Better corporate governance in Vietnam, an ongoing journey

With respect to this year’s Corporate Governance Scorecard results, what do you think may be the biggest corporate governance challenges in Vietnam?

The biggest challenge is that companies in Vietnam have not really understood the importance of corporate governance. Most listed companies try just to stay in line with the prevailing rules, but they have not showed any real confidence in corporate governance or taken steps to improve their corporate governance systems.

At this difficult economic time, companies are tending to focus more on survivability and, erroneously, are viewing corporate governance standards as something not really necessary. It is this psychology that keeps may companies’ behaviors unchanged. The market’s current downfall is at least partly due to the repercussions from such behavior.

>> IFC urges Vietnam’s listed firms to improve governance

In comparison with other countries in the region, how far behind is corporate governance in Vietnam?

Thailand is where the corporate governance scorecard has been in place for about a decade now. In their first six years, they also grappled with the same mentality seen now in Vietnam: just maintain compliance without any self-motivation. But then they changed and now they have far outpaced Vietnam. Companies in Thailand now not only adhere to the local laws but make voluntary efforts to outperform the law to improve their corporate governance practices.

In Singapore and Hong Kong, companies are well aware that foreign investors and new market entrants will only put their money in companies with good corporate governance demonstrated through transparency and ethical decision-making.

Looking at Vietnam, even the regulatory corporate governance standards are distant to the ASEAN norms, and needless to say, a far cry from international practices. The advice for Vietnam is that local companies should change their awareness and behavior, and pay attention to corporate governance if they want to reel in substantial external investment and look to a robust and sustainable future.

Survey findings for 2012 indicate that newly listed companies in the sample have very poor disclosure performance indicators. What can be done to turn this around?

I think that regulators need to be stricter on governance criteria with companies that want to be listed. Any company with poor corporate governance performance should not be listed. In addition, newly listed companies should understand that if they are not serious with respect to disclosure, investors will have no confidence in them and back out. A possible scenario is that immediately after IPO, layers and layers of investors will want to resell their shares. Share prices will go down and these newly listed companies will learn that if they want to attract and retain investors, there is only one way to do it, which is to first improve transparency in disclosure.

Board of directors (BOD) members’ accountability is also low throughout the survey. The State Securities Commission previously planned to make it mandatory that BOD members of public companies go through a corporate governance training course, but then nothing happened. Do you think this is a necessary step to raise the BOD's accountability?

What we see in Vietnam is that BOD members, especially the chairperson, have too much power, and as a result, in meetings or debates among the company’s leadership, they tend to have too much control. If there is such a course and BOD members or chairpersons can attend it, then they should do it to understand how to not have too much control in a discussion, so that they realize the benefits of many different ideas and perspectives as possible and how these may add value.

In other countries, people understand this better and hence, create higher competitiveness through better decision making processes. So, I think that what needs to be done now is that BOD executives should exercise a more open view, and not stick to excessive control of BOD discussions.

I recently heard that the new corporate governance rules make it mandatory for BOD members of major listed and public companies to attend corporate governance training. I hope that this will be a reality soon.

While equitable treatment of shareholders is the highest scoring area (57.8 per cent), in practice, as noted in various recent corporate governance incidents with banks or brokers, minority shareholders are still underserved and last to be informed on company risk and bad news.

This figure (57.8 per cent) is only barely good enough. A good number should be 65-70 per cent, it takes 80 per cent to be excellent. According to the Doing Business report for 2013 of the World Bank Group, Vietnam now ranks 169 of 185 economies around the world in terms of shareholder’s rights protection. That means Vietnam is far behind other countries in this area. Anyway, everything has two sides to it, shareholder’s fundamental rights and equitable treatment of shareholders may only be realized if corporate governance is improved. Businesses in Vietnam have a long way to go to reach that level.