Thailand: Corporate Governance Comparative Guide

1 Legal and enforcement framework

1.1 Which legislative and regulatory provisions and codes of practice primarily govern corporate governance in your jurisdiction?

The main source of corporate governance for private limited companies – the most common form of legal entities for doing business in Thailand – is the Civil and Commercial Code, particularly Sections 1012 to 1024 and Sections 1096 to 1273/4. Non-compliance with certain provisions of the Civil and Commercial Code on corporate governance is subject to criminal penalties under the Act Prescribing Offences Relating to Registered Partnerships, Limited Partnerships, Limited Companies, Associations, and Foundations of 1956 (also known as the Corporate Offences Act).

Public companies whose securities are traded on the Stock Exchange of Thailand are subject to the Public Companies Act of 1992 and the Securities and Exchange Act of 1992. There is also a Corporate Governance Code for Listed Companies published in 2017 as a collaboration among various organisations, such as the Office of the Securities Exchange Commission and the Stock Exchange of Thailand.

1.2 Is the corporate governance framework in your jurisdiction primarily based on hard (mandatory) law and regulation or soft (eg, ‘comply or explain') codes of governance?

The corporate governance framework in Thailand is primarily based on hard (mandatory) laws and regulations.

1.3 Which bodies are responsible for drafting and enforcing the rules and codes that make up the corporate governance framework? What powers do they have?

Apart from the Civil and Commercial Code, the Corporate Offences Act, the Public Companies Act and the Securities and Exchange Act, as enacted and amended from time to time by the Thai Parliament, the following play a vital role in shaping the corporate governance framework:

• decisions of the Supreme Court in precedent cases; and
• subordinate laws and regulations issued by:
• • the Department of Business Development of the Thai Ministry of Commerce, which is the main government agency responsible for the registration and regulation of companies in Thailand; and
  • the Securities and Exchange Commission, which is the main government agency responsible for regulation of publicly traded securities.

2 Scope of application

2.1 Which entities are captured by the rules and codes that make up the principal elements of the corporate governance framework in your jurisdiction?

All companies, whether private or public, and all other types of legal entities are subject to a certain corporate governance framework, although the details applicable to different types of legal entities vary significantly depending on the type of entity and the laws and regulations applicable to it.

2.2 What exemptions, if any, from the principal elements of the corporate governance framework are available in your jurisdiction?

Not applicable.

2.3 What are the principal issues covered by the codes of governance in your jurisdiction?

The issues covered include the following:

• business management;
• meeting rules;
• decision-making processes;
• appointment and removal of legal representatives;
• distribution of profits; and
• liabilities of shareholders and directors.

3 Ownership and control

3.1 What are the typical ownership structures in your jurisdiction?

Companies in Thailand issue capital shares of equal par value to their shareholders. The ownership of companies in Thailand is determined by the number of shares owned by the shareholders. Private companies must always have a minimum of three shareholders. However, the second and third shareholders in any particular company may own as few as one share each just to satisfy the legal requirement, effectively making the company a wholly owned company of the key shareholder.

By contrast, public companies must have a minimum of 15 shareholders. If they are listed on the Stock Exchange of Thailand, however, the free-float requirement will instead require them to have a minimum of 150 minority shareholders that collectively hold at least 15% of the company's paid-up capital.

3.2 How are companies typically controlled in your jurisdiction, both structurally and in practice?

Companies are controlled by the shareholders through the board of directors, which is appointed by the shareholders. Companies are also governed by their articles of association, which describe key mechanisms of the overall management of the company, such as rules on the appointment and removal of the board of directors and key executives. In some cases, control of a company may also be governed by a shareholders' agreement or a joint venture agreement between its key shareholders.

4 The board: structure and appointment

4.1 How is the board typically structured in your jurisdiction?

Private companies must have at least one director each. The directors of private companies need not reside in Thailand.

Public companies must have at least five directors, at least 50% of whom must reside in Thailand. If the company is listed on the Stock Exchange of Thailand, at least three of the directors must qualify as independent directors and at least one-third of the members of the board must be independent directors.

