CORPORATE GOVERNANCE FINAL REPORT
Corporate Governance in Vietnam
JACK MA1N0214
Corporate governance is still a new concept to Vietnam. According to Freeman and Nguyen
(2004), the concept of CG is not yet established in Vietnam. In fact, the Vietnamese equivalent
term of CG “Quan tri cong ty” which is broadly similar to “Administration” is confusing and has
yet to take hold as a popular term.
In Vietnam, corporate governance principles have been incorporated into corporate law
systems. The Vietnamese government issues a number of laws and regulations pertaining to
equitized and listed companies. As it can be seen in the following regulations, CG model in
Vietnam is broadly similar to German CG model in that it has two-tier board: Board of Directors
and Supervisory Board. These regulations can be briefly described as follows:
- Shareholders’ meeting is the highest decision maker of equitized or listed companies.
- Shareholders’ meeting votes for (or against) member of the Board of Directors and Board of
Supervisors (in case the company has more than 10 shareholders). The board of directors
should not have more than 11 members. There is no regulation on how many managers or
outside shareholders should be on the Board.
- The Board of Directors appointed the CEO and other important management positions of the
companies. The CEO can be a member of Board of Governors.
- If the company has more than 10 shareholders, it must have Board of Supervisors. The Board
of Supervisors should have from 3 to 5 members, of which at least one member has a
background in accounting. Members of the Board of Directors, CEOs, chief accountant, and
their related people cannot be members of the Board of Supervisors. The Board of Supervisors
is not required to have outside members (not currently employees of the company).
At the policy level, there is a strong effort in designing CG policies that enhance monitoring the
management and transparency. The policies give shareholders some mechanisms to control the
Board of Directors. They can vote for the Board of Directors, Board of Supervisors, and major
strategic decisions of the companies.
In the past few years, corporate governance had not been important in businesses, policy
making, or the researches in Vietnam. Mr. Fred Burke, the CEO of Vietnam’s branch of a U.S.
law firm, Baker & McKenzie, comments that although basic corporate governance principles are
prescribed by the Enterprise Law, “Vietnam is still learning what governance is”. The separation
of ownership and management as Berle and Means developed seven decades ago appears to
be ignored by Vietnamese entrepreneurs, who are often shareholder-managers of companies.
After that, with the rapid growth of private companies and foreign investment, the (stateowned enterprise) SOEsʼ equitisation process, the occurrence of some serious criminal cases
regarding corporate governance, and the international economic integration, corporate
governance has become an increasingly important topic in Vietnam. The importance of
corporate governance is now considered by both policy makers and entrepreneurs. From a
legislative perspective, the introduction of the Enterprise Law 2005 and the Securities Law 2006
improving regulations regarding investor protection and disclosure is a significant example.
Research into corporate governance by the Central Institute for Economic Management (CIEM),
the Vietnam Chamber of Commerce and Industry, the Mekong Project Development Facility,
and some international institutions, such as the World Bank and the United Nations
Development Program, have also shown the rising importance of corporate governance in
transition Vietnam.
Vietnam has a “poor” corporate governance regulation framework. Vietnamʼs “hard law”,
including legislation and company constitutions, is a fundamental source of the regulation
framework; nevertheless, a statute must rely on subordinate legislation in the implementation.
The accounting and auditing standards promulgated by the government as “hard law” must
also be improved to meet international standards and promote “good” corporate governance
with the efficient engagement of professional associations of accountants and auditors. In
addition, there is a lack of important sources of corporate governance regulation as in
advanced economies, such as codes of corporate governance and listing rules by securities
regulators. In order to create an effective corporate governance regulatory framework, the
lacking corporate governance rules should be implemented by the efficient engagement of not
only governmental and non-governmental agencies, but also shareholders and companies
themselves.
In short, since the introduction of economic reforms and company law is less than two decades
old, most Vietnamese entrepreneurs and scholars are not yet familiar with corporate
governance mechanisms as understood in advanced economies. However, there is a must to
improve corporate governance practice if Vietnam wants to strengthen their financial market
and their economy as well.
References:
Tung Thanh Dao (2008), Corporate governance and performance of the equitized company in
Vietnam, University of South Australia.
Hai Bui Xuan, Nunoi Chihiro (2008), Corporate governance in Vietnam: a system in transition,
Hitotsubashi Journal of Commerce and Management