-
 In
general, corporate governance is critical to a company's
business efficiency and performance. First, good CG practices
help improve a company's results by creating incentives for both
management and employees to improve productivity, maximize
operational efficiency, and generate returns. Second, CG systems
help prevent problems arising from principal-agent relations and
discourage managers from abusing their authority and/or wasting
company resources. Good CG is one of many factors that enable
companies to mobilize funds and other resources for company
growth and expansion at a lower cost.
More specifically, there are three types of businesses in
Vietnam–foreign-invested, state-owned, and private; each type
has unique characteristics that influence its adoption and
practice of CG.
Foreign-invested enterprises normally apply the CG standards of
their international headquarters. Generally, those systems are
well developed and mainly serve the interests of the foreign
company's investors rather than those of minority shareholders,
who in the case of joint ventures are mostly Vietnamese
companies. Foreign investment-related laws and regulations also
fail to protect minority shareholders. Moreover, the minority
shareholders in Vietnamese joint-venture businesses are often
SOEs; the individuals representing them do not have enough of a
personal interest in the business to advocate on behalf of the
SOEs.
Corporate governance issues relating to state-owned enterprises
are different. The representatives of the State's share in such
companies are not aware of CG's importance; consequently, most
SOEs and their managers do not apply internationally accepted
standards and rules. The lack of an appropriate legal framework
gives managers an incentive to act dishonestly or even
recklessly, which can in turn lead to abuses such as related
party transactions. Ultimately, the overall corporate governance
problem in SOEs stems from the fact that there are no real
economic owners. Since SOEs are actually owned by the public and
nobody has a personal stake in them, managers do not have to
answer to a specific group of owners. In addition, there are no
mechanisms in place to effectively monitor whether or not
managers are properly fulfilling their obligations.
Private businesses in Vietnam are often small and family-owned.
Business owners normally take on a double role as managers of
their companies. In larger companies or those with a large
number of shareholders, there have occasionally been very
serious conflicts between majority and minority shareholders.
However, the biggest CG issue facing businesses, regardless of
size, is poor transparency. The company disclosure and
transparency standards required by law have not been enforced
sufficiently or effectively.
Mr. Nguyen Dinh Cung,
Director of the Macroeconomic Policy Department,
Central Institute for Economic Management (CIEM)
-
 The
corporate sector in Vietnam consists mainly of solely-owned or
family-controlled businesses; as a result, there is no
separation of ownership from management. For small businesses,
family-style management can be appropriate. However, when a
business grows larger and the owner has to hire a manager, he
must face the challenge of controlling the risks that a manager
can abuse or risk his investment. The manager is in an
advantageous position, since he has access to more information
and also makes daily decisions. He can use these conditions to
benefit himself at the owner's expense–for example, by entering
into related party contracts.
In Vietnam, many CG conflicts have occurred in equitized
companies. Most of these disputes have stemmed from the fact
that employees sold off the shares they were given/sold at
preferential prices through the equitization program.
Consequently, different investor groups with conflicting
interests were formed; some sought a controlling stake at any
cost. The companies' charters, which were originally created as
a matter of form rather than substance, proved inadequate as CG
tools and ended up doing little to resolve these conflicts. The
courts could not effectively resolve the disputes, as it proved
difficult to balance the disparate interests and issues, and as
a result, settlements have rarely been enforced. A specific
example is the (equitized) Huu Nghi Joint Stock Company, which,
due to internal conflicts, has not been operational for the past
four years.
The existing Enterprise Law does provide CG stipulations,
specifically on protecting minority shareholders' interests.
However, there are a number of regulations that do not balance
the interests between minority and majority shareholders and
have consequently led to conflicts of interest in a number of
companies. Take the example of the right to call for a general
shareholders' meeting (GSM). Under the existing Enterprise Law,
shareholders owning over 10% of shares and those owning over 51%
of shares have to follow the same procedures to call for a GSM.
In my opinion, the new Enterprise Law should have another
stipulation that allows majority shareholders, e.g. any group of
shareholders owning over 51% of shares, to be able to vote on
the replacement/appointment of Board of Management members
without convening a general shareholder meeting, because
regardless of whether or not a general shareholder meeting is
held, a resolution can be passed with over 51% of votes.
"Transparency and balanced interests" are the major sentiments
underlying corporate governance. In my opinion, transparency of
information is crucial to a company's growth. The Enterprise Law
should provide clear guidance as to what kind of information
should be made public and what should remain confidential for
business operations. At present, information disclosure by joint
stock companies, including the listed ones, has not been
satisfactory. The financial reporting requirements for the
Business Registration Agency are just an administrative
formality, while those for the Ministry of Finance are too
detailed and actually discourage companies from disclosure.
There is lack of a balance between business transparency and
confidentiality.
Finally, although the existing Enterprise Law provides
stipulations on CG, there is still a need for enforcement
mechanisms that ensure better compliance.
Mr. Cao Ba Khoat, Lawyer, Director,
ATYS Consultancy and Training Company
-
 The
stock exchange encourages listed companies to implement good
corporate governance practices, thereby promoting a transparent
and fair market and protecting the legitimate interests of
shareholders, especially minority ones. Furthermore, the
disclosure and auditing requirements are resulting in
significant improvement in corporate governance practices, which
are very new to Vietnamese companies.
Although Vietnam's stock exchange is in its primary stage of
development, the companies listed in the stock exchange can be
considered market leaders in good corporate governance. By
adopting the model charter for listed companies,* they have, in
principle, demonstrated the basic CG concepts recommended by
OECD in two major regards. First, they are ensuring equitable
treatment of shareholders and affirming the rights of all
shareholders, especially minority ones, to access information,
nominate and vote, etc. This can only strengthen shareholder
monitoring of companies' business activities. Second, by
fulfilling requirements on auditing and information disclosure
(either regularly or by request on an ad-hoc basis) to the State
Securities Commission and shareholders, companies allow for
greater transparency.
However, the implementation of good CG practices in Vietnamese
companies faces certain obstacles, including:
1) Vietnam's economy, which is still transitioning to market
principles and thus still demonstrates many non-market aspects;
2) the existence of a certain level of state subsidies in terms
of capital, material inputs, and prices;
3) the legal environment, which as of yet has not created a
level playing field for both the state and private sectors;
4) the economic environment, which lacks transparency and
consistency. For example, listed companies face compulsory
disclosure and auditing requirements, but unlisted companies do
not; and
5) the very limited understanding of CG among government leaders
and regulatory agencies.
Therefore, we should develop a consistent legal framework in the
upcoming Unified Enterprise Law and expand the implementation of
good corporate governance practices in Vietnam. Consistent
regulations on information disclosure and audit and a dialogue
mechanism between shareholders and the Board of Management can
improve CG.
Mr Nguyen Son,
Deputy Director of Market Development Department,
State Securities Commission
(*) This is a result from a project to support corporatization
and corporate governance in Vietnam, which is a cooperative
effort between the Government of Vietnam and the Asian
Development Bank.
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