interests of the company.
(100) Corporate governance, 'Directors' Remuneration - Recommendations for enhanced Transparency and Accountability', in Corporate Governance, Class materials in Corporate Governance and Shareholder Remedies, CGSR.8/1000(ACa), Faculty of Law, University of Hong Kong, 10 October 2000, at 130
(103) Tsui, Judy., and Ferdinand A.Gul, note 26
(105) Trairatvorakul, Prasarn., (November 10, 1998)., note 55
(108) Tricker, Robert., (1994)., note 40