Should profits be the only goal for corporations?
Puey Ungphakorn and corporate governance
See “Unique Thai model could replace Western approach” (front page, business)By Jon Fernquest
To commemorate the birthday of Puey Ungphakorn, famous Thai economist and statesman, the Bank of Thailand held an awards ceremony yesterday for SME’s with innovative policies. The award-winning companies included:
1. A coffee roasting company in Chiang Mai
2. An orchid exporter.
3. An electronics company
4. A leather apparel company.
Each company had innovative corporate governance policies that the Bank of Thailand would like to promote. While you are reading the article, try to match each company with its policies. Here are the policies discussed in the article:
a. An emergency fund for employees.
b. Minimizes pollution.
c. Helps hill tribe people change to coffee planting.
d. A profit-sharing program for employees.
e. Promotes organic vegetable businesses run by employees.
f. Good consumer service.
g. Conserves energy, paper, and water.
h. They treat their employees like family.
i. Workplace safety
Corporate governance is what the members of a company’s board of directors do. If governments have to make the citizens of their country happy, well-run companies have to make their shareholders happy by making money. Shareholders are the only stakeholders in the traditional economics model of corporate governance. Many people started to rethink this model after the 2001 collapse of Enron corporation. Enron filed for bankruptcy after it was revealed that its success was mainly the result of accounting fraud.
M.R. Pridiyathorn, governor of the Bank of Thailand, wants to see businesses addressing other issues such as “consumer protection, labour treatment and environmental protection.” He believes that this is necessary because Thailand faces business ethics issues that more developed economies do not face: “Western countries already have an efficient legal framework to deal with these issues.”
Are profits the only important thing in business? As today’s article suggests, should “consumers, employees, society, and the environment” also be considered stakeholders in businesses? Should their interests be a factor in board of directors decisions? Could it be in the long-term interest of shareholders to treat these other important people in a business (“employees, consumers, and society”) as stakeholders?
Although Prime Minister Thaksin may not have broken any laws in his recent financial transactions, many citizens believe that because the Prime Minister serves the public, the Thai public are also stakeholders who should have been consulted in this decision. What do you think? Should the sale of Shin Corporation have been a private or public decision?
Vocabulary (in article)
corporate governance – the policies used to run a corporation (see the longer Wikipedia definition: http://en.wikipedia.org/wiki/Corporate_governance)directors - people who serve on a company’s board of directors
board of directors – the group of people elected by the shareholders of a company to manage the company.
legal framework – system of laws to deal with an issue
slash-and-burn farming - system of farming that moves farming from place to place as the land is exhausted, cutting down the trees and burning them (see Wikipedia: http://en.wikipedia.org/wiki/Slash_and_burn).
SME = small and medium sized enterprises (smaller businesses are the larger businesses of the future)
remuneration - the money paid to employees for the work they do (try a Google search: “remuneration definition” for more definitions)
transformers and inductors – electronics parts
apparel – clothes, especially more formal clothes
favourable credit terms - a bank loan with low interest payments.
Vocabulary (in above discussion)
commemorate - to remember a person or event by means of a special ceremony, prize, or actionstatesman – an important and experienced politician, widely known and respected
stakeholder – people who have an interest in the affairs of a company (people who may be affected by the actions of a company and who have a right to be heard and influence the actions of a company)
innovative – new and original
business ethics - the moral part of business decision about what is right and wrong (some people can be hurt by business decisions)
bankruptcy – when a company has to stop doing business because they do not have enough money to pay their debts to creditors (what remains is given to the creditors)
in the long-term interest - over many years, for example 10 years, they will benefit (sometimes long-term interests are not the same as short-term interests)
Some more things to do
If you have some extra time, check out the Magsaysay Award website. Many famous Thais have won this prestigious award including Dr. Phon Sangsingkeo (1966), Prawase Wasi (1981), Chamlong Srimuang (1992), Anand Panyarachun (1997), and most recently Jon Ungphakorn (2005), the son of Puey Ungphakorn. Here's a full list of Thais who have won the award. All of their biographies are on the website in English. You might also want to read a short piece that Puey Ungphakorn wrote about quality of life.
Article
Unique Thai model could replace Western approach
PARISTA YUTHAMANOPThe ``Western-style'' interpretation of corporate governance focused on directors' performance may be inadequate to ensure proper business ethics are followed in the context of the local market, according to M.R. Pridiyathorn Devakula, the governor of the Bank of Thailand.
Instead, he said, Thailand should follow governance principles that consider the merits of a business's operations as they relate to consumers, employees, society and the environment.
Such principles would be in line with Buddhist economic theory, which _ as voiced by Phra Dhammapitaka _ seeks to balance the benefits of shareholders, employees, consumers and society, M.R. Pridiyathorn said.
The central bank is trying to promote good corporate governance among small and medium-sized enterprises through a competition held in association with the Puey Ungphakorn Institute.
``I don't like Western-style corporate governance principles, where a company might be commended just for the fact that its directors attend every meeting,'' M.R. Pridiyathorn said yesterday.
``We've adopted only one part of the Western [corporate governance] theory. They set explicit conditions for the roles of directors, but exclude issues such as consumer protection, labour treatment and environmental protection. That's because Western countries already have an efficient legal framework to deal with these issues.''
Economic policies that have focused solely on financial achievement over the past three to four decades have led to a wider income gap within Thai society, M.R. Pridiyathorn said.
At a ceremony yesterday, VPP Progressive, a roasted coffee manufacturer, won the top governance award for achievement. The company, founded in 1994, manages all aspects of the production chain, from planting, harvesting and processing of coffee beans to retail and export sales.
One notable achievement has been the firm's success in assisting hilltribes in Chiang Mai to turn to coffee planting over slash-and-burn subsidence farming.
M.R. Pridiyathorn also highlighted the company's quality control processes and human resources policies.
``Its overall business strategy is also one that has helped ease problems within society,'' he added.
The governance award for small businesses is announced every March 9 to mark the birthday of Puey Ungphakorn, the respected former governor of the Bank of Thailand. The Puey Ungphakorn Institute has been holding the competition since 2001.
Last year, the award was co-organised by the Thai Bankers' Association and the Industry Ministry's Office of SME Promotion.
Also recognised yesterday was Thai Orchid Co, which won the award for consumer service. It exports 10 million orchid garlands each year.
Winning the award for employee welfare was Estel Co, a producer of transformers and inductors. The judges cited the company's family approach to its staff. Estel offers profit-sharing as part of staff remuneration, and also has an emergency fund available for employees and invests considerable resources in workplace safety.
As well, Estel sponsors Buddhism correspondence studies for interested staff.
Thai Frame & Accessories Co, a producer of leather apparel, won the award for social and environmental concern. The company has a policy to conserve energy, water and paper, and to minimise garbage and air pollution.
As well, it has started a project that urges employees to plant chemical-free vegetables and sell them to the neighbourhood.
M.R. Pridiyathorn said each the tax and financial records of each winning company were thoroughly examined, with judges also making site visits to inspect operations and meet employees.
He said the central bank wanted local banks to offer favourable credit terms to small business award winners to recognise their outstanding achievements.
