Corporate governance: A weakness in annual reports

July 31, 2014 | 14:39
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Despite a healthy number of entries, this year’s prestigious Annual Report Awards has revealed a poor standard of reporting across the board with just 10 per cent of companies’ entries in the final round conveying governance messages consistent with prospective investors’ needs.

Nguyen Nguyet Anh, an operations officer who leads the corporate governance programme at International Finance Corporation – the member of the World Bank Group exclusively focused on the private sector, delivered the verdict as a member of the final judging panel which examined 105 entries from a variety of business sectors in Vietnam. The awards, organised by Ho Chi Minh Stock Exchange and Vietnam Investment Review, for the past seven years, illustrated that the majority of stock exchange-listed firms still need to raise the bar on the quality of corporate governance content in their annual reports.

What improvements did you observe in the quality of corporate governance content in this year’s annual reports compared to 2013?

The corporate governance contents in this year’s reports strictly followed the provisions of Circular 52/2012/TT-BTC on information disclosure in annual reports applicable to public companies. Corporate governance is becoming an indispensable and important component of annual reports in Vietnam and companies are gradually incorporating good governance practices into their annual reports.

A number of companies have made a great leap in using their annual reports as a communications channel with investors and have presented corporate governance-focused information in their reports in accordance with international best practice. About 10 per cent of companies with reports selected in the final round conveyed governance messages with consistent content for investors, not just formalised reports.

In a similar fashion, could you identify some of the weak points in corporate governance this year?

Of the more than 100 companies selected in the final round of the awards, besides the firms with huge leaps in disclosure of good governance information, about 60 per cent had below average scores on governance content disclosure. The main cause for this poor outcome was that compliance with corporate governance disclosure requirements as per Circular 52 was not strictly adhered to by companies, particularly regarding information related to the structure and operations of the board of directors (BOD) and supervisory board. Many companies failed to comply and apply recommended governance practices regarding non-executive BOD members, independent BOD members and BOD committees. The quality of information displayed in many companies’ annual reports indicated a limited and poor understanding of corporate governance.

In short, what is needed for an annual report to display good corporate governance content? And who is the winner?

An annual report with good corporate governance content should provide sufficient information for readers to fully understand company ownership structure, strategies as well as processes and people that are part of the governance structure. This latter point needs to encompass the BOD, supervisory board and board of management, and reflect how well each member of these bodies participated in the governance structure as well as corresponding incentives and remuneration to each member during the year. Apart from information required by law, a company may voluntarily provide additional information on its internal corporate governance model and policies, such as internal controls and risk management mechanisms, the role of independent external auditors, an ethics code and voluntary commitments to implement good corporate governance.

This year, the judging panel was very impressed with the company who gained the highest corporate governance scores - Vinamilk. It managed to reflect a real efficiency in the operations of its supervisory board, BOD and board of management as well as in other important governance issues. This allowed the reader to understand the firm’s commitment to develop a sound corporate governance culture. International governance standards for independent BOD members, non-executive BOD members and BOD committees - including the auditing committee - were flexibly adopted by the company and well reflected in its annual report.

So, how can firms gain good scores for governance content?

At present, the grading criteria with regards to corporate governance content of the contest was developed based on current information disclosure and corporate governance regulations applicable to listed public companies, such as those set out in Circular No. 52/2012/TT-BTC and Circular No. 121/2012/TT-BTC. The understanding and monitoring of compliance with legal regulations and preparation of report content in accordance with required standards helped companies achieve the floor scores, in terms of scoring for quantitative content.

However, to gain quality scores for information in the reports, companies should clearly reflect their commitment to good corporate governance practices, particularly in their voluntary approach to good disclosure practices as role models in the market. To do this, firms should develop a healthy and efficient governance structure in accordance with good international practices as recommended in the Corporate Governance Manual for Vietnamese public and listed companies jointly issued by IFC and the State Securities Commission.

See link to the CG Manual hereVietnam Corporate Governance Manual

How do this year’s entries measure up when compared to regional countries?

Scoring criteria for the awards were developed specifically for listed public companies in Vietnam. As such, we have no database or analysis to compare these scores with regional countries. Based on the scoring results of this year, however, we can say Vietnamese companies only achieved below average scores, much lower than those of Malaysian or Thai companies.

These results are not far from what we saw in IFC’s Corporate Governance Scorecard survey results in 2012 (Area D – Disclosure and Transparency had average scores of 40.1 per cent).

See link to the CG Scorecard here: Corporate Governance Scorecard for Vietnam 2012

However, we would like to acknowledge that a number of Vietnamese companies scored well for good governance content thanks to their pioneering spirit in applying good international governance practices and this was nicely conveyed in their annual reports.

How will IFC further promote good corporate governance in Vietnam going forward?

After five years of supporting corporate governance practices in Vietnam, we recognise that BODs of Vietnamese companies should perform their roles and duties better. To do this, BODs must be objective, professional and act in the best interests of companies and shareholders. BODs must establish company strategies, protect the interests of shareholders as well as supervise the management board and financial activities of the firm. Currently, IFC is carrying out the second phase of a project to strengthen corporate governance practices in Vietnam, continuing to focus on improved awareness of good corporate governance practices regarding BODs, monitoring mechanisms, and  transparency and disclosure. IFC will expand the scope of our work from listed public companies to include commercial banks, small- and medium-sized enterprises as well as state-owned enterprises in the process of equitisation.

Since 2009, IFC has been supporting the improvement of corporate governance practices in Vietnam’s emerging corporate sector. The Vietnam Corporate Governance Project works across the spectrum of governance interventions in a number of business sectors. This is the second year that IFC has provided technical support to the Annual Report Awards by developing scoring criteria and directly participating in the final judging panel to score and select the best companies on disclosure content related to corporate governance.

For more information about IFC’s Vietnam corporate governance publications, please visit website:


What the stars mean:

★ Poor ★ ★ Promising ★★★ Good ★★★★ Very good ★★★★★ Exceptional