ASEAN Economic Bulteiin Vol. 21, No. I (2004), pp 81-93 ISSN 0217-4472

Family Business in ThailandIts Management, Governance, and

Future Challenges

Akira Suehiro and Natenapha Wailerdsak

This article examines family businesses in post-crisis Thailand. The analysis focuses on theircorporate management and governance restructuring. The findings indicate that familybusiness still strongly persists and can be categorized into four groups, namely, closed familybusinesses, specialized family businesses, authoritarian family conglomerates, and modemfamily conglomerates. Given the falling trade barriers and the increasing globalization, thelocal family firms will face a challenge in capital market and the pressure of ICTdevelopment.

I. Introduction

The financial and economic crisis in 1997 shookmany of Thailand's top business families, leadingto an erosion of their business base and acorresponding loss of political influence. The crisiswiped out some of the most prominent familybusiness groups, for example, the BangkokMetropolitan Bank Group led by the Tejapaibulfamily, which is the most influential family amongChinese society in Thailand, and the NakomthonBank Group led by the Wanglee family that starteda rice trade business in the 1870s. Others haveprospered despite the crisis, such as the Ratanarakfamily that successfully completed itsrecapitalization of the Bank of Ayudhaya withoutlosing control over the bank. Likewise, theSophonpanich family and the Lamsam family stillhave a voice in the management of the Bangkok

Bank and the Thai Farmers Bank (renamedKasikombank), respectively.

The crisis has generated a lot of interest. Manyscholars have attempted to examine the causes aswell as to search for ways to refonn. One of thecontributing factors is the poor corporategovernance in the corporate sector, which is due to"ownership concentration". For example, theinformative profiles of Thai business groupscompiled by the Brooker Group Pic pointed outthat most companies in Thailand are controlled by150 leading families (The Brooker Group 2001).These influential families had used extensivecorporate pyramids to systematically exploitwealth from minority shareholders. Alba,Claessens, and Djankov (1998) suggest that theownership concentration of large corporations hasled to inefficient investment, with excessive

ASEAN Economic Bulletin 81 Vol. 21, No. 1, April 2004

diversification and risk-taking. Likewise, a groupof economists in the World Bank temporarilyconcluded in their paper that after the crisis"insider-control may also have contributed to theweak performance and risky investment of manyAsian corporations prior to the crisis" (Claessens,Djankov, and Lang 1999, p. 25).

After the crisis, however, many institutionalarrangements have been launched to reformThailand's corporate sector and their govemance(Suehiro 2b01o). The Thai Government, withpersuasion from the World Bank, activelyintroduced the so-called "Anglo-American" typecorporate reforms regarded as good corporategovemance to attract foreign investments and tospeed up their recovery. This new concept of goodcorporate govemance required local firms listedon the stock market to implement a set of reforms.We would, therefore, expect some degree ofimprovement on the corporate management andgovemance of Thai firms.

However, the empirical study on this issue inthe post-crisis is not unanimous. Most scholars areinclined to attack the poor govemance of Thaifirms without careful examination of theirownership pattems and management structure. Or,they criticize the presence of the family businessitself because its nature contains institutionalvulnerability. This article, thus, attempts to fill thisgap. Using data both from firms listed on theStock Exchange of Thailand (SET) and from ourown survey on 220 local business groups in 1997,the characteristics of family businesses inThailand and the corporate govemance structure inthe post-crisis period are analysed.

In this article, family business is defined as afirm or a group which meets three majorconditions: (I) owner family members control itsownership through various means; (2) they exertcontrol over its top management; and (3) ownerfamily members have succeeded, otherwise willintend to succeed, the business of their founder(the succession of the office). Usually, themajority of medium and small-sized firms consistof family businesses. However, this article focuseson large-sized firms, particularly listed companiesbecause family-owned type business groups have

constantly served as the core economic agent forindustrial and financial development in Thailand,as well as the new government policies oncorporate governance targeted strategically atlarge-sized Thai firms in the stock market.

The outline of the article is as follows. SectionII describes the outstanding presence of familybusinesses. Section III investigates the presence offamily firms among firms listed on the SET usingdata between 1996 and 2000 with reference totheir ownership pattems and characteristics ofboard members. In Section IV, the article thenclassifies the category of Thai family business intothe four major types and articulates the reasonswhy some types can survive and others are forcedinto bankruptcy after the crisis. Section V focuseson the new govemment poiicy conceming goodcorporate governance and clarifies the limitationof this policy with reference to the uniquecorporate stmcture accrued to family businesses.The article then proceeds to point out the futurechallenges facing Thai family businesses inSection VI.

