CORPORATE GOVERNANCE MEETING
IFC – WB – OECD - MOF
6/12/2004
Corporate governance in Vietnam
Prospective corporate governance method
of foreign investors
What is good corporate governance ?

A global term, hamornizing the owners and the directors’
interests.

A term emphasizing QUALITY, not QUANTITY

A term being discussed in the world, by OECD, WorldBank, even
the Governments
Key Features:

Creating proper priority, showing the success

Harmonizing the interests of related partners: the owners, the
managers, the labours and the society

Increasing the value of enterprises

Reducing cost of capital, increasing attraction for investors
2
Corporate governance in Vietnam

The Law on Enterprises is rather new

The term of the Sample Regulations is not clear

Both redundance and shortage of regulations (MOF, SSC, SBV, …)

For equitization, the transfer of a company from one owner to
many owners relating to many issues in corporate governance
Some issues usually happened in companies of Vietnam:

Lacking a practical and long- term strategy

Not clear understanding the role of BODs and supervising Board

The role of supervising Board is not clear

Unequal behaviors for shareholderse

The role of independent auditing copanies is not considered
adequately
3
Proposed Solutions

Enterprises’ Strategy

Priority Mechanisn

Information on related partners

Independent review
4
Enterprises’ Strategy
Issues

Opportunities Motivation has reduced advantages

The Community do not understand clearly laws
Solutions

Macro Analysis

Micro Analysis

Direction Identification

Targets Idenfication (strategy – finance - time)

Disciplines factors
5

Enterprises’ Strategy

Priority Mechanisn

Information on related partners

Independent review
6
Why?
MANAGING DIRECTORS
Responsibilities
-
Shareholders
Customers
Creditors
Staffs
Suppliers
-
Managing business
Seeking the market
Development of companies
Incomes
-
Salary a few times (4-5 times) than average salary of staffs
Awards of BODs (if in BODs)
7
Previous and current practices
Measurements
– Not have compesation Committee
– With old rate through increasing
– Some ones accompany competitors
Shortcomings
– Safety
– Not considering priority as an instrument for long-term targets but competion
– Not enough to attract the talents – Lack of good management and succesfull teams
Results
– Knowledge escaping
– Encouragement focusing on short – term targets . Not concentrations
– Development prevention for enterprises and economy due to lack of big investment
8
Some comparative data
•Chief Executive Officer’s salary (VND mill/month )
Foreign manufacturing
companies
Big companies of Vietnam
Small and Medium sized
companies of Vietnam
Average of Vietnam
20.2
7.4
9.0
8.2
Salary of staff not managing in foreign banks in Vietnam (VND mill/month)
Basic salary before tax
Less 25%
Average
More than 75%
14.5
20.8
26.4
Source:Mercer
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Some comparative data
United State-2003
Average salary of CEO
$9.2m – 301 times than
American average workersõ
($30,564/year)
Source: Businessweek
10
Implementation
Establishing a compensation committee (CC)
CC includes members in BODs in or out of companies
Annual Meeting to review results of CEO and set the salary
and awards
Criteria: ROE, ROI, ROA, assets circle…
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How much ?
Currently (1-3 years), salary of CEO should be around:
•
20-30 times than average salary of staffs
12
Structure
Present
Coåphieá
u
Targets
Coåphieá
u
2%
20%
Phuï caá
p/Phuù
c lôïi
Phuï caá
p/Phuù
c lôïi
Löông cô baû
n
Löông cô baû
n
d
20%
78%
60%
20%
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Why?

Associating with long term targets, increase responsibilities and obligations as well as
transparency

Concentrating on core business

Practically, above rate is paid by many companies(even not equitized ones)

Contributing to increase salary regime, promoting productivity

Attracting the talents and labours circulation easierly

Operational structure reduction

Law on Enterprises, Article 80: no limitedá -> high working capacity

New Law on personal income encourages high income people and domestic labour
usage.
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
Enterprises’ strategy

Priority Mechanism

Information to related partners

Independent review
15
What is IR ?
 IR is considerd
as relation
governance
between a
company and
current and
expected
sharholders to
help them
understand
clearly and
attract them to
invest in the
companies.
Marketing
Public relation
Relation with investors
 IR is also
considered as a
marketing
activity to
introduce true
pictures on
activities of
potential of the
company with
current and
expected
investors
Principles:
−
Commitments to declare truly information to current and expected
investors – though they are good or bad
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Targets of IR
Equal information for
big or small
shareholders
Efficient mutual
communication
between
companies and
shareholders
True evaluation
of company’s
value
MỤC TIÊU
Atraction of
investors
Attraction of
finance
resources
Settlement of
crisis
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Communication Contents
Quản trị công
ty
Information
for
shareholders
Unexpected
issues
General
information
on the
company
CONTENTS
General
information on
operational
environment
Finance
Update activity
situation
Settlement of
crisis
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Who ? – Target Objects
•
Target objets of IR:

Shareholders (current / potential / individuals / institutions);

Analysists/ financial experts and investment;

Public communication agencies

State management agencies

Provincial Community

Creditors and Customers

Staffs.
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How ? – Instrument of IR
•
Marketing instrument, public relation and finance:

Annual Reports and financial reports

Corporate governance (internal management rules)

Pubic mean of communication (newspapers)

Investment guides for investors (Letters / News …)

Events (Conferences, Seminars, copanies visits …)

Internet / intranet (web, forum …)

Analysized reports (finance/ investment/ market …)

Shareholders Registration Procedures

Companies visits as schedule or sudden

Welcom investors
Principles:
− Obeying regulations of information
declaration of SSC and STC
− “accuate information”
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How ? – Group IR

IR activities can be managed by:
•
A team or a board of IR inside the company
•
A professional company IR outside.

Currently, in the listed companies: Staff
on information declaration

Request for references:
•
Information declaration team
•
Managed by members of BODs
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when? – Planning IR
IR activities needs planned before to ensure efficiecy
Copany needs building IR plan and determine the time of
imlementation for each specifically in a year
Investors desire to reveive information timely. Any
postponed or cancelled issues can lead to bad
information
Principles:
–
Information needs declaring quickly and timely,
even both good or bad one
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Examples
23

Enterprises’ Strategy

Priority Mechanism

Information for related partners

Independent Evaluation
24
Relation of the owner management in joint
stock companies
BODs
Supervising
Board
Management

Priority under
results and
responsibilities
Investors
Independent
auditing


Independence

Professional

Concentration
More than 50
shareholders
are
public
companies
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The role of auditing companies

3 functions:

Build up financial reports

Identifying book-entry principles

Examing applying book - entry

Independent review on companies situation, so, shareholdesr
Congress can have the rights to decide auditting companies

Relation with auditing
understanding one

Recent: Parmalat, Enron, Worldcom, Daewoo… is due to fails in
relation between public companies and auditing companies
companies
is
active
and
mutual
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Some issues: How to set mechanism to
Select auditing companies
Examine auditing process
Protect the company’s interests
Advise on book - entry principles
Declare necessary information to
have the most independent reports
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The role of Supervising Board
About auditing companies

Advising on conditions and scope of auditing

Proposing selected auditing companies

Advising on answering problems of auditing companies

Examing management lettes of auditing companies

Reviewing financial statements truly

Reviewing performances of auditing companies
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The role of Supervising Board
Advising for BODs on:

Book – Entry Policies

Issues required for subjective views

Unexpected events

Big Adjustments for financial statements

Obeying rules on accounting

Settling risks in business of the company
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