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Corporate Governance in Southeast Asia

May 9, 2017

Investments in the Asia-Pacific region continue to soar, with growth being driven by domestic demand as well as a rising demand for exports. In particular, there is marked credit growth in some Southeast Asian nations like Vietnam and Laos. In order to support such growth, the need for effective corporate governance measures, enhanced supervision, and transparency becomes greater.

Southeast Asia Corporate Governance Initiative

The Organisation for Economic Co-operation and Development (OECD)-Southeast Asia Corporate Governance Initiative held its fourth meeting on April 11 and 12. The meeting was held in Phnom Penh, Cambodia, and was aimed at raising corporate governance awareness among private company executives. In particular, the initiative is aimed at making corporate governance in the region comply with international standards. 

A majority of local companies in the area still lack corporate governance standards and fail to provide sufficient business information. This in turn requires regulators and investors to do additional due diligence work, which sometimes prevents the local companies from accessing funding sources and capital. Larger institutions and banks tend to perform well with regards to best practices; however, it is within small- and medium-sized organizations that transparent reporting and accounting are especially problematic. 

Sou Socheat, director of the Securities and Exchange Commission of Cambodia (SECC), says that strengthening governance in the private sector will be crucial for Cambodia’s growth economically. In addition, he states that if there are more companies implementing strict corporate governance, it will help boost the number of listed Cambodian companies on the market, as it will be easier for them to adopt new standards.

In order to strengthen the implementation of corporate governance, the Cambodian government has previously issued regulations regarding the Law of Commercial Enterprise, the Law of Accounting and Auditing, and the Law on Issuance and Trading. 

Governance in Southeast Asia Compared With Other Regions

Masato Kanda, deputy commissioner of the OECD Corporate Governance Committee, states that the main aim for corporate governance in the area is to push economic growth and encourage social inclusion. This is a somewhat different outlook compared with the corporate governance issues facing East Asia and the broader Asian region

For instance, the dialogue surrounding East Asian corporate governance often has to do with modifications and adjustments to long-standing governance structures based around family bonds and social ties. An example of this is with the Chaebol governance systems in Korea, which are facing scrutiny after recent incidents involving the Samsung Corporation. Issues such as board composition and succession play prominent roles in the corporate governance discussion for this region. 

In contrast, corporate governance in Southeast Asian countries tends to focus on reducing fiscal vulnerability, while at the same time fostering regional and global integration. This last point is especially crucial; in order for Southeast Asian companies to enhance their attractiveness to foreign investment, they need to build trust, transparency, and accountability through sound corporate governance policies. 

Philippine Bank Sector to Upgrade Governance Standards 

Another example of corporate governance reform in the Southeast Asian region is with the Philippines. Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. stated that the bank has been supervision frameworks to match international standards “especially on corporate governance and risk management”. He states that there is a need to implement an integrated and well-functioning regional financial system in order to achieve consolidation of the 10 ASEAN markets into a single economic base.

The Philippines recently signed an agreement with the Bank Negara Malaysia in March. The agreement allows lenders in the Philippines and Malaysia to establish presence in one another’s jurisdiction. The Philippines is also poised to sign two more pacts with Thailand and Indonesia. The agreements are aimed at increasing financial integration and economic development among ASEAN members. 

In the News: Growth Factors for Southeast Asian Countries

A new report issued by the World Bank indicates economies in the Association of Southeast Asian Nations (ASEAN) will likely expand rapidly in 2017-2018. The report recommends that policy makers in the area continue to improve the quality of public spending and promote integration to help sustain resilience. The report also identifies factors that will contribute to growth in specific Southeast Asian countries: 

  • Philippines: Higher public spending on infrastructure, increases in private investment, expansion of credit, and increased remittances
  • Malaysia: Higher subsidies from the government, additional spending on infrastructure, rise in exports
  • Indonesia: Credit expansion and higher prices of oil
  • Vietnam: Strong direct foreign investment, favorable market sentiments
  • Cambodia: Increased public spending, expansion of agriculture and tourism
  • Myanmar: Increased infrastructure spending, structural reforms, attraction of more foreign investment

Thus, as these economies focus on growth and expansion, corporate governance will continue to play a vital role in engaging international companies. Having effective policies in place not only prevents fraud and other misconduct — these policies also facilitate communication with investors and improve access to business information. 

Corporate governance is an important aspect of global company operations, but it can also include some complex subject matters. If you have any questions or inquiries regarding corporate governance, contact us today at Kessler Topaz. Our team works closely with governance experts, shareholder advocates, and other professionals to promote company policies that encourage corporations to implement sound corporate governance measures.