Vietnamese firms told to improve oversight of RPTs

Saturday, Oct 14, 2017 08:44

A panel discussion on company boards’ responsibility in handling conflicts of interest and related party transactions was held as part of the Corporate Governance Forum held in HCM City on October 12. — VNS Photo

Vietnamese public companies, especially listed ones, should have clear policies and procedures governing related party transactions (RPTs) and an effective oversight mechanism that complies with the laws and follows best international practices, a forum on corporate governance heard in HCM City on Thursday.

Titled ‘Handling Conflict of Interest and Related Party Transactions,’ it was attended by 100 regulators, board members and senior executives from large public and listed companies.

It aimed to address concerns and issues related to best practices in governing conflicts of interest and RPTs for sustainable performance and growth.

Chris Razook, head of corporate governance for East Asia Pacific, International Finance Corporation, said definitions of related parties vary from place to place and across various sources of standards.

A good definition of related parties broadly covers all persons and entities that, by virtue of their positions, authorities, ownerships, have scope for direct or indirect influence on banks’ decision making with regard to RPT’s.

An RPT is a transfer of resources, services or obligations between related parties, regardless of whether a price is charged, according to international accounting standards.

Delegates said RPTs are common in most businesses across industries and sectors in Asia.

Though they do not necessarily affect the company negatively, the risk of shareholder abuse is potentially present in non-arm’s length transactions involving sale or purchase of goods, transfer of intangible items and even establishment of joint ventures, they said.

Abusive RPTs have led to significant corporate failures destroying shareholder value and eroding investors’ confidence in the integrity of capital markets, they said.

In fact, over the last few years abusive RPTs have become one of the biggest challenges facing the Vietnamese business landscape, they said.

Chris Razook said: “RPTs are always viewed as situations which are open to possible conflicts of interest and should be subject to rigorous review.”

The conflict of interest regulation index in Viet Nam (4.3), though improved in recent years, remains lower than the regional average (5.6) and far lower than EU and OECD averages, according to the expert.

It is a recommended practice that a company should outline its RPT policy as part of its governance policy framework and ensure that any conflicts of interest inherent in RPTs are strictly addressed.

“In the absence of a strict RPT policy at the company level, RPTs could be easily abused, significantly weakening the competitive edge of many companies, thus increasingly posing a challenge to the integrity of Viet Nam’s capital markets,” Tran Van Dung, chairman of the State Securities Commission of Viet Nam, said.

Vietnamese public companies, especially the listed ones, should do more to enhance efficient governance, applying good governance practices to stand firm against challenges in regional integration, to maintain competitive capacity, increase shareholders’ confidence and attract foreign investment, he said

According to Dinh Thi Quynh Van, CEO of PwC Vietnam, independent directors have a central role in assisting the board in overseeing RPTs.

A healthy RPTs environment and leadership at the top is important and it empowers internal gatekeepers of the company.

"Corporate governance reform is a top priority for regulators, institutional investors and boards," Dominic Scriven, chairman of Dragon Capital Group, said.

"Good corporate governance, including attracting qualified independent board directors, and transparency in RPTs are absolutely critical," he added.

The forum was the first annual event hosted by the Viet Nam Corporate Governance Initiative founded by the International Finance Corporation, the Ho Chi Minh Stock Exchange and the Ha Noi Stock Exchange. — VNS

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