The Siam Commercial Bank Public Company Limited (SCB) and the Kasikornbank Public Company Limited (KBANK) were the winners of the 2003 Board of the Year Awards. What had the two banks done (that other banks had not) to deserve the accolade? The KBANK was also one of the four winners of the corporate governance awards sponsored by the National Corporate Governance Committee (NCGC). In its assessment the Committee had assigned 20 per cent of the weightage to the companies’ support of shareholders’ rights. In addition, an independent audit committee of the bank was asked to submit its assessment directly to the board of directors.

According to the chairman of SCB, its practice of good governance has contributed to an improvement in the learning curve effect as well as a shortening of the response time to errors. In fact, it has been observed that good governance instils confidence in shareholders and builds stability as it can enhance investors’ confidence. Some would even say that good governance can improve a firm'ssustainability and help banks to survive in today'sglobalization. Such claims usually express some vague perceptions, or even wishful thinking, however, and are not backed up by facts. We need something more concrete to to establish the outcome from available evidence. To do so, we first have to quantify the degree of good governance put into practice. Second, we must be able to relate the indices of good governance to banks’ performance indicators such as stock prices, non-performing loans, and profitability. Snapshots of these variables, before and after the shocks, can help us understand this complex relationship. Third, we must establish a channel through which good governance can transmit its impact on those performance indicators.

We must also not forget that banks’ performance in terms of profitability and solvency can be affected by factors other than good governance. We must not naively echo the widely held view that good governance will result in better performance. This is because business cycle, appropriate management strategy and business policy, competitiveness, re-engineering, and many other factors also contribute to higher profits.