Corporates must boost accountability | Bangkok Post: opinion

BUSINESS

As president of the Thai Institute of Directors (IOD), a question was posed to me: what would be the key governance issues for company boards in Thailand in 2013? This is not an easy question to answer, but after long and careful thought, my answer would include these three issues:

The first is compensation for company executives. This issue has been important and particularly controversial for companies in advanced markets following the global financial crisis of 2007-2009. Misaligned incentives were seen as an important factor behind governance failure, which contributed to the crisis. Executive compensation was said to have focused too much on short-term results, which encouraged management to take excessive risks for short-term gains at the cost of a firm's longer-term business viability. In the finance industry, short-termism led to serious solvency problems and eventual collapse.

In Thailand, understandably, pay and compensation has not been a major issue. This is partly because pay levels in Thai companies are more moderate, compared to companies in advanced economies. Nonetheless, as the economy continues to grow and with company performance benefiting from such growth, a question will inevitably be raised as to how management should be compensated, such that it is consistent with peer practices on the one hand while adequately providing the incentives needed for attracting and retaining capable staff and management on the other.