II. Family Business in the Thai Economy

It is notable that a large number of listedcompanies in Europe and Asia excluding Japan arestill family-owned firms, where owner familymembers have substantial control over bothownership and management (Rose 1995; Cassis1997; Suehiro 2001i, p. 30). In Thailand, theindustrialization process was driven by familybusinesses that had their beginnings in textiles,trading and commerce, and then diversified intoother activities, while maintaining their originalfamily controlled-and-managed characteristics(Phiphatseritham 1982, Suehiro 1993).

To grasp the important role the family businessplays in the Thai economy, let us introduce ourown original data on 220 business groups. Theinformation and financial data were collected fromaround 1,800 companies in 1997 from varioussources,' and reorganized these firms inio fourmajor types according to the type of "ultimateowner" or the actual controlling shareholder: stateor public enterprises, particular family-owned

ASEAN Economic Bulletin 82 Vol. 21, No. U April 2004

firms, independent firms, and foreign-ownedfirms. We then excluded foreign-owned firms andcomputed aggregate scores (total sales, assets, andthe market value of stock) for each group.Afterwards, we selected 220 business groups,broken down into 212 family-owned groups(mostly Chinese or Thai-Chinese), five publicenterprise-owned groups, and three unknowngroups (Table 1).

The total amount of sales from these 220business groups amounted to 2,930 billion baht,equivalent to 62 per cent of nominal GDP in 1997.At the same time, 644 firms out of the 1,000largest firms, including all the types in terms ofultimate owners in 1997, are identified asaffiliated companies belonging to 212 family-owned groups and their combined sales accountedfor 2,635 billion baht, or 58 per cent of grand total

sales of the 1,000 largest firms (Suehiro 2003,p. 109). These figures apparently evidence theprominent presence of family businesses in large-sized Thai firms just before the crisis.

Looking at the variety of core business bases ofthese 220 groups, we see 25 in commerce. 22 infinance/insurance, 1 in mining, 38 in agro-industry, 10 in electronics, 36 in heavy industry,28 in light industry such as textiles, 24 in theproperty business, 29 in the service industry suchas entertainment and 7 in telecommunications(ibid., p. 112). The wide range of core businessbase suggests that family businesses in Thailandhave a stake in not only traditional types ofbusinesses such as trading and light industry, butalso in new types of business such as electronicsand telecommunications. To illustrate the degreeof diversification undertaken by these businesses.

TABLE IDistribution of 220 Business Groups by Ethnicity and Generation, 1997

(Unit; number of groups/families)

Type of UltitnateOwner Total

EirstGeneration

SecondGeneration^

ThirdGenerationand Over

Unknownor Others

ChmeseThai-Chinese''

Sub-total ChineseThaiIndianEuropean/AmericanSub-total family business

17024

1941233

212

11310.988.2

5.51.41.4

805

55400

89

811192622

102

67

13111

16

3141005

Public EnterpriseUnknown

Total

53

220

2.31.4

100

3

92

0

102

0

16

50

10

NOTES:

° The first generation is counted from the founder of the group eoneemed, not from the first family who migratedto Thailand or who founded the family. For Instance, Thaksin Shinawatra belongs to the fourth generation of aHakka Chinese family, hut he is identified as the first generation because he firstly founded the SHIN Group.

^ Thai-Chinese include the third generation and over of the Chinese families who migrated to Thailand, and thefounder or his father was granted the "royal title" {bandasak, phrathinna-nam., sakdina) with Luang, Phra, andPhraya.

SOURCES: Authors' compilation using company databases and family tree charts of the leading 220 groups/families.

ASEAN Economic Bulletin 83 Vol. 21, No. 1, April 2004

it is found that 87 were of the specific sector type,106 of the semi-conglomerate type, and 24 of thefully-conglomerate type (ibid., p. 113) Anotherinteresting finding on the 220 business groupspertains to the renewal of generation. According toTable i, we see the relative maturity of Thailand'sfamily businesses: family business groupsinvolved in the first generation (sometimes called"entrepreneurial business") cover 89 groups (or 42per cent), in the second generation 102 groups (or48 per cent), in more than the third generation 16groups (or 7 per cent), and unknown 5 groups (or3 per cent). These figures tell us that more thanhalf of existing groups have already experienced arenewal of generation, and have successfullyachieved the succession of the office subsequent tothe founder's death or retirement.

