How would you evaluate the quality of corporate governance in Viet Nam, among companies in general and listed companies in particular?

Nguyen Vu Quang Trung

Corporate governance is a new concept for Vietnamese companies. In an evaluation conducted by the International Finance Corporation (IFC) in 2010, 100 of the largest listed companies in terms of capitalisation scored just 40-45 out of 100 points. Sadly, these scores have worsened in recent years as profits drop and some firms even suffer losses, prompting them to cut spending on writing reports and publishing information on the market. Such reports, especially those written by the Board of Directors and the Board of Supervisors, tend to provide very little information.

However, the quality of corporate governance is also a problem in other regional markets. The Asian Corporate Governance Association (ACGA) reported in 2012 that the quality (of corporate governance) had declined in all countries in the region.

According to the ASEAN Corporate Governance Balanced Scorecard issued by the ASEAN Capital Markets Forum, the large gap between high and low score achievers show that a large number of companies in the region acknowledge the importance of corporate governance. Basically, we can say that the quality of Viet Nam's corporate governance is average compared to other markets in the region.

Corporate governance and corporate management are in fact two different things often mistaken as one. Please clarify this.

It is true that the concept of corporate governance is seriously misunderstood. Some companies have told me that they have run their businesses properly, so it is unreasonable that they are asked to learn and improve corporate governance. Business management is all about maximizing profits and expanding the business, while corporate governance has to do with formulating regulations, structures and policies on the obligations and responsibilities of stakeholders in a company, including shareholders, employees, governmental agencies, partners, customers and, especially, the firm leaders. So corporate governance is a broader term which contains business management and develops a long-term development structure for the company.

Viet Nam's corporate governance scores in recent years have been among the lowest in the region. Why?

The quality of Viet Nam's corporate governance is very low compared to highly developed markets like Singapore, Hong Kong, Thailand and Malaysia. On the one hand, the Government has not provided enough policy and regulatory support for it, and on the other, companies are yet to understand and acknowledge the importance of corporate governance for their firms' long-term development.

However, as I said earlier, for Viet Nam, it is still a new concept that has originated in Western countries, and it conflicts with Viet Nam's business management culture.

Are there differing perceptions about corporate governance among Vietnamese firms?

In the Vietnamese market, the large companies find corporate governance a natural activity, because they have a broader business scope, more foreign partners and are able to expand their business beyond the nation's borders.

Smaller companies are skeptical about the benefits because it might not make business sense to spend a lot of money for training and instructing their employees to apply this concept. They are yet to realise that corporate governance can be an instrument that helps them achieve sustainable development in the future.

What about Viet Nam's legal framework for corporate governance?

The Law of Enterprises is the major legislation in the country involving corporate governance, but it has no provisions that deal with it specifically. It contains details that form basic components in corporate governance, including the Board of Directors, shareholder meeting and the rights and benefits of shareholders.

At a lower level, the Ministry of Finance (MoF) issued a circular (121/2012/TT-BTC) in 2012, providing more specific, updated regulations on corporate governance trying to meet international standards.

But the ministry has encountered problems in implementing the circular as Vietnamese companies are not ready for it. The MoF and the State Securities Commission (SSC) are willing to review and adjust the circular so that it matches the current status of local market. The SSC and the Stock Exchanges will also issue other regulations, principles and standards to implement the Circular and its revised versions so that the policies can apply to all companies, listed and unlisted.

What are the factors that you consider necessary for good corporate governance in Viet Nam?

Corporate governance has to be a long-term endeavour in which all stakeholders must discharge their responsbilities. For example, government agencies need to complete and update their policies and ensure their proper implementation. They should provide opportunities for the development of training and research centres in corporate governance.

Company leaders need to improve their own abilities as they set the policies that maximise a company's performance.

Investors should have basic knowledge of corporate governance use it as a criterion to make investments, which means that they should seek long-term investment opportunities, thus facilitating sustainable growth, both economic and social, instead of focusing on short-term gains.

As shareholders, they should also participate actively in company meetings and nominate themselves to the Board of Directors to maximise their benefits.

The Ha Noi Stock Exchange (HNX) has been scoring the quality of corporate governance and information transparency among listed companies since 2013. How did this begin and how well has it been carried out?

We began to study the concept of corporate governance five years ago, examining international models and experiences, after we realised that it was badly needed here. After two years, we started to score local companies on transparency because corporate governance was still too new for most firms.

We experienced problems because companies were often unwilling to take part in the programme and investors' demands were too high. It was not easy to make sure the results were accurate, fair and transparent.

Luckily, we have succeeded in having many local firms actively participate in the programme. They have also been positive about the results, making no complaints. After two years, 2013 and 2014, local companies began registering better scores, particularly in protecting shareholders' rights and benefits as well as information transparency.

Such positive outcomes have encouraged us a lot to improve the programme. Last year, HNX hired a third-party agency to make sure that the scoring was transparent and secure. We also established a council to review and approve the scores before publishing them.

Is there any evidence that the scores have had an impact on investors?

No research has been done on this aspect. However, it can be seen that investors, the media and government agencies are paying more attention to corporate governance. I feel it will be several years before corporate governance becomes a major factor in investment decisions.

What is the important corporate governance lesson that Viet Nam can learn from international markets and what are HNX's expectations for the future?

As I noted earlier, this originally Western concept has encountered many conflicts with Asian markets. So Viet Nam needs to learn from other Asian countries that have similar conditions.

Over the last three years, we have performed quite well with the corporate governance scores. We have organised training programmes and hired overseas experts. We have surveyed other markets like Thailand and Taiwan, provided annual recommendations on corporate governance, developed transparent corporate governance reports and organised weekly training courses to disseminate the concept to local funds, companies and investors. We expect all members to actively participate in the activities launched by the MoF, SSC and the stock exchanges. — VNS