Vietnam is failing the CG test

The International Finance Corporation’s (IFC) latest corporate governance scorecard report found that listed Vietnamese firms averaged only 44.7 per cent for corporate governance (CG). This is a marginal increase against 43.9 per cent recorded last year.

In comparison, the Asian Corporate Governance Association in its CG assessment considers an 80 per cent level of adherence for ‘world class’ CG practices. No company in the IFC’s survey group achieved this level.

The survey, conducted in 2011 based on available data from 2010, covered Vietnam’s 100 largest listed market cap companies, which represented 83 per cent of total stock market capitalisation.

Nguyen Thu Hien, head of the IFC’s Vietnam CG project, said the results were bad as the firms surveyed were considered to be among the best at CG. This meant the CG results for the remaining public companies had to be far lower.  

“The results raise an alarm on enterprise awareness of CG as well as protection of minority shareholders’ rights in Vietnam. How can these firms [with poorer CG] compete to attract investment capital?” asked Hien.

Juan Carlos Fernandez Zara, the IFC’s CG project director, said that international money flows were finding safe destinations amidst hostile economic and financial conditions in the US and EU and one of the investment criteria was good CG. “There was a big gap between the highest score of 68 per cent and  the lowest of zero per cent,” Zara said.

Seelan Singham, a director with  global management consulting firm McKinsey & Company, said  investors were willing to pay a premium for well-governed companies, particularly in Asia.
Vietnam’s State Securities Commission vice president Vu Kim Lien noted the concept of CG was new not only to enterprises, company directors and the society but also to relevant government agencies.

“It is first necessary to increase the awareness of the importance of corporate governance and – much more importantly – to strengthen the enforcement of corporate governance,” she said.  
According to a recent CG survey by PricewaterhouseCoopers Vietnam, only 32 per cent of Vietnamese firms had CG and internal control regulations, while 61 per cent of firms had no audit teams, 38 per cent had no official risk evaluation processes and 51 per cent had no internal control function.

In addition, 58 per cent of private businesses in Vietnam admitted that their enterprises were badly managed, while most Vietnamese private firms had insufficient accounting systems and internal controls.

Vietnamese enterprises, especially listed firms, are in urgent need of better CG in their business operations because of the country’s integration into the global economy after its entry into the World Trade Organization.