Based on the experience of advanced countries,it is said that the fortunes and future of many familybusinesses have been won or lost with the "thirdgeneration" (Church 1993, pp. 24-25). The seedsof an empire are planted through sweat and tears inthe first generation, built up and expanded by thesecond generation. But it is the third generation,which has no remembrance ofthe early struggles tobuild up a business that faces an importantcrossroads to either organize and transform thebusiness for future prosperity, or watch over asteady decline into obscurity. In addition,globalization, social and political change, and the

financial crisis have seen the infiuence of dozens ofThailand's most powerful business familiesreduced to just a shadow of their formerprominence. Given these arguments, we need toquestion whether the end is coming for the existingfamily businesses in contemporary Thailand.

III. Proportion of Family-Owned Firms

III. I Listed Companies Breakdown byOwnership Pattern

In this section, we examine the presence offamily-owned firms in Thailand comparing pre-and post-crisis by using data of listed companies.This is to refiect the new govemment policy ofenhancing corporate govemance aimed mainly atthe improvement of loca! firms' activities throughthe stock market (Claessens, Djankov, and Lang1999; Suehiro 2001a).

Table 2 summarizes the ownership pattern(defined by the type of "ultimate owners") of listedcompanies in Thailand in 1996 and 2000. The typeof ownership pattern, in terms of 20 per centshareholding cut-off method, is broken down intofive groups. The first two groups ?ii& family-owned(F) and semi-family-owned (FW). While thefamily-owned group is a firm that one particularfamily owns over 20 per cent of the total shares; thesemi-family-owned group is a firm that several

TABLE 2Ownership Pattern of Listed Companies in Thailand, 1996 and 2000

(Unit: number of firms)

Type of Shareholders Total 1996 Total 2000 Change

\. Family-owned (F)2. Semi-family-owned (FW)3. Widely-held(W)4. Foreigners-owned (X)5. State or state enterprise (S)

15066

1605913

33.514.735.713.22.9

13152

1459015

30.312.033.520.8

3.5

-19- 1 4- 1 5

312

Total listed firmsFamily-owned firms (F)-I-(FW)

SOURCE: Authors' compilation using

ASEAN E c o n o m i c Bul le t in

448216

the database

lOO.O48.2

of The Stock Exchange

84

433183

of Thailand.

Vol.

100.042.3

2 1 , No. 1,

- 1 5-33

April 2004

members of either single family or multiplefamilies combined owns over 20 per cent of thetotal shares. The others are widely-held group (W),owned by various groups that any single individualor institution does not hold over 20 per cent of thetotal shares, foreign-owned group (X) and slale-owned group (S), including state enterprises.

This paper focuses on the 448 listed firms byobtaining data from the Stock Exchange ofThailand (SET), company annual reports, andcompany prospectus (Form 56-1) in 1996 and2000. We found that, in 1996, the family-ownedfirm (F) accounts for 33.5 per cent (or 150 firms),and the ratio increases to 48.2 per cent (or 216firms), if semi-family-owned firms (FW) areincluded. Then, it was noted that out of 448 firms in1996, 15 firms disappeared in 2000, due todelisting or were under a rehabilitation programme.In addition, 33 family-owned firms changed theirownership structure into other types, such as,widely-held group and foreign-owned groups. Onthe other hand, 31 firms had to shift their ownershipfrom non-foreign-owned to foreign-owned. Thismovement has been spurred by the pressure ofcorporate debt restructuring schemes executedduring the crisis, when local controllingshareholders were compelled to allocate newly-issued equity shares to existing foreign partners, orinevitably invite new foreign investors.

However, it is evident that the ratio of family-owned firms, including family-owned group (F)and semi-family-owned group (FW), is still highat 42.3 per cent (or 183 firms) of the total 433firms in 2000. It can be said that for all the talk ofdrastic attacks caused by the crisis, around 70 to80 per cent of the same leading families andgroups still survive magnificently in Thailand.

