Vietnam’s path to enhanced corporate governance

With Vietnamese businesses expanding globally, the development of a skilled corporate governance workforce is becoming increasingly essential. How have you observed changes in the quality of corporate governance among Vietnamese businesses?

Phan Le Thanh Long

Vietnam’s corporate governance landscape has matured significantly alongside the development of the capital market and the legal framework. Companies are transitioning from a basic understanding of corporate governance to implementing and practising global governance methods that are tailored to the local context.

There’s a noticeable shift towards professionalising the corporate governance role. The market is now witnessing a rise in professional board members who possess the necessary skills, experience, and credibility, and understand the nuances of board operations and sustainable governance structures.

Vietnamese businesses are recognising the importance of involving independent professional board members in their governance structures to enhance the overall quality of corporate governance.

As the Vietnam Institute of Directors (VIOD) works towards promoting standards and best practices in corporate governance, what key areas do you think need immediate attention?

Our research highlights that while large-scale public and listed companies are showing improvement in governance, there is a lag in medium and small-cap companies in terms of effort and resource allocation towards governance enhancement.

The first step for Vietnamese companies is to elevate the awareness of top leadership about the roles and practices of advanced corporate governance. This should be followed by establishing a board and corporate governance culture that permeates all levels of management, focusing on transparency, compliance, and value creation.

Finally, there is an urgent need for dedicated resources to adapt and update advanced corporate governance practices. This will lay the foundation for sustainable development, acknowledging the expectations of all stakeholders and integrating environmental and social concerns into their governance structures and sustainability strategies.

Beyond company-specific issues, what adjustments to the legal framework or business environment are necessary to enhance the effectiveness of director boards in Vietnam?

Corporate governance, especially the role and effectiveness of Boards of Directors, relies on the legal underpinnings provided by the laws on enterprises, securities, and state capital management in enterprises. Advanced corporate governance practices from international bodies like the International Finance Corporation are also being integrated by Vietnamese firms.

The existing laws and practices have outlined various global corporate governance models that Vietnamese enterprises can adopt. For example, the Enterprise Law has detailed two governance models, including a widely implemented single-board model without a supervisory board, which instead includes an audit committee under the board.

It also clearly defines independent board members, information disclosure, annual and sustainability reporting, and environmental and social factor disclosures.

Is there a distinct Vietnamese business model that aligns with local culture yet remains transparent and effective in corporate operations?

Our assessments show many Vietnamese public and listed companies transitioning towards advanced global governance models, with growing emphasis on independent board members.

Vinamilk is a standout example in implementing advanced corporate governance in Vietnam. It was the first large-cap listed company to shift to the single-board model following the 2014 Enterprise Law, even before detailed regulatory guidelines were available.

The company’s adoption of best governance practices well-integrated with Vietnamese culture and high-level personnel, and its diverse international ownership, has led it to be the sole Vietnamese listed company included in the Valuable Investment Asset category of the ASEAN Corporate Governance Scorecard Awards, with VIOD as a specialist partner representing Vietnam.

Companies like PNJ have also been at the forefront of establishing environmental, social, and governance (ESG) committees under their boards. These instances exemplify a seamless integration of advanced corporate governance models with Vietnamese market specifics, aimed at sustainable growth.

With VIOD’s sixth annual meeting approaching on November 22, where the Board of the Year will be recognised, can you elaborate on the importance of this award?

The award aims to acknowledge boards of listed Vietnamese companies for their exceptional performance against rigorous criteria. These include safeguarding shareholder interests, generating value for stakeholders, adherence to good corporate governance principles, and sustainable growth. The award spotlights individual board members, furthering the development of professional boards in Vietnam.

For evaluating boards, VIOD has formulated criteria, in collaboration with directors’ institutes from regional countries like Thailand, Singapore, and Malaysia, who host similar awards. The criteria are adapted to the Vietnamese context and legal framework.

Our evaluation indicates a significant shift towards good governance practices among Vietnamese businesses. Companies with solid and diverse governance structures, implementing ESG, with clear succession strategies, enhancing transparency and integrity, and with effective board member contributions were among the highest scorers of the nearly 600 businesses evaluated this year.

On November 22 in Hanoi, the main award will be presented to the Board of the Year, along with recognitions for gender-diverse boards, effective succession planning, and impactful independent board members.

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