Some large-cap firms have replaced the board of supervision with independent members in the board of management to improve the quality of corporate governance and reduce expenses.

Additionally, such actions may improve a company’s transparency to investors and shareholders so it is able to draw more capital from both domestic and foreign investors.

The firms include Viet Nam Dairy Products JSC (Vinamilk), Refrigeration Electrical Engineering Corporation (REE), Coteccons Construction JSC (CTD) and property developer Novaland (NVL).

However, many other listed companies have not followed suit.

Starting from 2015, a listed company can replace the old-fashion board of supervision with an independent audit agent that is appointed among other members of the management board.

Most enterprises do not have a board of supervision in their structure, however Viet Nam is among few countries where a majority of businesses do.

According to Pham Ngoc Hoang Thanh, CEO of financial-accounting training service provider Smart Train, the formation of a supervision board may come from the old business model of the Soviet Union.

Though professional licences were required for all members of the supervision board, it had remained unclear so far, Thanh said, adding that was the reason why the supervision board in each company had not made a great impact on business performance.

Therefore, the removal or replacement of the supervision board may help reduce expenses for the company and improve the role of the management board, Thanh said.

According to the world’s top-four audit and consulting firm PricewaterhouseCoopers (PwC), internal audit may help a business save 5 per cent of revenue losses.

That ratio may be higher for a Vietnamese business if it was courageous enough to get rid of the supervision board, Thanh said.

Hiring an audit company from the outside may only help review the financial reports to find financial violations, so it was necessary for a firm to establish its own internal audit unit, he added.

Independent members of the management board, or internal auditors, would protect the rights and benefits of shareholders and help business leaders develop their strategies, Thanh said.

However, the legal framework had remained unclear regarding the function, appointment and responsibility of the internal auditors so local companies were hesitant to remove their supervision boards, according to Thanh.

The quality of the employees was another issue as internal auditors should have worked at the company for a long time, thus having a strong voice among company members, Thanh said.

But such employees were also required to quickly adapt to the economic and financial changes, and be responsive to Industry 4.0, he said, adding that Viet Nam still lacked high-quality young employees to resolve the problem. – VNS