III.2 Pyramidal-holding and Cross-shareholding

This paper wiil now analyse how family firms,before the crisis, shuffled their organizationalstructures and obtained the resources necessary tofinance their growth both through financialinstitutions and also via the capital market, whileremaining ultimately owned and controlled by thefamily. It is essential to note that this does not

mean the creation of "pure" public companies.The founders and their families are able tomaintain a real control over day-to-daymanagement of their firms, infiuence their policiesand strategies, as well as obtain fresh financialresources by means of various instruments.

Among these had been the issuance of stockswith limited or no voting rights, and above all, thecreation of "pyramidal holdings" or "cross-shareholding" structure. A pyramid structureconsists of owner family members at its top level,and owner family members exerting their controlover a number of affiliate companies throughmultilateral instruments, such as from family-owned investment firms through a non-listed corefirm to a large number of non-listed companies; orit can also be from family-owned overall holdingcompanies through core listed companies to alarge number of non-listed affiliated firms(Suehiro 1993; Suehiro and Waiierdsak 2002,pp. 321-26).

By these means the main shareholders, usuallyalso "inside" directors, have been able to controlthe corporation with a very small directinvestment of capital and a much reduced risk ofhostile takeover. In this framework, minorityshareholders have very limited influence, and thefamilies continue to maintain a strict control overthe entire group by appointing presidents and topmanagers, thus defining the whole group'sstrategies. This pyramidal-holding and cross-shareholding structure of listed companies inThailand have been criticized by institutionalfinancial institutions, such as the World Bank,foreign investors as well as scholars (Claessens,Djankov, and Lang 2000).

II1.3 No Separation of Ownership and Control

Another fmding is that the majority of Thai familybusiness groups have substantially continued tomaintain the traditional corporate structure inwhich they have control over both ownership andmanagement. Unlike the American modernindustrial corporations (Chandler 1977), there isno notable separation between ownership andmanagement among business groups in Thailand.

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Despite the fact that Thailand has rapidly enlargedits national economic size and upgraded itsindustrial structure, family-run business groupshave constantly served as the most importantagent for industrial development as we havealready argued in Section II.

There are three major reasons to support suchcontinuous dominance of family-run firms. First,owner families have no difficulties in recruitingable persons from among their own familymembers, since most of them are part of theextended family and are well educated abroad.They did not always need to depend on salariedmanagers from the outside, but could groomfamily members to serve as professionals throughinvestments in education and on-the-job training attheir firms.

Second, the govemment did not introduce anyregulations on ownership of private firms after thePublic Limited Company Act was revised in 1992.When the old Public Limited Company Act of1978 was enacted, the government initiallyintroduced a strict regulation on ownershipstructure in which at least 50 per cent of the totalissued shares were to be distributed to a group ofshareholders holding less than 0.6 per cent of thetotal. However, this Act produced a resistancefrom leading firms and then resulted in theunderdevelopment of the local stock market. Forthis reason, since 1992, the government eventuallyswitched its policy target from regulations onownership to promotion of the stock market,which enabled owner family members to maintaintheir control on ownership.

Third, Thai family business groups could adjusttheir corporate activities to fit the new govemmentpolicies for economic liberalization in both capitalmarket and foreign direct investment since 1988.Owing to new economic circumstances in favourof local firms collaborating with multinationalcorporations to advance into growing markets,existing family business groups could enjoy rapidexpansion and diversification of their businesseswith no actual changes in ownership control.Concomitantly, in the process of economic booms,several groups successfully upgraded theirorganizational capabilities to manage diversified

businesses by learning new productiontechnologies and gaining new product knowledgefrom foreign partners and by introducing amultidivisional-based management structureinstead of traditional management style. We canfairly say that these groups transformed intomodern family businesses, being distinguishedfrom the traditional ones (Suehiro 1997).

111.4 Characteristics of the Members of theBoard of Directors

Another important aspect of family business ismanagement controL Table 3 shows thedistribution of Thai directors of listed companiesby the type of their attribute. Thai directors maybe categorized into three major groups, First isinternally promoted directors consisting of thosewho entered as an employee immediately aftergraduation (G), and those who entered as mid-careerists (M). The second is insiders consisting offamily shareholders including founders, or thosehaving blood or kinship relations with the familyshareholders (FMS), those who are representativesof major shareholders (MS), those dispatchedfrom a related company either a parent companyor a non-finance firm of the group (R). The thirdgroup is from other organizations and consists ofthose dispatched from partner commercial banksor finance companies (F), those who were or stiilare bureaucrats, civil servants, or officers of a stateenterprise (S), those with experience at othercompanies and others (P), and finally those withno identification.

