A Study on Corporate Governance in Asia

The 1997 Asian Financial Crisis showed how mismanagement and poor governance could undo decades of prosperity within a short span of a few months. This dissertation aims to study the development of Corporate Governance in Asia, its evolution from clan and authoritarian control to its modern form as Codes of Corporate Governance.

With the Asian Financial Crisis of 1997, and with the Asian countries pledging to improve their corporate governance, improvements have been observed through commissions such as the Accounting & Corporate regulatory Authority (ACRA) of Singapore, Securities and Exchange Board of India (SEBI) and Thailand’s Securities Exchange Commission (SEC). While scholarly bodies such as the Asian Corporate Governance Association have studied improvements of corporate governance levels, their inherent weaknesses still manifest occasionally in widely publicized scandals almost a decade later. The role of corporate governance in Asia has been cast into the forefront of the news, with the scandals involving the India’s Satyam, China’s Sanlu milk powder factory, Thailand’s Thaksin’s business dealings and Korea’s Hyandai are but a few of Asia’s top corporations tainted with the alleged lack of transparency or accountability to stakeholders of the companies.

While such scandals reflected the often challenging task of corporate governance in Asia, its importance cannot be overly emphasized in contrast with its major role as a major financial hub. According to Dominic Barton, global managing director at McKinsey & Co at the Seoul International Finance Conference 2009, Asia is now a major financial hub after the recent financial crisis in the United States and Europe, with almost 4 trillion worth on investments going into Asia over the coming years.

Agreeing with this is Jeffrey E. Garten, former dean of the Yale School of Management. ‘As a result of the financial crisis (of 2008), the overwhelming dominance of Western finance has come into question. One of the results is a shift towards Asia.’ (Kim, 2009)

With the growing emergence of global financial markets, where funds and capital flow through traditional, cultural and racial barriers, the need to look at, and understand Corporate Governance in its native context, practice and implementation is important for any Corporate Governance practitioner.

With a major part of the funds entering Asia through western countries, the need to have a greater insight of the Asian context of corporate governance is ever important.

In this dissertation, I will be looking at the challenges faced by the corporate governance practitioner in Asia, its resistance to changes from it historical and cultural roots.

The results derived from the survey were tabulated against the existing literature review, where the reader will see a correlation between the results of the survey and the literature review, with the derived indications showing that all the companies interviewed viewed Corporate Governance as an important and integral part of the company’s growth, and that some form of resistance such as company hierarchy, majority ownerships and their strong ownership controls still exists. The role of the Corporate Governance practitioner may still be weak in some companies, as they are still perceived as mere employees of the owners and not within the board. Also, with the perceived hierarchical control within some Asian companies, junior corporate governance staff may not challenge the senior owners of the companies over corporate governance issues.

Table of Contents Page

Introduction 12

1.1 Background 13

1.2 Research Focus and Research Values 15

1.3 Overall Research Aim and Research Objectives 18

1.4 Limitations 20

1.5 Dissertation in Brief 22

2. Literature Review 25

What are the challenges faced by Corporate Governance practitioners operating in an Asian context where loyalty and ties supersedes any other forms of Governance? 26

Challenges faced with traditions in China. 30

Development of Thai Business cultures 36

The influence of Keiretsus and Chaebols 39

2.2 Globalisation of Corporate Governance – difference in values,

a holistic approach to Global Corporate Governance 42

2.3 How has fundamental frameworks in Corporate Governance been

modified for the Asian Context? 45

2.3.1 Singapore’s Corporate Governance reforms 46

2.3.2 Thailand’s Corporate Governance reforms. 51

2.3.3 India’s Corporate Governance Reforms 53

2.3.4 China’s Corporate Governance Reforms 55

2.3.5 Comparisons of Corporate Governance in Singapore against other Asian countries discussed 59

3. Research Methodologies 62

3.0 Introduction 63

3.1 Purpose of Research Methodologies 63

3.2 Research Paradigm 64

3.2.1 Philosophical assumptions and paradigms 65

3.2.2 Research Approach 67

3.4 Research Process 68

3.5 Quantitative Research Process 71

3.6 Data Collection 74

3.7 Ethical Issues 76

3.8 Exhibit of survey form 77

4. Research Findings and Analysis

4.1 Research objective 1. To explore what has gone wrong in

the area of corporate governance in the last 4 years in Asian

countries and what were the consequences? 82

4.1.1 Part A of survey analysis ascertaining if the Board understood the

Concept and practice of corporate governance. 83.

4.1.2 Part B of Survey analysis to ascertain how Board Directors

were inducted into the Board.

86

4.1.3 Review of research data on research objective 1. “To explore

what has gone wrong in the area of corporate governance in the

last 4 years in Asian countries and what were the consequences?” 94

4.2 Research Objective 2: How has Corporate Governance evolved

in Asian Countries, its differences and similarities. 95

4.3 Research Objective 3: What are the different types of frameworks

put in place for Corporate Governance in Asian countries? 96

4.4 Research Objective 4 : How do companies manage their Corporate Governance and is there room for improvement? Positive Aspect

and Negative aspect of the system. 105

4.5 Research Objective 5: Formulate recommendations for companies

under this study on how to improve their Corporate Governance. 109

4.6 Further Research 110

5. Conclusion and recommendations 111