4.2 Are board committees recommended or mandated? If so, which areas should/must they cover?

Not mandatory or recommended for private companies.

For public companies listed on the Stock Exchange of Thailand, an audit committee is mandatory. Members of the audit committee must be independent directors. It is also common practice, but not mandatory, for listed companies also to have one or more of the following committees:

• nomination committee;
• remuneration committee;
• risk management committee; and
• corporate governance committee.

4.3 Are there any requirements or recommendations to appoint independent board members? If so, how is ‘independence' defined?

Not mandatory or recommended for private companies.

Public companies which are listed on the Stock Exchange of Thailand must have at least three independent directors. There are detailed rules and exceptions regarding independent director qualifications but, in a nutshell, an independent director must not:

• hold more than 1% of the total voting shares in the company;
• be, or have been within the past two years, an executive director, employee or salaried consultant of the company;
• be a relative of other directors or executives or major shareholders of the company;
• have, or have had within the past two years, business relationships with the company;
• be, or have been within the past two years, an auditor or legal or financial adviser of the company;
• be a nominee of another director or major shareholder; or
• engage in any business which competes in material aspects with the company's business.

4.4 Do any diversity requirements or recommendations apply with regard to board composition?

No.

4.5 How are board members selected and appointed? What selection criteria (if any) apply in this regard?

Members of the board of directors are generally appointed by the shareholders. Unless required otherwise by the company's articles of association, the directors of a private company are appointed by simple majority vote of the shareholders present at a particular meeting of the shareholders.

For public companies, unless required otherwise by the company's articles of association, the directors are appointed by a plurality vote:

• Each shareholder has one vote per share held by him or her, multiplied by the number of directors to be appointed;
• The shareholders may divide their votes as they see fit; and
• The candidates who receive the highest votes are appointed as directors.

When a director position becomes vacant for any reason other than the expiry of the term of office, a replacement director may be appointed by the remaining members of the board, but only for the remaining term of office of the predecessor director.

4.6 How are board members removed?

Only the shareholders may remove a director from office before the expiry of his or her term, by passing a shareholders' resolution. Unless specifically required otherwise by the articles of association, a simple majority vote of the shareholders present at a particular meeting is required to remove a director.

By contrast, the removal of a director from the board of a public company is much harder, as it requires approval by at least 75% of the shareholders present and at least 50% of shares represented at the shareholders' meeting.

Directors may also immediately lose their directorship by operation of law under certain circumstances, such as being declared bankrupt by the Thai court.

4.7 Do any tenure restrictions or recommendations apply to individual directors?

The term of office of directors may be limited by the company's articles of association or by a shareholders' resolution. In addition, at least one-third of the directors retire from office by rotation at the annual general meeting of shareholders of the company; but retiring directors are generally eligible for re-election.

4.8 What best practice is recommended when composing the board and appointing board members?

Apart from senior executives who serve as executive directors and representatives of major shareholders of the company, it is common practice to appoint non-executive directors with a strong background in the relevant businesses of the company, accounting, tax and/or law.

5 The board: role and responsibilities

5.1 What are the primary roles and responsibilities of the board?

The board of directors' primary roles and responsibilities are to ensure that the company operates its business in accordance with:

• the applicable laws;
• the objectives of the company;
• the articles of association; and
• resolutions of the shareholders' meetings.

Members of the board have fiduciary duties towards the company and the shareholders. Some, if not all, members of the board also have the authority to act on behalf of the company vis-à-vis third parties. Such directors are called ‘authorised directors' and are legal representatives of the company.

5.2 How does the board exercise those roles and responsibilities?

The board generally exercises its roles and responsibilities through various organs and instrumentalities of the company by creating policies and making key decisions on the company's business. It is also common practice for the board to consider and approve the appointment and removal of key executives and personnel of the company who are tasked with the implementation of the board's policies and decisions under the board's supervision.

5.3 What specific role does the board play in relation to: (a) Strategic planning? (b) Risk management? (c) Major and related-party transactions? and (d) Conflicts of interest?

(a) Strategic planning?

It is generally accepted that strategic planning is part of the board's overall roles and responsibilities; although the board's role regarding these aspects varies greatly from company to company and depends largely on the company's circumstances.