The result shows that the majority of the typicalboard of Thai firms comprises family members(FMS) (24.1 per cent) and major shareholders(MS) (19.2 per cent), together with professionalshired directly from other companies (P) (24.5 percent), and govemment official including militaryand political figures (S) (15.1 per cent). Ifconfined to samples of "family-ownedcompanies", we can see that the percentage ofFMS increased to 33.8 per cent, while that ofmajor shareholders (MS) dropped down to 11.3per cent. On the other hand, it is very interestingto find that both mid-careerists (M) and

ASEAN Economic Bulletin 86 Vol. 21, No. 1, April 2004

TABLE 3Attribute of Directors on the Company Boards

Attribute

Total

I. Intemally promotedEntry after graduation (G)Entry as mid-careerist (M)

2. InsidersFamily major shareholders (FMS)Major shareholders (MS)Related firms (R)

3. From other organizationsCommercial banks or finance companies (F)State/govemment official (S)Other private companies and others (P)

No identification

All Types

Number ofDirectors

2,468

32112

596475135

9237360647

of Eirms

Percentage

100

1.34.5

24.119.25.5

3.715.124.6

1.9

Family-Owned

Number ofDirectors

1,036

1358

35011750

29113306

0

Type Eirms

Percentage

100

1.35.6

33.811.34.8

2.810.929.50.0

SOURCE: Authors' compilation using personal profiles of directors from the Form 56-1 reports of available 323 listedcompanies submitted to the Stock Exchange of Thailand, 2000.

professionals hired directly from other companies(P), possibly "salaried professionals", increasedtheir percentages to 5.6 per cent and 29.5 per centrespectively in the total.

These figures suggest an importantunderstanding on existing Thai family businessgroups. That is. although family owner membersstill occupied the board members with 34 per cent,or the insiders group occupied the board memberswith 50 per cent in family-owned listedcompanies, they already recruited 30 per cent ofthe board members from a group of"professionals" and 7 per cent from a group of"internally promoted persons". In order to exactlyunderstand the growth and the dynamism offamily business groups in Thailand for the pasttwo decades, we should not overlook this valuablefact, namely, their attempts to develop themanagement structure in response to rapidexpansion and diversification of their businesses,although such development is relatively limited

when compared with modern industrialcorporations in industrialized countries(Wailerdsak 2002, Chapter 3).

IV. Category of Family Business after theCrisis

Family business groups in Thailand were veryactive in seeking the economies of both scale andscope during the period of economic boom from1988 to 1995. Such leading groups as the SiamCement Group, the Bangkok Bank Group, the ThaiFarmers Bank Groups and the Chareon Pokphand(C.P.) Group had attempted to diversify theirbusiness bases into new fields of petrochemical,telecommunications, modern retail, and propertybusiness — thanks to expanding sources ofinvestment funds due to economic liberalizationand close collaboration with multinationalcorporations. This led to the creation of diversifiedindustrial conglomerates in a real sense.

ASEAN Economic Bulletin 87 Vol. 21, No. 1, April 2004

As these large conglomerates used debtfinancing to expand aggressively through mergersand acquisitions, direct investment, and projectfinance, after the financial meltdown in 1997, allof them have seriously suffered from foreigncurrency losses, heavy corporate debt fromabroad, domestic economic recession, andtightened money markets. Faced with thesedifficulties, family business groups wereinevitably forced to transform.

At present, we can classify the pre-crisis familybusiness groups in Thailand by using a three-foldcriteria, namely the degree of businessdiversification, the development of managerialhierarchies and the use of professional managers.Using these criteria, the paper categorizes pre-crisis family business groups into the following:(1) closed family business, (2) specialized familybusiness in collaboration with professionalmanagers, (3) authoritarian family conglomerate,and (4) modem family conglomerate (Figure I).

