Corporate Governance
Practices in Vietnam
Some initial survey findings
Rationale for the survey
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No empirical survey has yet been conducted into
CG practices in Vietnam’s corporate sector
Assess the extent to which current CG practices
deviate from both domestic regulations and
international norms
Provide insights and recommendations to assist
CIEM in drafting the Unified Enterprise Law and
implementing regulations
Serve as a baseline study to measure future
progress on good CG practices in Vietnam
Does CG matter ?
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58% of all firms said they had
been directly and adversely
affected by at least one incident
stemming from bad CG practices,
either inside their own firm or at
another company
Design of the survey
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70 companies interviewed over the last two
months, using a detailed questionnaire
Questions spanned most CG issues, including:
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rights and treatment of shareholders
role and responsibilities of the Board of Management
role and responsibilities of the Inspection Committee
role and responsibilities of senior executives
conflicts of interest and related party transactions
company disclosure and transparency
We also collected views on the regulatory and
business environment as they pertain to CG
Sample profile
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Average size of firm:
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Legal form:
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1,140 employees
total assets of VND195bn (US$12.4m)
revenues of VND367bn (US$23.2m)
SOEs 44%
Equitised former SOEs 36%
Joint stock companies 16%
Listed companies 4%
Location:
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56% in and around Hanoi
44% in and around HCM City
Sample profile (cont.)
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Main business sectors:
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construction and const. materials 13%
mechanical engineering and processing 9%
food and food processing 7%
transport 6%
power and energy 4%
fuels 4%
wood-related and handicrafts 4%
chemicals and plastics 3%
electrical and electronics 3%
telecommunications 3%
[no trading firms]
Caveats and potential bias
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Firms willing to be interviewed tend to be those
with better CG practices
SOEs were more willing (or felt more obliged) to
be interviewed than private firms
Most interviews were with senior managers; not
with shareholders and other stakeholders
Results relate more to formal procedures rather
than informal practices
Results are preliminary
CG is a new concept in Vietnam
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the Vietnamese equivalent term of CG (quan tri
cong ty) is confusing and has yet to take hold
as a popular term
just 26% of all firms thought the basic concept
and principles of CG are understood by most
business people in Vietnam
some confusion amongst company directors
between “governance” and “management”
the joint stock legal entity is still quite new in
Vietnam and firms are young
Formal procedures exist in
most companies
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more than 90% of firms had a company charter
or equivalent that covers most important areas
of CG
over 94% of firms have documentation that sets
out the role and responsibilities of the general
director, chief accountant / finance, and other
senior executives
most firms hold AGMs, and shareholder rights
are specified (eg. one share = one vote, and each
share entitled to an equal proportion of dividend
payments)
Formal procedures exist in
most companies...(cont)
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Most company charters address
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the role and responsibilities of the management
company accounting and financial reporting
terms of employment
procedures for dividend payments
holding shareholder meetings and rights of
shareholders
and the role and responsibilities of the BoM
… but this does not automatically mean these
are followed in practice
Inspection committee role is
relatively weak
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36% of firms completely or partly agreed with
the statement that “the inspection committee
has little real authority, and only exists on paper
because it is required by law”
just more than 50% think Inspection
Committees effectively carry out their
responsibilities in practice
Related party transactions and
potential conflicts of interest
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Related party transactions and potential
conflicts of interest are amongst the most
serious CG problems
related party transactions and conflicts of
interest ranked 2nd among the most frequent
CG malpractices occurring
only 29% of all firms have written guidelines on
controlling related party transactions
of these, 89% of firms claimed to completely or
partly follow these guidelines in practice
62% of SOEs agreed that “kickbacks are
common”
SOEs: between market and
hierarchy
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SOEs are still very dependent on various
government agencies
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nearly 40% of SOEs said that business
targets are imposed from above
62% agreed that SOEs do not have “real”
owners
66% said that “ask and give” is still common
87% rated personal relationships with
government agencies important
SOEs: between market and
hierarchy (cont.)
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SOE directors complain they have many
responsibilities, but not adequate authority to run
their companies according to market principles
77% said they experienced situations where the
law allowed them to do something, but they
could not in practice (eg. laying off workers)
one consequence: 70% agreed that the common
approach of SOEs is “to make no loss, but only a
little profit”
despite the strong weighting of SOEs in our
sample, 64% of all firms did not think that SOEs
adopt good CG practices
Equitised firms: still “SOElike”
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State still holds a fairly large equity stake in
most of these firms
General Directors of 12 firms (55% of all
equitised firms where the State still has equity)
were representing the government’s remaining
equity stake in the company
33% said that the fact that the state still holds
an equity stake has a negative effect on the firm
most equitised firms are still following the old
(SOE) way of doing things
Joint stock companies: small
and nascent
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Joint stock firms are small, with average equity
capital of VND27bn, and assets of VND157bn
of 11 firms interviewed, 4 had fewer than 10
shareholders
there was one firm with only 1 ‘real’
shareholder
General Directors of 7 out of 11 firms
interviewed (64%) were also chairmen of the
Board
joint stock firms seemed more open and
receptive, as they seem to have learnt
something from the interviews
Perceptions on the importance
of CG
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95% rated corporate governance practices as
being either important or very important for
their company, relative to other tasks
88% of all firms agreed that improving CG
practices should be a high priority of the
government
Perceptions on the regulatory
environment
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A majority of firms believe:
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current laws and regulations do not provide
adequate guidance on CG practices
current laws and regulations on CG issues are not
adequately enforced
companies have insufficient information and
knowledge on CG
there is insufficient legal and regulatory guidance
on CG
Perceptions of common CG
malpractices
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inadequate role of the BoM and poor company
disclosure
related party transactions and conflicts of
interest
inadequate role of the IC
inadequate role of senior management (but
bias factor)
unfair treatment of shareholders (but bias
factor)
Respondents’ ideas on how to
improve CG practices
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provide more training for senior managers and
company directors on CG practices
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51% of firms said it was hard to find good BoM members
stricter enforcement of existing laws and
regulations pertaining to CG
reform the tax administration so that companies
are more transparent about their financial
situation
introduce an award system for companies that
display high CG standards
government should set a good example in the
way it manages the country’s economic and
business affairs
What next …?
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In a second phase of the study, we intend to
focus on some key issues arising from the
survey, and ‘drill down deeper’
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using a much smaller sample
interviewing multiple individuals in each firm
trying to better understand informal CG practices
Ultimate aim is to provide practical
recommendations on how improved CG
practices might be pursued in Vietnam
Thank you