Guru Speak

In crisis, there is opportunity. In this case, the opportunity to learn about how remedying weak corporate governance (CG) can prevent or minimise a repeat of today's worldwide cri¬sis in Thailand.

The lessons learned are that substance is far more important than form in all areas, much more attention must be paid to risk management, and, lastly, checks and balances must be carried out by truly independent persons, preferably independent directors.

That substance is more important than form seems selfevident, yet this principle is often violated in practice.

For example, a worldwide financial service firm had a risk management committee that met only twice a year from 20062007, and for only a short period of time.

Given the firm's global opera¬tions and highly complex prod¬ucts, it is unlikely that the com¬mittee would be able to carry out its duties thoroughly in its short meetings.

Or, good CG calls for the board chairman and CEO to be different persons. In the case of a major computer services com¬pany in India, these two posi¬tions were, indeed, filled by two different individuals - but they were brothers.

GovernanceMetrics International reported that this company's audit committee did not have a sufficient understand¬ing of accounting and finance to probe in adequate depth.

We have been giving risk management too little attention.

For example, US Fed chair¬man Ben Bernanke reported that many US financial institutions paid insufficient attention to building risk management and internal control systems strong enough to detect and mitigate unexpected loss.

Also, as shown above, the risk management committee of a financial services firm literally gave its task little time.

Those carrying out checks and balances must be independ¬ent of each other, and ideally be independent directors.

At least, the chairman and CEO should be different persons and have no interpersonal rela¬tionships that would interfere with them carrying out their duties.

There should be checks to ensure that management actual¬ly implements the board's poli¬cies, and that man agement is honest, transparent, and carries out transactions at arm's length.

Thailand is already applying the above lessons, as shown by the 2008 amendments to the Securities Act.

What all stakeholders must now do is ensure that there is at least as much substance as form in implementing the law as amended.