(b) Risk management?

It is generally accepted that risk management is part of the board's overall roles and responsibilities; although the board's role regarding these aspects varies greatly from company to company and depends largely on the company's circumstances.

(c) Major and related-party transactions?

Major and related-party transactions usually require approval from the board of directors; but in some cases – especially where the transaction is of a significant value – the board may have to seek further approval from the shareholders.

(d) Conflicts of interest?

Members of the board must avoid having a conflict of interest with the company. Specifically, the law prohibits directors from engaging in any business which is of the same nature or in competition with the company's business, whether for themselves or for the benefit of other parties, without consent from the shareholders of the company.

5.4 Are the roles of individual board members restricted? Is this common in practice?

Usually no, except for independent directors who, by definition, cannot serve as executives of the company or otherwise be involved in the day-to-day operations of the company.

5.5 What are the legal duties of individual board members? To whom are these duties owed?

Each director has fiduciary duties towards, and must exercise his or her duties in good faith and for the best interest of, the company and the shareholders. Directorship is a legal status exclusive to the individual who is so appointed, and as such, the performance of important director duties, such as attending a board meeting, cannot be legally delegated to other persons.

5.6 To what civil and criminal liabilities are individual board members primarily potentially subject?

Directors who cause damage to the company, whether intentionally or negligently, may be personally liable to the company for the damages. Directors may also be subject to criminal liabilities in cases where the company violates any criminal law in Thailand in the course of conducting its business, if the aforesaid violation is caused by an action or inaction of the directors.

6 Shareholders

6.1 What rights do shareholders enjoy with regard to the company in which they have invested?

The primary rights of the shareholders are:

• the right to attend and vote at shareholders' meetings; and
• the right to receive dividends from the company.

Shareholders also have the right to access certain information of the company, although this right is rather limited. Shareholders may also nominate individuals to be appointed as directors of the company. In extreme circumstances, shareholders may also take derivative actions on behalf of the company in cases where the board fails to do so.

6.2 How do shareholders exercise these rights? Do they have a right to call shareholders' meetings and, if so, in what circumstances?

Shareholders generally exercise their rights by attending shareholders' meetings and casting their votes at such meetings.

For private companies, shareholders holding collectively at least 20% of the total number of shares in the company may request the board to hold a shareholders' meeting at any time, but the purpose for holding such meeting must be expressly stated in the request to the board. If the board fails to convene the requested meeting within 30 days of receipt of such request, the shareholders may convene the meeting by themselves to consider the matters outlined in their letter of request to the board of directors.

For public companies, shareholders holding collectively at least 10% of the total issued shares in the company may request the board to hold a shareholders' meeting at any time, but the purpose for holding such meeting must be expressly stated in the request to the board. If the board fails to convene the requested meeting within 45 days of receipt of such request, the shareholders may convene the meeting by themselves to consider the matters outlined in their letter of request to the board of directors.

6.3 What influence can shareholders exert on the appointment and operations of the board?

Shareholders can have a significant influence on the board of directors, as they are the ultimate authority in terms of the appointment and removal of directors of the company – as long as they control sufficient voting rights.

6.4 What are the legal duties/responsibilities and potential liabilities, if any, of shareholders?

Private companies may issue partially paid-up shares to their shareholders, with a minimum paid-up capital of 25% of the par value. As such, shareholders that subscribe to such partially paid-up capital have a duty to pay the remaining unpaid capital to the company upon request in the future by the board of directors. Shareholders that fail to pay the requested share capital in due course may ultimately have their shares seized and subsequently put up for a public auction. Creditors of the company may also sue those shareholders whose shares are not fully paid-up under certain circumstances.

All issued shares in public companies must be fully paid-up. Therefore, shareholders of public companies have no potential liabilities under any circumstances.

6.5 To what civil and criminal liabilities might individual shareholders be subject?

The shareholders of a private company whose shares are not fully paid-up may be sued by the company's creditors under certain circumstances. The shareholders of a public company may not be sued by the company's creditors, because their shares are fully paid-up from the beginning.

