ASEAN Corporate Governance Scorecard

Country Reports and Assessments 2012-2013

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• Publisher: Asian Development Bank
• Year: 2013
• Print ISBN: 9789292540692
• eBook ISBN: 9789292540708
• Edition: 1
• Topic: Business
• Subtopic: Finance
• Index: Business

Corporate governance principles provide guidance on how corporations should operate and can be useful to attract foreign investments. In the Association of Southeast Asian Nations (ASEAN), countries use national methodologies to assess corporate governance performance of publicly listed companies. The Asian Development Bank in partnership with the ASEAN Capital Markets Forum have jointly developed an ASEAN methodology of corporate governance assessment using a scorecard system that is based on international best practices and that encourages publicly listed companies to go beyond national legislation requirements. This inaugural report is a compilation of corporate governance assessments of publicly listed companies in six ASEAN countries using the Scorecard. The assessment is useful to improve corporate governance in the region collectively and to brand ASEAN as an asset class.

1 INTRODUCTION

The corporate governance initiative of the Association of Southeast Asian Nations (ASEAN) is one of several regional capital market integration initiatives of the ASEAN Capital Markets Forum (ACMF). It is led by the Securities Commission Malaysia and is supported by the Asian Development Bank (ADB) through its regional technical assistance (TA). ADB has supported ASEAN regional capital market integration through a series of regional TA projects since 2005, and has supported this initiative through the regional TA “Promoting an Interlinked ASEAN Capital Market” since 2011.

The initiative’s objectives are:

• to raise the corporate governance standards and practices of ASEAN publicly listed companies (PLCs),

• to give greater international visibility to well-governed ASEAN PLCs and showcase them as investable companies, and

• to complement other ACMF initiatives and promote ASEAN as an asset class.

Six ASEAN countries—Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Viet Nam—agreed to participate in this initiative. Subsequently, six international corporate governance experts, one from each participating country, were engaged to develop the Scorecard on the basis of their national experience, validate it against international best practices, and finally implement it by assessing the PLCs in their respective countries.

The next section of this report traces the process and the thinking that went into the development of the Scorecard. The section after that contains the country reports and the assessment of the PLCs in the six participating countries. The assessment covers the five areas of the Organisation for Economic Co-operation and Development (OECD) principles of corporate governance: (i) rights of shareholders, (ii) equitable treatment of shareholders, (iii) role of stakeholders, (iv) disclosure and transparency, and (v) responsibilities of the board. Each country report concludes by recommending steps that PLCs and capital market regulators can take to improve corporate governance standards in the country, and provides a summary of the assessment results for the PLCs in the country, arranged in alphabetical order (Tables 1, 3, 4, 6, 7, and 8).

The publication ends with concluding remarks and recommendations based on the experience gained in implementing the initiative since 2011.

2 BACKGROUND AND METHODOLOGY

In 2009, finance ministers of the Association of Southeast Asian Nations (ASEAN) endorsed the ASEAN Capital Markets Forum (ACMF) Implementation Plan for the development of an integrated capital market. This initiative is being undertaken in parallel with efforts to achieve convergence in ASEAN as an economic community by 2015. Broadly speaking, the ACMF Implementation Plan seeks to achieve the objectives of the ASEAN Economic Community by

• creating an enabling environment for regional integration;

• creating market infrastructure and regionally focused products and intermediaries;

• strengthening implementation; and

• improving the visibility, integrity, and branding of ASEAN as an asset class.

The ACMF Corporate Governance Initiative

The ASEAN corporate governance initiative, comprising the ASEAN Corporate Governance Scorecard and the ranking of corporate governance of ASEAN publicly listed companies (PLCs), is among several regional initiatives of the ACMF. Since it started in early 2011, the initiative has been supported by ADB through the technical assistance (TA) for Promoting an Interlinked ASEAN Capital Market.

The ACMF Working Group D is responsible for this initiative. The working group is led by the Securities Commission Malaysia and its members include capital market regulators and corporate governance proponents from the region. Working Group D has been working to enhance a corporate governance ranking methodology, leveraging methodologies already implemented in ASEAN countries, as well as those applied by multilateral agencies such as the Organisation for Economic Co-operation and Development (OECD). From the components and methodologies gathered, assessment criteria and a corporate governance template in the form of a scorecard have been developed.

To keep the methodology objective and independent, the ACMF has enlisted corporate governance experts in the region to develop the Scorecard and the assessment criteria. The experts for the initiative were chosen for their experience in corporate governance-ranking initiatives in their own countries and the recognition accorded to them as authorities in the area of corporate governance. They were recommended by the capital market regulators in the individual countries. The experts, approved by the ACMF, have no vested interest in PLCs and are not linked to securities regulators.