IV. I Closed Family Business

In a closed family business, the ownership andcontrol are entwined by a group of family. Almostail the senior management positions in the

FIGURE 1Category of Family Business

High

Low

Specializedfamily business

Closed familybusiness

Modem familyconglomerate

Authoritarian familyconglomerate

Low Diversification of businesses High

company are filled by the founder(s) and corefamily members such as the founder's eldest son(Suehiro 2003, pp. 113-15). It rarely recruitsexternally for these positions. The significance offamily ties is reinforced by the practice of invitingother families to share ownership when setting upnew ventures. According to conventionalargument, a closed family business is mostlyfound in the initial stages of development, andoften faces limitations when expanding anddiversifying its business. Nevertheless, we findaround thirty groups in this category in Thailandwho had been able to expand their business acrossthe generations at least up to the period ofeconomic boom.

In the wake of the crisis, however, many closedfamily businesses were forced into bankruptcy orclosed down due to their failure to solve heavycorporate debt, for example, Charnsrichawla'sSiam Vidhya Group in finance, Phothiratanangkun'sTBI Group in textiles, Huntrakun's New ImperialHotel Group, Cham Uswachoke's AlphatechElectronics Group, or applications were made tobankruptcy court to restructure their business suchas the NTS Group by Horungruang family in steel,the SSP (Siam Steel Pipe) Group led byLeeswadtrakul family, and the Modemform Groupled by Usanachitt family in furniture.

IV.2 Specialized Eamily Business

A specialized family business focuses its businesson specific industries, for example, agri-business,manufacturing and trading of textiles, machinery,construction materials, chemicals and consumergoods, property business, entertainment, andhealth care. Rather than diversifying into otherkinds of business, it is devoted to constantlymodernize its management structure, that is, acentralized hierarchical organization incollaboration with utilizing professional managersincluding internally promoted persons, whichleads to the improvement of its proficiency in thecore competence areas. This category of familybusiness and modern family conglomeratescombined together to contribute to increase thepercentage of professionals and internally

ASEAN Economic Bullet in 88 Vol. 21, No. I, April 2004

promoted persons into being board members as wesee in Table 3.

Such a strategy seems to have helped manyfamily firms stand firmly at the front line in theirbusiness. Most specialized family businesses witha well-organized management survived from thefinancial crisis. For example, Chokwatanafamily's Saha or SPI Group, the largest consumergoods manufacturing group, could develop theirbusiness even after the crisis by improving theirdelivery system, computerizing marketinformation, and issuing new corporate bonds.

IV.3 Authoritarian Family Conglomerate

At an authoritarian family conglomerate, althoughits businesses are widely diversified and expandedas a conglomerate, top management positions arestill reserved for founder(s), family members, andrelatives. The management style is alsoauthoritarian, in which the chairman or/andpresident are the ultimate persons who make alldecisions and business strategies. Unlikespecialized family businesses and moderncorporate conglomerates, there is no developmentin management organization. One clear advantageof the authoritarian firm is the strong commitmentand long-term training of family members,counterbalanced by the lesser motivation ofmiddle management who are prevented fromreaching the top positions. Consequently, eventhough authoritarian firms are innovative inseveral sectors, their corporate reform is alwaysindividual response rather than an organizationalone, which becomes an institutional weakness inthe era of the unexpected crisis.

An example of family business group in thiscategory is the Thai Petrochemical Industry Pic(TPI). The first generation of this group started itsbusiness from rice milling, and the second one(Porn Leophairatana) expanded their businesslines to gunny sack, textile, and insurancebusinesses. Drastic changes took place in the thirdgeneration, where all the sons were delegated tostudy modern accounting, economics, andpetrochemicals in the United States. Afterreturning to Thailand, these sons started new

businesses in cement and petrochemicals, in linewith the liberalization of industrial investment.Although they quickly increased the number ofaffiliated firms to forty-four firms between 1978and 1996, almost all the firms were under thedirect control of merely three sons, especiallyPrachai Leophairatana, Pom's eldest son (TPI Pic1996; Suehiro 2001^, pp. 18-20, 56).

Most firms of this type could hardly survive dueto heavy foreign loans and new govemment policyon corporate governance including a globalstandard accounting system. Furthermore, severalinfluential groups during the 1970s and 1980sdisappeared after the crisis as we see inTejapaibul's Bangkok Metropolitan Group andSrifuengfung's Cathay Trust Group. Otherwise, itis notable that a few groups are now streamliningtheir diversified businesses and startedconcentrating their managerial resources into acore business, or transforming their activities intoa specialized family business.