Shareholders are under no circumstances criminally liable for the company's actions or inactions.

6.6 Are there rules governing the issuance of further securities in a company? Do rights of pre-emption exist and, if so, how do they operate? Can they be circumvented? If so, how and to what extent?

Private companies may increase their capital by issuing new shares, whether of the same or a different class, to their existing shareholders. To increase the company's capital, 75% affirmative votes are usually required. All newly issued shares must be offered to existing shareholders in accordance with the proportion of shares held by each shareholder as at the time of the offering. Shareholders may subscribe to all, some or none of the newly issued shares offered to them as they see fit. Newly issued shares offered but declined by a shareholder may be offered for the second round to other shareholders.

Public companies may also increase their capital by issuing new shares with an approval of 75% the voting rights exercisable at the meeting. However, the newly issued shares may be offered to existing shareholders, to the general public or to other parties as determined by shareholders' resolution.

6.7 Are there any rules on the public disclosure of levels of shareholding and/or stake building?

All companies must submit to the Department of Business Development of the Ministry of Commerce, on an annual basis, their updated list of shareholders as of the date of the annual general meeting of shareholders of the company. Interim lists of shareholders may also be voluntarily submitted any time during the year, and are usually so submitted when there are major changes to the company's shareholding structure.

Anyone that acquires or disposes of shares in a listed company and thereby increases or decreases the number of shares it holds to a number which reaches any multiple of 5% of the total number of shares in such company must report the acquisition or disposal, as applicable, to the Office of the Securities Exchange Commission within three days of the date of the relevant transactions.

7 Shareholder activism

7.1 What role do institutional investors and other activist shareholders play in shaping corporate governance in your jurisdiction?

Institutional investors and activist shareholders can play a vital role in promoting good corporate governance of listed companies in Thailand, but they do not have much impact on private companies. Some activist shareholders, such as the Thai Investors Association, regularly publish corporate governance guidelines and rankings of listed companies based on certain metrics. From time to time when corporate governance issues arise in relation to a listed company, such as insider trading scandals, some institutional investors announce their intention to reconsider their investment in the company to create pressure on the company and its management and board; but the real meaningful actions from institutional investors have yet to be seen.

7.2 Is there any legislation or code of practice which applies to institutional shareholders? If so, what issues does it primarily address and how is it policed/enforced?

Institutional investors are regulated by sector-specific agencies, such as:

• the Bank of Thailand for financial institutions;
• the Office of the Securities Exchange Commission for securities companies; and
• the Office of the Insurance Commission for insurance companies.

However, such regulation is usually focused on the types, quantity and quality of securities in which institutional investors may invest, rather than from a corporate governance perspective.

7.3 How do activist shareholders typically seek to exert influence on corporations in your jurisdiction?

They typically invest a small amount of money in listed companies just so that they can attend shareholders' meetings and publicly give scores to each company based on its handling of the meetings, disclosure of information and so on.

7.4 Which areas of governance are shareholders currently focused on?

Risk management, especially business continuity, is one of the most important areas of governance that shareholders are generally focusing on, in light of the COVID-19 pandemic and technology disruptions.

7.5 Have there been any high-profile instances of shareholder activism in recent years?

No.

7.6 Is shareholder activism increasing or decreasing in your jurisdiction? If so, how and why?

Neither increasing nor decreasing; activist shareholders in Thailand are rather passive.

8 Other stakeholders

8.1 What role do stakeholders such as employees, pensioners, creditors, customers, and suppliers play in shaping corporate governance in your jurisdiction? What influence can they exert on a company?

Other stakeholders have limited roles in shaping corporate governance in Thailand, with a notable exception for US and UK customers, which have become increasingly serious about anti-corruption practices of their suppliers in Thailand in recent years. It is not uncommon for such companies to reserve the right to audit their suppliers in Thailand or to insert an expansive indemnity clause relating to the anti-corruption law into their contracts with local suppliers. We have seen several actual such audits in the past.

9 Executive performance and compensation

9.1 How is executive compensation regulated in your jurisdiction?

Executive compensation is largely driven by the market. Large companies may have internal mechanisms, such as a nomination and compensation committee, to ensure an appropriate executive selection process and some internal guidelines to determine appropriate executive compensation.

