Keynote Address

on

"Thailand's Governance Challenge"

by

Anand Panyarachun

Chairman, Siam Commercial Bank Public Company Limited

at the 2nd National Director Conference 2013

12 June 2013

Plaza Athenee Hotel, Bangkok

Mr. Chairman,
Members of the Thai IOD Board,
Distinguished Speakers,
Ladies and Gentlemen:

It is a pleasure for me to be here with you today on the occasion of the second Thai IOD National Directors' Conference.

At the outset, let me thank Khun Krik-Krai Jirapeat for a very warm and generous introduction, as well as Dr. Bandid and the Thai IOD for having invited me to give this year's conference keynote address.

We meet today to reflect upon our roles and duties as company directors, rising to the challenges of an increasingly complex business, economic, social and political environment.

I used the word "duties" as the fiduciary role of company directors has, in recent years, evolved into a much more demanding and participatory function.

This is due to several factors. First, the issues facing the board are more varied and complex, requiring greater attention and scrutiny. They also demand a decision-making process that is thorough, transparent and accountable.

Second, investors, and other stakeholders be they customers, clients, employees have become more governance-conscious they are interested in how well companies are being managed. In this regard, timely and accurate information from the Management is critical to enable the board to carry out its oversight function.

Third, the regulatory demand on corporate boards is also increasing requiring members to have specialized and diverse expertise as well as independence.

All these factors make company directorship a much more demanding responsibility, not to mention rising stakeholders' expectations for company boards to have a greater sense of public responsibility when it comes to issues that affect society at large.

Reflecting on and anticipating these developments, the Thai IOD has successfully positioned itself as a key institution providing company directors with a platform to discuss issues, share experience, and build a shared knowledge of company directorship and best practices.

I am pleased to note the strong and steady progress that the Institute has made over the past years, and I'am confident that it will continue to take corporate governance to even higher levels of excellence in Thailand.

These are significant achievements that need to be acknowledged.

Ladies and gentlemen,

Effectively addressing the issue of corporate governance in Thailand requires us to look at the broader picture of governance in the public as well as private sectors.

The first occasion I spoke on this particular subject goes back as far as 1998. At that time, the country was in the throes of the Asian Financial Crisis. I had attributed the 1997 crisis specifically then to the failure of institution-building.

Our key economic, political, and social institutions were badly in need of reform. They lacked the capacity to deal with the challenges of globalization and the risks associated with an increasingly interdependent world.

What followed was an especially "dark period" for Thailand, characterized by haphazardness, weak policy responses, poor governance, and lopsided development, deepening the crisis even more.

I'm reminded of the comment made by the former Fed Chairman who referred to that period with the key word 'irrational exuberance'.

The establishment of the IOD and the subsequent development of a corporate governance framework were a direct response to that experience. Thanks to the substantial efforts made in training thousands of company directors, and in promoting corporate governance awareness, many Thai companies - from banks to manufacturers have made remarkable strides in enhancing their professionalism, and management and governance structures.

Some have even become leading regional and global players. These achievements have provided us with a comforting sense of assurance that some important lessons have been learned from that dark experience in our history.

Yet at the same time, we must acknowledge that significant gaps still remain, both in the private and, and if I may say so, particularly in the public sectors. Improvements in corporate governance have been generally limited to listed companies, and even in that category, more can and needs to be done.

Amongst the listed companies, improvements are concentrated in the top echelon of companies that have diversified ownership or shareholder structures. Outside of these companies, corporate governance remains relatively weak, especially in the following three groups:

First, the large listed companies which are family-owned;

Second, the listed government-controlled state enterprises whose governance practices are becoming more and more subject to close scrutiny;

The third, comprising the largest group of listed companies-- is the mid-size listed companies whose gaps in corporate governance are the greatest. We need to seriously encourage better governance of these companies as they play a vital role in the long-term prosperity of the Thai economy.

The challenge before us is to instill a more uniform and widespread adoption of corporate governance best practices amongst the Thai listed companies.

This will help lift the overall quality of governance in our capital market and provide momentum for corporate governance to extend further into a wider part of the private sector, including the small and medium enterprises which are the backbone of our industries and economy.

I would like now to turn now to another worrisome trend, perhaps the word worrisome is even weaker that what I intend to say that is the state of public governance which I believe, in recent years, has been fast deteriorating. This is evidenced by the decline in national competitiveness that has been driven by a large drop in public sector performance and what appears to be increasing political interference, cronyism, favoritism, and even empire building, and other forms of unacceptable behavior that occur when the line between public service and private interests gets blurred.

It seems to me that not too many people in this government sector do understand and appreciate the true meaning of the term "conflict of interest", and many of them definitely have showed no intention of wanting to learn the meaning of that particular principle.

To this end, past efforts to adopt new constitutions and enact new laws to increase check and balance mechanisms and ensure a fair degree of social justice have failed to make the expected impact due to obstacles, man-made or otherwise, in their enforcement.

So, while the Thai economy seems to be going well, and has even proved resilient to the effects of external shocks, and while many leading Thai companies have made a name for themselves on the world stage, overall as a country, we have not fared so well.

Of most concern is our unstable and polarized politics. Our politics, and our political establishments, have certainly not served the country and our people well. The pursuit of power and personal interest at all cost over the public interest continues to dominate Thai political life.

Very much related to this issue are the increasing inequalities in Thai society not just between the richest and the poorest, but also between the richest and the middle class.

According to a reliable estimate, Thailand's Gini-coefficient - a widely accepted measure of income distribution - increased from 42 in 2002 to 54 in 2009. The rising income and wealth disparities threaten the fabric of society and have the potential to fuel social unrest, as we have seen in other regions of the world.