IV.4 Modern Family Conglomerate

Meanwhile, some family businesses have survivedand proved to be resilient, able to cope with rapidshifts and changes in terms of economies of scaleand scope. Since the economic boom period,modem family conglomerates have been able todiversify its business and establish a set ofstructural internal factors including corporatereforms, which have enhanced theircompetitiveness and ability to react to marketchallenges.

Although the ownership and control are still inthe hands of the founder(s) and family, they arealways keen to employ other professionalmanagers in key management positions and ontheir boards, and base hiring and promotion onmerit (Wailerdsak 2002). At the same time, despitethe fact that family members represent asubstantial ownership interest in the company andare present in its management and policy making,family relations, quite obviously, has not been thesole reason for promotion. Family members do notexpect to be appointed to senior posts as a matterof course, but only after serious training, and after

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they have proven themselves manageriallycompetent.

An example of a family business group in thiscategory is the Chearavanont family's CharoenPokphand (C.P.) Group.^ They have activelyassigned the first generation of professionals,recruited during the 1950s and 1960s, into keypositions such as finance and marketing in theagro industry, and also appointed the secondgeneration of professionals, recruited since mid-1970s, to key positions in investment strategy andtechnological . development in thetelecommunications industry (Wichai 1993;Suehiro 2002, pp. 92-101; Suehiro and Wailerdsak2002, pp. 355-61). Owing to such a combinationof talented family members witb employedprofessionals, they successfully promoted theirinnovation in management structure (Suehiro2001fc, p. 55).

Interestingly, the modem family conglomeratealso started drastic reorganizing or downsizing oftheir businesses into two or three core businessesbased on their competitive advantages. In 1999,after a joint study with an American consultingfirm, C.R Group decided to launch acomprehensive reorganization of their diversifiedbusinesses with eleven divisional departments(Suehiro 1997) into two core businesses of agroindustry and telecommunications. According tothis new strategy, they streamlined around thirtyfirms relating to agro industry into a single listedcompany, or Charoen Pokphand Food Pic, whilethey also put thirty-three firms related totelecommunications under the control of anotherlisted company, TelcomAsia Pic (Suehiro 2002,pp. 92-96). Such reforms reflect C.P. Group's ownadjustment to new govemment policy on corporategovernance.

V. Promotion of the Corporate Governanceand Its Limitation

Good corporate governance is a fairly new issue inThailand. It has been the major concem amongstock regulators and listed companies since theonset of the financial crisis in 1997. Foreigninvestors blamed the lack of transparency and

accountability for their subsequent departure fromthe Thai stock exchange. As a result, since 1998,the SET has launched several measures to improvethe corporate governance of listed companies,including the requirement of setting up "auditcommittees" comprising at least three independentdirectors, the issuance of guidelines for goodcorporate governance and so forth. It is evidentthat these measures were introduced inconjunction with the "Anglo-American" conceptof corporate governance (Suehiro 2001a). Besides,the Institute of Directors (IOD), partly supportedby the World Bank and the SET, has continuouslysince 1998 trained company directors on theirresponsibilities and duties. In August 2000, thenew Accounting Act came into effect. This lawrequires all companies to register the names oftheir accounting officers for accountabilitypurposes (Wailerdsak 2002).

Figure 2 shows a typical structure of the topmanagement of Thai firms. It is evident that nearlyall listed companies in Thailand have established a"board of directors" and an "executivecommittee". While some companies clearly dividethese two boards on their organization chart, somecombine them into only one board. But, onesimilar thing is that they often comprise the"executive directors", who are both director andmanager (a manager is called an "officer" inAmerican firms). And these executive directorsusually are founder and family members,particularly sitting in the position of chairman,president and vice-president.

FIGURE 2Typical Structure of Top Management

Shareholders

Board of Directors

Executive Directors

Presideni/CEOs

Audit committees

Executive CommitteesInternal auditors

Middle Management

ASEAN Economic Bulletin 90 Vol.21, No. 1, April 2004

It should be noted that corporate governanceIssues in Thailand pertaining to boardcompositions in many cases are different frommore advanced Western jurisdictions. In anenvironment where families still control themajority of a listed company's shares, it Isexpected that tbe controlling shareholders wouldnot want boards composed of a majority of"independent" or "outside" directors.