9.2 How is executive compensation determined? Do shareholders play a role in this regard?

Executive compensation is usually determined by the board of directors; but where the company is a wholly owned subsidiary or a joint venture between two or more key shareholders, executive compensation will be determined by the shareholders.

9.3 Do any disclosure requirements apply in relation to executive compensation?

No.

9.4 Have any measures to address the gender pay gap been introduced in your jurisdiction?

The labour protection laws expressly prohibit sexual discrimination, which in theory should include gender pay gap issues. However, this is not easy to enforce in practice, especially in respect of company executives, because their compensation can vary significantly based on many factors other than gender, thus making any gender pay gap (if one exists) much less apparent.

9.5 How is executive performance monitored and managed?

Executives' performance is usually monitored and evaluated by the board.

9.6 What best practices should be considered with regard to executive performance and compensation?

Executives are considered employees under Thai labour law and, as such, are entitled to various statutory termination payments upon being terminated. The greatest risk of all is a potential unfair termination claim, which is usually significant because any award is usually based on the executive's high compensation package. Therefore, objective key performance indicators should always be included in contracts with executives in order to mitigate the risk of future labour disputes between the company and a former executive. If and when it is necessary to terminate an executive, a proper termination procedure should be followed in order to avoid technical legal issues which may arise in such circumstances.

10 Disclosure and transparency

10.1 What primary reporting obligations relating to corporate governance apply in your jurisdiction?

Companies, through the board of directors, must convene an annual general meeting of shareholders within four months of the end date of each fiscal year in order to report on the company's performance and present audited financial statements of the company to its shareholders, among other things. An extraordinary general meeting must be held whenever the company loses half the amount of its capital.

Listed companies must also provide periodic reports and reports on material events to the Stock Exchange of Thailand based on various circumstances, such as:

• a board decision to invest in or acquire another company;
• a director's resignation;
• the signature or termination of a key contract;
• a significant drop or surge of profits or losses; or
• a significant legal action taken against the company.

10.2 What role does the board play in this regard?

Shareholders' meetings are generally convened by the board. Reports to be submitted to the Stock Exchange of Thailand are usually triggered by the board's decisions.

10.3 What role do accountants and auditors play in this regard?

All companies must have their books and accounts prepared in accordance with Thai Financial Reporting Standards (TFRS) and, at least once a year, must also have their books and accounts audited by auditors which are appointed by the shareholders, before submitting the same to the shareholders for approval. Financial information must be sufficiently and accurately presented to the shareholders so that they understand the true circumstances of the company. Therefore, it is critically important for companies to retain proper accountants and auditors, to protect the shareholders' interests.

10.4 What best practice should be considered in relation to reporting and disclosure?

Reports should always be concise and accurate, and be made in a timely manner.

11 Audit and auditors

11.1 What rules relate to the appointment, tenure and removal of auditors?

Auditors are appointed and removed by shareholders' resolution. Auditors' compensation is also determined and approved by the shareholders. Directors and employees of the company may not be appointed as auditors. The auditors must be validly licensed in Thailand.

11.2 Are there any rules or recommendations that limit the scope of services as regards the provision of non-audit services by an auditor?

No.

11.3 Are there any rules or recommendations which cap the remuneration of an auditor as regards payment for the provision of non-audit services?

No.

12 Trends and predictions

12.1 How would you describe the current corporate governance landscape and prevailing trends in your jurisdiction?

Corporate governance is a concept that has been around in Thailand for many years, in particular with regard to publicly traded companies, but it is still very much underappreciated. Nevertheless, the overall environment and enforcement are gradually moving in the right direction – albeit not as quickly as they should be.

12.2 Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

No.

13 Tips and traps

13.1 What are your top tips for effective corporate governance in your jurisdiction and what potential sticking points would you highlight?

In order to achieve effective corporate governance, sufficient resources (eg, budget, manpower, time) must be allocated to this by the company and its board and shareholders. Institutional investors could have a greater impact on corporate governance in Thailand, but their efforts need to be stepped up.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.