Improves a company's ability to access finance

How would you rate corporate governance practices in Vietnam?

Over the last four years, IFC has been aiming to improve corporate governance practices in Vietnam with the goal of increasing the trust between Vietnamese companies and their stakeholders. Our team has worked on a spectrum of governance interventions to create an environment based on responsibility, accountability, transparency, and commitment – all of which are internationally recognized standards of good corporate governance.

These interventions have focused at all levels of the market, including broad awareness raising activities, targeted regulatory improvements, capacity building of private service providers, and direct interventions to specific firms.  For example, at the regulatory level, we worked with the State Securities Commission of Vietnam and the Global Corporate Governance Forum, to develop a Corporate Governance Scorecard for the market. This included reviewing publically available material of the top 100 listed companies on the two stock exchanges (about 90% of the total market capitalization) for three consecutive years from 2009 to 2011. The survey results confirmed that corporate governance is generally at a nascent stage in Vietnam and that company disclosure and transparency levels needed to improve significantly. Furthermore, while corporate governance has been implemented on a basic level in some companies, there is a clear need to expand the universe of companies that are embracing good governance and also deepen the level of understanding of more sophisticated governance issues. 

Are there any positive signs in improving corporate governance standards in Vietnam?

Positive strides are being made. For example, two new important corporate governance regulations -- Circular No. 52/2012 related to information disclosure and Circular 121/2012 related to corporate governance in public companies -- were released in 2012. This action has clearly demonstrated the government’s continued effort in promoting transparency in the Vietnamese market and has helped to raise the overall level of disclosure in the 2012 Annual Reports of listed companies.  This includes better disclosures on items such as shareholder structure, board composition and structure, senior management remuneration, and other financial information. Like other international investors, we view the availability of meaningful, accurate, and timely information as an absolute imperative.

However, Vietnam enterprises have not fully recognized the benefits of corporate governance. In your view, who should take the responsibility in improving corporate governance?

The primary responsibility lies with the companies as they need to understand how compliance with good international practices contributes to their competitiveness. The OECD Principles of Corporate Governance are an international corporate governance benchmark for policy-makers and companies which should serve as guidance in Vietnam. The OECD principles support the development of high quality internationally recognized standards, which help to improve transparency and the comparability of financial statements and other financial and non-financial reporting between countries.

Vietnam's regulators should assist the move to greater transparency and higher quality of local companies' annual reports by providing more detailed legal regulations guiding the reports' preparation in accordance with the OECD principles. The state, as a major shareholder in many companies, is in a powerful position to advocate for compliance with international best practices through its representatives on boards of these companies. The OECD principles should also be adopted and incorporated into the listing requirements for Vietnamese companies.

What is your advice for companies in this regards?

This includes first meeting and then going beyond the basic regulatory requirements now in place. For example, investors like to see more information on the board activities, company strategy and risk profile, material company events, and more meaningful accounting and finance information, including improved financial statement notes. Also, companies should ensure that shareholders have relevant and timely information about matters that affect their rights as owners such as new director nominations, strategic decisions of the company, minority shareholder protections, and other voting matters for their consideration at annual general meetings.  

We are confident that Vietnam companies will build on the recent progress and continue to strengthen their corporate governance practices well into the future, leading to a stronger and more sustainable private sector for Vietnam as a whole.