The ASEAN Corporate Governance Scorecard was created by the following corporate governance experts:

• Mak Yuen Teen, Former Co-director of the Corporate Governance and Financial Reporting Centre and Associate Professor of Accounting, National University of Singapore;

• Rongruja Saicheua, Executive Vice President, Thai Institute of Directors;

• Salleh Hassan, Director, Securities Industry Development Corporation, Malaysia;

• Sidharta Utama, Professor, Faculty of Economics, University of Indonesia;

• Jesus Estanislao, Chair, Institute of Corporate Directors, Philippines; and

• Hien Thu Nguyen, PhD, Vice Dean, Finance Department, School of Industrial Management, University of Technology, Vietnam National University of Ho Chi Minh City.

The following bodies in each country have been appointed as domestic ranking bodies to work with the experts in applying the Scorecard to rank companies in each country:

• Indonesian Institute for Corporate Directorship;

• Minority Shareholders Watchdog Group in Malaysia;

• Institute of Corporate Directors in the Philippines; and

• Thai Institute of Directors.

In countries where a similar body has not been appointed, the use of the Scorecard may be granted to specific persons authorized by the ACMF. The use of the Scorecard by any other party requires authorization and permission from the ACMF.

Principles behind the ASEAN Corporate Governance Scorecard

The development of the Scorecard was guided by the following principles:

• The Scorecard should reflect global principles and internationally recognized good practices in corporate governance applicable to PLCs and, in some instances, may exceed the requirement and standards recommended in national legislation.

• The Scorecard should not be based on the lowest common denominator, but should aim to encourage PLCs to adopt higher standards and aspirations.

• The Scorecard should be comprehensive in coverage, capturing the salient elements of corporate governance.

• The Scorecard should enable gaps in corporate governance practices among ASEAN PLCs to be identified and should draw attention to good corporate governance practices.

• The Scorecard should be universal and applicable to different markets in ASEAN.

• The methodology should be robust to allow the accurate assessment of the corporate governance of PLCs beyond minimum compliance and box ticking.

• There should be extensive and robust quality assurance processes to ensure the independence and reliability of the assessment.

Initial Development

The OECD Principles of Corporate Governance, given their global acceptance by policy makers, investors, and other stakeholders, were used as the main benchmark for the Scorecard. Consequently, many of the items in the Scorecard may be best practices that go beyond the requirements of national legislation.

The experts also drew from the existing body of work and ranking initiatives in the region, including those of institutes of directors, shareholder associations, and universities, to guide the initial inclusion of items in the Scorecard.

The Scorecard covers the following five areas of the OECD principles:

• rights of shareholders;

• equitable treatment of shareholders;

• role of stakeholders;

• disclosure and transparency; and

• responsibilities of the board.

The weight allocated to each of the five areas is as follows:

• Rights of shareholders	10%
• Equitable treatment of shareholders	15%
• Role of stakeholders	10%
• Disclosure and transparency	25%
• Responsibilities of the board	40%
Total weight	100%

The use of two levels of scoring is designed to better capture the implementation of the substance of good corporate governance (Box). Level 1 comprises descriptors or items that are in essence indicative of (i) the laws, rules, regulations, and requirements of each ASEAN member; and (ii) basic expectations of the OECD principles. Level 2 consists of (i) bonus items reflecting other emerging good practices, and (ii) penalty items reflecting actions and events that are indicative of poor governance.

Box The Two Levels of the ASEAN Corporate Governance Scorecard

Level 1
Five major sections that correspond to the
OECD Principles:

Part A: Rights of Shareholders (26 items)
Part B: Equitable Treatment (17 items)
Part C: Role of Stakeholders (21 items)
Part D: Disclosure and Transparency (42 items)
Part E: Responsibilities of the Board (79 items)

Total number of items or descriptors: 185 items

Level 2
Two additional sections:
Bonus and Penalty

Bonus items for companies that go beyond
minimum standards (11 items)

Penalty items for companies with
poor practices (23 items)

Total bonus and
penalty items (34 items)

Refinement and Validation

The Scorecard was reviewed item by item against the OECD principles; other international corporate governance principles and practices recommended by bodies such as the World Bank, the International Corporate Governance Network, and the Asian Corporate Governance Association; and selected codes of corporate governance. Each item in the Scorecard was cross-referenced to at least one of these benchmarks.

The Scorecard was put through a validation process (beta testing). It was applied to a sample of companies in each country to ensure that the wording of the...

Table of contents

• Front Cover
• Title Page
• Copyright Page
• Contents
• Tables and Figures
• Abbreviations
• Foreword
• 1. Introduction
• 2. Background and Methodology
• 3. Country Reports and Assessments
• 4. Conclusion and ADB’s Recommendation
• Back Cover