Weak governance means significant consequences

What are your thoughts on corporate governance regulations for public and listed companies in Vietnam?

Vietnam’s corporate governance framework, primarily governed by the Law on Enterprises (LoE), has undergone three major revisions in 2005, 2014, and 2020. Each revision aimed to simplify business processes, safeguard investor rights, and align with international standards.

Phan Duc Hieu, a standing member of the National Assembly Economic Committee

The LoE 2014 marked a significant milestone, bringing governance practices closer to global norms. This improvement was reflected in Vietnam’s rise on the World Bank’s investor protection index, jumping 90 places to 87 out of 190 countries. However, by 2020, Vietnam slipped to 97 as other countries advanced their reforms.

The LoE 2020 sought to address these gaps, refining the governance framework to align with global best practices. It prioritised investor protection, improved governance standards, and aimed to enhance Vietnam’s global standing. Additionally, the Law on Securities 2019 introduced stricter governance requirements for public and listed companies, further complementing these efforts.

Other initiatives, such as the publication in Vietnamese of the Principles of Corporate Governance from the the Organisation for Economic Co-operation and Development (OECD) and G20, and the release of Vietnam-specific governance guidelines by the State Securities Commission and International Finance Corporation in 2019, have also contributed to helping bridge the gap between local practices and international standards. Nevertheless, enforcement and implementation remain inconsistent, leaving room for improvement.

Compliance with the law seems to be the minimum standard, yet good corporate governance still appears to be lacking. What is your perspective?

Corporate governance in Vietnam faces challenges, particularly in awareness, implementation, and outcomes. While businesses increasingly recognise its importance, many fail to fully embrace governance as a driver of long-term sustainability.

Recent high-profile disputes highlight the consequences of weak governance. Family conflicts have escalated into corporate disputes, and dominant shareholders have undermined management structures, leading to operational inefficiencies and minority shareholder exploitation. In some cases, these issues have even resulted in corporate failures.

Although awareness of governance benefits is improving, the application varies significantly. Many businesses focus solely on meeting legal requirements instead of adopting governance practices that add value. This compliance-focused approach limits progress and creates substantial disparities in governance standards across different sectors and types of companies.

What are the key issues in corporate governance among Vietnam’s listed companies?

Listed companies in Vietnam face significant challenges, from meeting basic compliance requirements to implementing international best practices.

While Vietnam’s legal framework is comparable to that of Indonesia and even ahead of the Philippines, according to the World Bank’s Doing Business report, the reality is different. In practice, Vietnam lags far behind, ranking the lowest among ASEAN countries in the ASEAN Corporate Governance Scorecard.

This gap underscores the urgent need for companies to go beyond mere compliance. Embracing governance reforms as a strategic priority is critical for strengthening investor confidence and enhancing Vietnam’s competitiveness in the region.

How should stakeholders perceive and implement better governance practices?

Vietnam’s LoE and the Law on Securities have laid a solid foundation for governance aligned with international standards. However, businesses must go beyond compliance to unlock the full potential of good governance.

Studies of listed companies in 2019 and 2020 show a clear correlation between strong governance and higher profitability. For instance, a 2020 report by the Hanoi Stock Exchange revealed that transparency positively impacts financial performance, as measured by return on equity and return on assets.

The OECD has emphasised the role of good governance in fostering economic recovery, while the International Finance Corporation has provided practical tools for boards to navigate crises. These insights illustrate that good governance is not just a best practice – it is a competitive advantage.

To make meaningful progress, Vietnamese businesses must internalise governance principles, prioritise transparency, and integrate international best practices into their operations. By doing so, they can enhance resilience, draw in investment, and drive sustainable growth.