Managing risks in Thailand through effective corporate governance

Corporate governance is not a new concept in Thailand. The principles are embedded in various Thai laws, regulations and guidelines (for example, the Corporate Governance Code for listed companies issued by the Securities and Exchange Commission of Thailand).

However, with the increasing importance for companies to operate within the framework of environment, social and governance (ESG) and to implement its principles in business practices, there is a renewed focus for companies to review their own corporate governance policies and practices to ensure that they are aligned with not only Thai laws and regulations but also international norms.

This may be particularly significant for companies operating upstream or downstream as part of a global supply chain. The current volatile nature of the global economy means that companies must have robust corporate governance structures in place to mitigate against potential business disruptions.

This article not only touches on the “G” side of ESG, which is directly relevant to corporate governance, but we will also explore how the “S” side may be just as necessary, as governance and social issues are often interconnected.

Bridging departmental gaps in governance

Companies are typically structured to include various departments or groups, and it is possible that groups responsible for overseeing specific sides of the company’s corporate governance framework may not be connected to each other. For example, in procuring products or services or engaging third-party contractors, the company’s operational, procurement, legal/compliance and finance teams may be reviewing different components of transactions.

Gaps in control and oversight processes may appear if the company lacks appropriate mechanisms (including relevant policies and procedures) to address these issues. These gaps can lead to systematic issues for the company. For instance, the authors have seen a large number of fraud and conflict of interest cases in procurement processes. Often, these issues occur because the company has inadequate corporate governance structures in place.

Integrating harassment prevention across functions

Another example could be in relation to sexual harassment prevention measures. Sexual harassment is an area that is receiving greater scrutiny in Thailand with recent changes to key laws (including under the Penal Code). These now include provisions that deal specifically with sexual harassment. This appears to align with trends globally.

In Thailand, employees are raising concerns about sexual harassment on an increasing basis. Given these developments in the “S” side of ESG, companies must ensure that they develop measures relating to the prevention of sexual harassment to protect employees.

However, these measures are only effective if the human resources department works in tandem with other company functions to integrate sexual harassment prevention measures into other corporate governance structures. Failure to do this may lead to the sexual harassment prevention measures becoming ineffective, exposing the company to potential legal, regulatory or reputational risks.

Tone from top drives governance

The first step for creating an effective corporate governance programme for any company is to have a clear “tone from the top”. The management of the company, including the board of directors, must show their commitment to good corporate governance not only in rhetoric, but also in their actions. This means providing appropriate and adequate resources, investment and planning to meet the corporate governance requirements.

Management are also responsible for creating, fostering and protecting a culture within the company that puts corporate governance at the heart of all decision making processes and encourages employees to speak up if they are aware of issues that may impact the company from a corporate governance perspective. The protection of this culture can be done by having measures in place to allow employees to report concerns in a confidential manner, while also having robust mechanisms to protect employees who make reports in good faith, and prevent retaliation.

In order to fully implement the company’s corporate governance culture, the company should then create appropriate policies and procedures to provide adequate guidelines, structures and frameworks for management and employees.

The policies and procedures that a company should create and implement are different for each company, and may ultimately also be dependent on their operations and risk profile. It may therefore be necessary for the company to undertake an internal review to identify such operational issues and their related risks.

At a minimum, companies should consider implementing policies and procedures that deal with the key risks faced by all companies. For example, a company should have policies and procedures dealing with: its procurement processes; financial/accounting controls (including control over use of assets); human resource management; and key legal, regulatory or compliance issues (such as issues related to anti-bribery or anti-money laundering measures, conflicts of interest, interactions with competitors, and protection against workplace discrimination or harassment).

The application of a company’s policies and procedures may not be limited to its internal stakeholders, but can also be used for interactions with external parties. The need for this may be based on specific interactions with third parties, and what risks they may pose to the company’s operations. This may extend to suppliers, contractors, business partners, customers or other third parties. The third parties that the company interacts with should also be subject to appropriate due diligence processes where necessary. An illustration of where this may be important from a corporate governance perspective is in the engagement of vendors or suppliers, where the company will want to ensure that it is entering into a relationship with a reputable party, free from any conflicts of interest with the company.

Another instance related to the “S” side is the growing trend in terms of the use of human rights due diligence (HRDD) as a proactive measure to handle human rights issues (including in relation to forced labour). In Thailand, there is currently no specific legislation that imposes obligations on companies to conduct HRDD, but some companies are being required by external parties to conduct HRDD to ensure their business practices are ethical and do not violate human rights or other legal obligations.

Having policies and procedures in place may not be sufficient if they are not implemented in practice. The company should ensure that its policies and procedures are made readily available to all relevant stakeholders (internal and external) through appropriate channels.

One of the key implementation tools for such stakeholder engagement (especially with the company’s own employees) may be through the development of training programmes, which may combine both online resources with in-person sessions. For companies operating in Thailand, arranging in-person sessions in Thai may be one of the most effective ways to deliver the training and allow employees the opportunity to raise questions or seek guidance.

Finally, a company’s corporate governance structure does not remain static, but should be evolving based on the nature of each business. Companies will therefore be required to continually monitor the effectiveness of their corporate governance structure to meet the changes they may face. This may involve the use of internal or external audits to review company practices.

Corporate governance turns policy real

Ultimately, corporate governance should be viewed not merely as a set of policies or compliance requirements, but as the operating framework that ensures risk mitigation and compliance measures are translated into practice. A strong corporate governance structure creates clear accountability, connects the responsibilities of different functions, embeds controls into day-to-day decision making, and allows management to monitor whether policies are being properly implemented and remain effective.

Corporate governance becomes the mechanism through which a company can identify risks early, respond to them consistently, and demonstrate that its commitment to legal, regulatory and ethical standards is real, measurable and sustainable.