Key Trends for the Board of Directors in 2020:

Significant Matters to be Prepared and Adapted by Directors in 2020

            In the previous year, the Board of Directors has devoted themselves for work under fluctuation of different factors including economic, social and environmental problems.  When reaching 2020, there have still been new challenges awaiting the Board of Directors to supervise.   In 2020, key trends on the corporate governance (CG) to which the Board of Directors should be prepared and should pay their special attentions are as follows:

·          ESG Policy:   ESG Operational Guidelines or Environment, Social and Governance-based operations have been trendy in the past several years.  Particularly this year, Environment trend has become a main issue for several sectors.  According to the current situations, climate and environmental changes and more frequent occurrences of disasters such as forest fire, drought, plastic waste and PM 2.5 dust situations, etc., have caused concerns among a lot of people.  Therefore, in the perspectives of shareholders and investors, it was expected that the Company shall be more responsible for environmental management, and the effective policy and practices on such matters shall boost up confidence among consumers and investors.

         According to SET data, it was found that companies which have been evaluated on sustainability and 10-year retrospective operating results and adhered to the ESG Principle could generate the operating profits and continuous growth of earnings (Source: Thailand Sustainability Investment, SET); and according to the survey results of Callan Institute, it was confirmed that the number of institutional investors which applied the ESG Principle as their key factor of decision making for investment has increased from 22% in 2013 to 42% in 2019.

These institutional investors were confident that companies which adhered to the ESG Principle could generate sustainability with long-term growing profits to their investors (Source: 2019 ESG Survey, Callan Institute).

·          Digital Transformation:       It could not be denied that, at present, technologies have become a significant part of business operation and extensively resulted in changes of organizational culture and behaviors of consumers.  It was found that main problems of most organizations were the lack of expert personnel and limited adaptation to the trends of disruption.  Initial guidelines for handling with such problems were that the Board of Directors needed to learn and keep up with technological changes and should evaluate risks of such matters on a regular basis and should consider whether technologies currently used by the Company were modern and adequate for long-term business operation or not.

            In addition to the management of technological risks and the review of business model, the development of digital knowledge and skills for personnel was also important.  According to the survey results in September 2019 of IMC Institute collected from sample groups of 113 questionnaire respondents from IT organizations, government agencies, state enterprises and industrial factories, it was found that 49.11% of Thai organizations had basic AI knowledge and understanding; 30.36% of them had fair AI knowledge and understanding; 11.60% of them had good AI knowledge and understanding; and 8.93% of them had no AI knowledge and understanding.  In addition, according to the survey, it was found that 50% of senior management in Thai organizations especially realized the importance of AI application; meanwhile, 35.1% of them moderately realized the importance of AI application; and 14.29% of them neither realized the importance of AI application nor mentioned about AI in their organizations.  Therefore, it was obvious that Thai organizations needed to emphasize the development of body of knowledge of their personnel on AI so that they could keep up with the new world of work, and the vision of organization’s leaders is very important in the era of digital transformation.  The Determination of proper strategies and continuous development of body of knowledge would be key factors for speedy and effective business development, opening of new marketing opportunities and increase of organization’s competitiveness.

·          Board Composition:  In 2020, the global trends of structure of the Board of Directors include:

-           Diversity of the Board of Directors; whereas, most companies have continuously raised the sexual diversity as the important issue from those in the previous years; meanwhile, some countries needed to encourage all companies to increase the proportions of female directors in 2020; for example, in Japan, Mr. Shinzo Abe, the Japanese Prime Minister set up the goal to increase the roles of Japanese women in the society or called “Womenomics” by announcing the goal that Japanese women must be in executive positions in the proportion of 30% within 2020.

            In addition to the sexual diversity, the increasing global trend was the racial diversity of directors, which was found that several companies had expatriate directors in the Board of Directors which helped increase the creativity and broaden their points of view and also helped increase abilities to solve work-related problems and helped provide more learning and development for companies because expatriate directors were regarded as sources of new body of knowledge in terms of culture, language and innovation.

-           Increasing Proportions of Independent Directors: According to the promotion of importance of independent directors in the previous years, it was found that Thai listed companies tended to have the increasing proportions of independent directors in their board of directors every year.

         Companies with proportions of independent directors exceeding 50% when compared to the total number of directors have increased from 11% in 2016 to 16% in 2019 (Source: Corporate Governance Report of Thai Listed Companies 2019, IOD).   In addition, the appointment of lead independent directors in companies without independent directors becoming the Chairman of the Board of Directors tended to increase as well.

            However, in addition to the proportions of independent directors which must be in accordance with those prescribed by laws, companies should promote the quality and genuine independent performance of duties of those independent directors; for example, in India, the Ministry of Corporate Affairs has issued the regulations demanding independent directors to attend the online proficiency test as organized by the Indian Institute of Corporate Affairs (IICA) by evaluating their knowledge on public company laws, securities and exchange laws, basic accounting and other related knowledge relating to the performance of duties of independent directors; whereas, independent directors who obtained scores of not less than 60% shall pass the test and shall have proper qualification to assume the office of independent directors. (For additional information on “Online Proficiency Self-Assessment Test: https://iica.nic.in/cid_Proficiency.aspx)

-           Other Subcommittees: In addition to the Audit Committee or the Nomination and Remuneration Committee which must be established by companies as per the Requirements of the Stock Exchange of Thailand, some companies started establishing special subcommittees to monitor and supervise particular operations more closely; for example, the Risk Management Committee, the IT Policy and Strategy Determination Committee, CG and CSR Committee, etc.   However, the establishment of special subcommittees depends on the necessity and suitability of each company by mainly taking account of the nature and size of businesses.

            All of these were only parts of trends on the corporate governance (CG) that the Board of Directors should be prepared to handle in 2020.  More importantly, the Board of Directors must be active and prepared to handle changes on significant matters affecting the organizations in addition to those issues as mentioned above.  In case, the Board of Directors could see opportunities from risks and could manage those risks, it was believed that in 2020, organizations would be able to progress efficiently and to achieve their goals effectively.

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