Although a number of firms attempted tocorrespondingly increase the number of"independent" and "non-executive" directors,most of whom at least nominally are independentof the management, the president usually serves aschairman or director of the board, setting theagenda for meetings and presiding over tbedeliberations. There is also a finding that"interlocking directorate's networks" within thefamily business groups are densely connected. Onthis account, new policies of enhancing themonitoring role of independent directors andprotecting the right of minority or outsideshareholders on the basis of the Anglo-Americanmodel have frequently been paralyzed under thisunique corporate structure of family business.

In 2001, the Thaksin administration gave up itsprevious policies on the basis of the Anglo-American model and tumed its eyes both to thepromotion of "good" companies on the basis of"performance-based" evaluation and to theencouragement of them through monetaryincentives. Indeed, the new governmentproclaimed 2002 as the "Year of Promoting GoodCorporate Governance" with tbe establishment oftbe National Corporate Governance Committee.The committee allowed the Thai Rating andInformation Services Co., Ltd. (TRIS) to be thesole corporate governance rating agency for listedcompanies on the basis of economic performancerather than corporate refomi. As an incentive, theSecurities and Exchange Commission (SEC) wil!

give a 50 per cent discount on the annual fee andsecurities issuing fee for three years. Also, the SETwill reduce by 50 per cent the annual membershipfee for two consecutive years for those listedcompanies that score a minimum rating of 7.(Ratings have a highest score of 10 and lowest of 1.A score of 7 means "good to excellent".)

VI. Future Challenges of Family Business

Various factual findings that the paper suggestedin previous parts seem to indicate that the familybusiness still strongly persists in Thailand. Thepersistence of all family firms should not beconsidered as the consequence of a supposedincapacity of Thai or other local entrepreneurs tounderstand and adopt the managerial models ofthe American modern industrial corporation.Instead, the enduring presence of this particularform of business organization, especiallyspecialized family business and modem familyconglomerates, can be seen as an alternativedemonstration of its efficiency and rationalityagainst a defmed Institutional framework, ratherthan as a failure.

However, given today's climate of falling tradebarriers and increasing globalization, local familyfirms face an onslaught of foreign competition. Theywill face tremendous pressures from a variety ofsources. They must restructure themselves if theywant to survive in a changing economic, financial,and technological landscape. Thai family firms willbe continually challenged on how to efficiently raisefunds from the capital market and commit to goodgovernance; bow to accumulate and develop theirown technology under the pressure of informationcommunications technology (ICT) development;along with how to foster their professional talents.Building a strong organization that benefits thefamily as a whole, and other stakeholders in thebusiness is especially encouraged.

ASEAN Economic Bulletin 9t Vol. 21, No. I, April 2004

NOTES

The authors would like to thank the Senior Research Scholar of Thailand Research Fund (TRF) for its financialsupport.1. Infonnation resources include Advanced Research Group Co., Ltd. Thailand Company Information 1998-1999,

Bangkok, 1999; Brooker Group Pic (2001); Stock Exchange of Thailand, ed., Thailand Listed Company 1996(Bangkok, 1997); Dun & Bradstreet and Business On-line, ed.. Top 5000 Companies in Thailand: 1999/2000(Bangkok, 1999); Company documents compiled at the SET Investor Infomiation Center; various articles inThai newspapers and economic magazines.

2. "Ultimate owner" here means the largest shareholder or the controlling shareholder after the work of identifyingthe actual owner of each shareholder, including corporation in the company concemed when the company iswidely held.

3. C.P. Group, which seems to have ridden out the worst of the crisis and was caught with heavy U.S. dollar debtat devaluation, was able to trim its sales and divested heavily. Just as importantly, the core businesses still remainC.P.-owned and seem strong. The group will also retain TelecomAsia, where US$11 billion debt restructuringnegotiations are ongoing.

4. Interlocking directorate occurs when one person affiliated with one organization sits on the board of directorsof another organization.

5. See details at <www.cgthailand.org/SetCG/award/award_en.html>.

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Akira Suehiro is Professor of Institute of Social Science, University of Tokyo, and Chairman of the JapanAssociation for Asian Studies (JAAS).

Natenapha Wailerdsak is Research Associate of Institute of Oriental Culture, University of Tokyo.

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