There has long been a debate in the academic circles on two words, one is "development", particularly economic development, and the other term "social justice". Many economists of course have those social concerns. But as we live in this more complex world, better educated and better informed societies, it is inevitable that at some juncture on the path to economic development, governments and other sectors of society just have to get together and deal seriously with the matters of social concern, be it inequality, be it power relationship, between the government and the people. That's why other terms have arisen in the past ten to twenty years, terms like "empowering people", or "capacity building of people", or terms like "smaller government", "smaller bureaucracy", "more direct participation of the people in the running of the country", these are all terms that have gained increasing importance and relevance to the larger issue of governance. I'm sorry that these terms have not been widely debated in our society as they should have been.

I hope that some academic institution, and even IOD, while they do very well and effectively with the technical aspects of governance, I hope they will spend more time dealing with the soft side, with the less technical nature of governance. To me it's the key. It's the key because you can impose rules and regulations, you can impose boundaries, you can fix targets, but the most important aspect in any kind of management, be it running a company or running a country, it is the mind set, it is the attitude, it is the working culture. And you won't change your mind set, you won't change your attitude, you won't change your working culture just by following the rules and regulations. This is where the leadership comes in. So we have to deal with the soft side, or I would say the smart side of governance more seriously than we have in the past.

Against these developments, I have to say the current situation gives me cause for concern and discomfort.

While the economy may yet again be on a high growth path, this growth is unsustainable. It is fueled by cheap foreign money, unchecked public spending, and a lax business ethos.

This is a lethal combination, posing risks that have proven fatal in the past, and which could set the stage for another financial crisis.

Like much of Asia, we have been enjoying robust growth in recent years. But we must not be complacent. We should learn what lessons we can from the latest financial crises in the US and Europe, particularly with regard to excessive credits, runaway budget deficits, rapid build-up of public debts, not to mention unwillingness to practice fiscal discipline.

Why, in such a short space of time, have we come to this state of affairs?

The answer, I believe, lies squarely in our failure to use the crisis in the late 1990s as an opportunity to undertake thorough and meaningful reforms of our institutions and power structures. With weak institutions and ineffective rule of law, the capacity of the people to determine their own future is reduced.

Another reason, I believe, is the contradiction, self-inflicted by all of us, between the outward-looking and market-based economic doctrine that we have sought to promote on the one hand, and the inward-looking and narrowly-based politics on the other.

Over time the contradiction has ossified into institutional inertia and, worse, has morphed into these entrenched patronage networks and cronyism, through which the country's resources are now unfairly allocated.

Such a modus operandi breeds inefficiency, rent-seeking, and corruption, a sure recipe for national disaster.

It is clear that for the future of Thailand, this contradiction has to stop.

One of the key reforms to change this course is a rigorous push for better governance in all sectors of society. We must advocate good governance in all areas and levels of society, be it government, business or civil society.

This is what a conference like this is all about – to bring people together to discuss ways and means to promote more effective governance of this country.

For the business community, directors of companies must see it as a core duty. They must push for good corporate governance, both in words and in practice.

In doing so, they must focus on real substance that will change attitudes, behaviour and culture, and not just "form".

Good governance is critical to better management of human and capital resources, and to greater efficiency and balanced and sustainable growth and development.

At the national level, good governance must be built on three pillars:

The first and most crucial is that Government must respond to, and serve, the real needs of the people. The emphasis is on the word "real", because we have seen examples in the past of needs being created artificially to satisfy certain groups of people or certain class of people.

The second pillar is an open and transparent decision-making process. It is ridiculous that governments cannot provide facts and figures on a timely basis. It is unacceptable that the uninformed in a country are made to remain uninformed permanently. In any society it is essential and it is a duty for all of us, not just to inform the informed, but to inform the uninformed. That is how societies progress.

And the third is the system of checks and balances, based on accountability and active participatory roles for private individuals and civil society.

Ladies and gentlemen,

Rebuilding our country's governance must take place at all levels in all sincerity. It calls for leadership, leadership, not just corporate leadership but particularly political leadership, social leadership, grounded on the values of integrity, accountability and trustworthiness.

We need a public sector that is responsive to the people's needs.

The private sector must do its part by promoting clean business and adhering to ethical codes of conduct.

Far too long, in the past, the private sector was merely content to stand by, to observe, to criticise, but never really to do something about it.

Private individuals must engage in good citizenry, which means recognition of what is "right" and "wrong" and speak up.

There was a time, after the Second World War, when an American diplomat was heard to have said something to the effect that Thailand was a country of "sheep". I'm sure he did not mean to insult the Thai people but he was merely reflecting the truth at that time, an unpleasant truth, and sixty or seventy years later, we are still not prepared nor willing to show by deeds that what he said years ago is not entirely accurate.

According to Theodore Roosevelt all citizens "shall be able and willing to pull his or her weight". So, we must all pull our weight together, do our part, and tackle head-on the country's most important and urgent task.

As many of you know, I too am a company director and chair a board of directors. To do our part as company directors in re-building governance, we directors must assume a leadership role and advocate good corporate governance by example.

This includes demonstrating that good corporate governance does matter for our institutions and the country, living that value by word and deed, being open to other people's views, and constantly evaluating our own actions. All these actions will go a long way towards showing our commitment as company directors to corporate governance.

Ladies and gentlemen,

Thailand is once again at a crossroads. We have a task ahead of us - to rebuild the country's governance.

Failure to do this can, and will have, devastating consequences for our future as a nation.

The scenario depicted in William Yeats' apocalyptic poem could indeed become a reality. He wrote "..Things fall apart; the centre can no longer hold .. The best lack all conviction, while the worst are full of passionate intensity."

This is the time for all of us to act, to reverse course. Failure cannot be an option.

We can together and we must succeed.

Thank you.