Corporate governance at forefront

March 18, 2022 | 15:00
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Although there are still issues that need specific guidance, the Law on Enterprises 2020 is coming to life, gradually raising corporate governance to a professional level.
Corporate governance at forefront
Companies are preparing for the upcoming shareholder’s meeting season, photo Le Toan

After a year in effect, those businesses with transparent disclosure of information are also the ones that have achieved good governance assessment results and earned the trust of external investors.

As this year’s shareholder meeting season is coming, listed companies are aiming to include data on environmental impact assessments in their annual reports, measuring total direct and indirect greenhouse gas emissions.

Over the past 10 years, factors of environmental, social, and governance principles have been considered more. However, even businesses that have developed for years are still managed mainly by experience.

“At one point, I didn’t know how our board should function,” said Nguyen Thi Mai Thanh, chairwoman and general director at REE. “It feels like I supervise everything closely, but not yet professionally.”

Thanh said when she came into contact with professional management knowledge, she realised that the company only had a few documents to ensure regular control processes, but the responsibility to shareholders and investors had not been fully expressed in these.

The addition to properly performing responsibilities of a listed company on the stock exchange has helped REE create confidence for investors and avoid risks. REE is now in the top 30 companies with the largest market capitalisation.

Phan Le Thanh Long, general director of the Vietnam Institute of Directors, said, “There are not many board members of listed companies involved in company governance.”

A lack of tools, Long believed, is the reason why many of these members cannot participate in monitoring and ensuring the quality of financial statements. “In Vietnam, not many boards of directors have access to the key contents of such statements before they are announced.”

Long explained that a company’s management has to analyse material accounting policies and estimates before preparing financial statements. The board of directors then analyses the financial position and operating results, before analysing capital and liquidity issues.

These financial statements are mandatory when disclosing information in annual reports of listed companies in the United States, following the regulations of the US Securities and Exchange Commission. Boards of directors must review these statements prior to their publication.

Meanwhile, good corporate governance is still considered a luxury in Vietnam. Vietnam’s Corporate Governance Scorecard has always been below the average in the ASEAN assessment. According to the ASEAN Corporate Governance Scorecard 2019, out of the five corporate governance assessments, the board of directors’ responsibility and transparency and information disclosure are the two points with the highest proportions, with 40 and 25 per cent, respectively.

The revised Law on Enterprises has “focused on perfecting the legal framework on corporate governance,” said Phan Duc Hieu, deputy director of the Central Institute for Economic Management (CIEM).

“The law introduced breakthrough amendments to the legal framework on corporate governance according to best international standards. Thus, enterprises must comply with these new standards of corporate governance, including with the requirements on publicity and transparency. This is the key to creating a business that can attract capital from investors and find new customers and partners.”

CIEM has for many years studied the relationship between good corporate governance and operational efficiency. The group of companies with the highest corporate governance score is also the group with the best performance, a reason for CIEM to expect that the Law on Enterprises will upgrade the quality of Vietnam’s businesses.

Hieu thus believed that, with the changes in corporate governance requirements in the Law on Enterprises, the scores of Vietnamese enterprises in the ASEAN Corporate Governance Scorecard could increase by the time of the next announcement.

By Nguyet Hai

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