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    Public hearing document

    No. AorSorPor. 32/2559

    Corporate Governance Code

    Distributed on July 22, 2016

    The SEC drafted this document for conducting the public hearing. To download this document, please visit

    Please submit written comments or suggestions to email: [email protected] Facsimile 662-263-6099

    Comments are welcomed until October 31, 2016

    For more information, please contact:

    1. Ms. Madasiree Sunthornyotin 662-695-9542 2. Ms. Sasanee Lovisuth 662-695-4680

    Thank you for your comments.

    The Securities and Exchange Commission, Thailand

    333/3 Vibhavadi-Rangsit Road, Chomphon , Chatuchak Bangkok 10900, Thailand[email protected]

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    The purpose of the hearing

    The intended outcome of the three-year strategic plan (2016-2018) of the Office of the Securities and Exchange Commission (SEC) no. 1.1 has been to enhance the quality of listed companies to help them create sustainable values by treating investors fairly and by promptly disclosing accurate, adequate, and accessible information to investors through systems that consider the economic, social, and environmental business impacts.

    Achieving these objectives requires a combination of rules, regulatory enforcement and discipline, and market discipline, as well as self-discipline, which is the most important element. Self-discipline allows listed companies to create sustainable business values. Therefore, the board of directors play a crucial role in enabling self-discipline to create sustainable value and are responsible for ensuring there is a mechanism to achieve these objectives.

    The SEC realised the importance of issuing a Corporate Governance Code (CG Code) as the code of conduct for boards. The CG code would integrate social and environmental issues into business processes in terms of direction, strategy, procedures, operations, monitoring, and reporting. This is for the board to have a framework for governing listed companies so that they operate fulfilling social and environmental responsibilities and create sustainable values for the company.

    To accomplish the intended outcome and gain acceptance from stakeholders, the SEC appointed a Committee for Sustainability in Listed Companies (the Committee). Representatives from related organisations would join the committee to draft and determine the implementation of the CG Code. The Committee recognised that The Principles of Good Corporate Governance for Listed Companies 2012 issued by the SET has been used for developing CG and disclosure policies of listed companies and as a reference for evaluating the Corporate Governance Report (CGR) of the Thai Institute of Directors Association (IOD). However, if the SEC were to issue its own Principle of Good Corporate Governance, it would result in two corporate governance codes, which could create confusion. So, the Committee considered the following options for implementing the CG Code:

    The Principles of Good Corporate Governance 2012

    CG Code

    All companies 1. Use the Principles of Good Corporate Governance 2012

    4. Use the CG Code

    Some companies 2. Use the Principles of Good Corporate Governance 2012 and use the CG Code as a guideline

    3. Use CG Code instead of the Principles of Good Corporate Governance 2012

    Among the options, the Committee considered the fourth (using the CG Code instead of the Principles of Good Corporate Governance 2012) as the most appropriate to create CG in Substance. Initially, the listed companies and related organisations will need to adjust from the usual presentation of five methods of the Principles of Good Corporate Governance 2012, but, in the long term, the CG Code will help the boards of listed companies to understand and use the code to create more sustainable value for the company.

    This hearing document explains the context of CG Code, the necessity for issuing the CG Code, its practical implementation, and the differences from the current regulatory principles, including the direction and timeframe for listed companies to adjust. The SEC would like to invite all related parties to review this document and comment on the CG Code along the following points of view:

    1. Do you agree that the CG Code will benefit the work of boards of directors and help them to understand the responsibilities necessary for managing a company to achieve its objectives?

    2. Is the apply or explain approach an appropriate method for listed companies?

    3. Is the timeframe for listed companies to prepare and adapt by starting with information disclosure of the listed company according to the CG Code in 2019 appropriate?

    4. What problems could the CG Code for boards of directors when carrying out their duties, and what are your suggestions regarding this?

    5. Which are the issues or subjects that need a manual or additional guidelines?

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    1. Whom is the CG Code meant for?

    The CG Code outlines a conduct code for boards of directors of listed companies, which is the highest authority responsible in managing a company, to create sustainable value for their companies. The CG Code is a collection of principles for good corporate governance, social responsibilities, and concepts of international standards of a boards roles and responsibilities and is designed to be consistent with business management and to give clear responsibilities to the board.

    The CG Code can also be used by other entities such as limited companies, partnerships, or any other organisation, whether a listed company or not.

    2. What is the CG Code?

    Corporate governance covers the relationship between governing, the chain of command and other mechanisms for (1) determining business objectives, (2) developing strategy and structure to achieve the objectives, and (3) monitoring, evaluating, and reporting on the results from operations to achieve the objectives, all of which is within the scope of Corporate Governance stated in the G20/OECD Principles of Corporate Governance (2015)1 (OECD Principles).

    Corporate Governance in this document means the governance for creating sustainable value for a company, including the management and development of the company, which includes:

    1. performing well and being able to create value with a long-term perspective

    2. operating ethically and having a responsibility to stakeholders (Ethical and Responsible Business)

    3. complying with the law, and benefiting, or having a less negative impact on, society and the environment (Good Corporate Citizen), and

    4. being able to cope with risk factors and changes (Resilience).

    The CG Code also expands the definition of corporate governance to replace the SETs meaning of good corporate governance, focussing on the relationship between governance and monitoring operations to achieve targets. The CG Code offers a broader view and includes other mechanisms for governing, decision-making, and other actions carried out by a company such as achieving goals, business objectives, business strategy, performance indicators, incentives, and skills of people within the company. The board is the leading authority with the responsibility to govern these mechanisms to create sustainable value in the company.

    This CG Code contains principles that emphasise the responsibility and accountability of the board, which is an important aspect of the OECD Principles. Such responsibilities include respecting the rights of and providing equitable treatment for shareholders, respecting the rights of stakeholders, and being responsible for disclosing information in accordance with other OECD Principles.

    3. Necessity for issuing the CG Code

    Thailands capital market has been using the SETs Principles of Good Corporate Governance as its main mechanism for creating corporate governance for listed companies, and with satisfying results. In the beginning, the SET issued 15 corporate governance principles, which then further developed into the Principles of Good Corporate Governance 2012, divided into five topics in accordance with the OECD Principles at that time. To motivate listed companies to comply with these CG principles, the SEC requires listed companies to disclose their information in Form 56-1 in accordance with such CG principles, based on comply or explain. The Thai Institute of Directors Association evaluated the results from complying with the corporate governance principles, based on publicly disclosed information, in the Corporate Governance Report (CGR), which gives ratings of one to five stars and discloses the name of companies that receives three stars and above. This evaluation has encouraged listed companies to focus on developing their corporate governance to achieve higher results, together with the supporting measures, training activities, and rewards

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    from various organisations including the SEC, SET, IOD, the Thai Listed Company Association (Thai LCA), the Thai Investor Association, and other related organisations. As a result, the overall corporate governance of listed companies in Thailand has emerged as a leader in this region.

    Although the development of corporate governance has been successful so far, further improvements will mean overcoming the following challenges:

    1. Changes in social structure and global environment deterioration, which is partly caused by industrial development, capitalism, and business expansion, has made many national and international organisations and investors demand more social and environmental responsibilities, in addition to good corporate governance.

    2. Some