-
 When
investing in private companies, we consider that the most
significant corporate governance problem is the low level of
corporate transparency. Specifically, most private companies
lack well developed accounting systems and internal control
systems, which makes it difficult for shareholders to understand
the company's true financial condition. This increases the risk
facing investors because the financial reports may be incorrect;
also, if there is fraud within the company, it will be more
difficult for shareholders to be aware of it. This is one reason
why we work closely with companies to improve their accounting
systems and management reporting systems after we invest.
Another common problem with some private companies is
related-party transactions between multiple companies that are
owned by the same shareholders. When these related party
transactions happen, it is easy for the controlling shareholder
to transfer profit between the companies that he/she controls,
and this can disadvantage minority shareholders.
When investing in equitized companies, the CG risks are somewhat
different. In equitized companies there often aren't controls in
place to prevent key managers from receiving commissions on the
company's purchases; as a result, the risk of this happening is
quite high in some cases. If suppliers pay commissions to a
company's key managers, the company confronts higher raw
materials and equipment costs, so in effect it is like
transferring profit from the company to the management team.
However, shareholders can also add value after they invest by
helping companies improve both internal controls and the
official bonus system for management.
I don't believe that the government can or should force all
companies to have good CG, although some CG standards may be
imposed on companies that list on the stock exchange or have a
public offering of shares. It is really the responsibility of
the shareholders or the Board of a company to take steps to
ensure that a company has high CG standards. However, improving
tax enforcement would probably have a positive impact on
corporate transparency, since many companies perceive a tax
benefit for having poor transparency.
We have also found that many companies aren't very familiar with
the best practices for conducting Board or shareholders'
meetings. However, this is something which can easily be fixed
by promoting awareness of best practices for conducting these
meetings.
Mr. Chris Freund, Director,
Mekong Capital Ltd.
-
 It
is recognized worldwide that investors regard corporate
governance to be just as important as the operational efficiency
of a company when considering investment decisions.
Specifically, the investors care about the shareholders'
structure of a company, the relations between managers and the
Board of Management, the competency of the Boards' members, and
transparency. Advanced models should be introduced to Vietnam to
promote the society's and business community's awareness and
thereby encourage better CG in Vietnamese companies.
Vietnamese companies have not yet done very well in defining
their development strategy and often fail to present this
strategy in the business plans they make public to investors.
There are two reasons for this. First, defining the long term
development strategy should be the Board of Management's
responsibility, but because functions and responsibilities of
the two boards are not clearly specified, the Board of
Management rarely actively participates in this important work.
Second, the managers are overloaded with daily operations and
have limited capacity, so they also do not spend adequate time
on longer term development strategies. Moreover, compensation
packages for managers, especially in equitized companies with
State shares, are not market-competitive. Not only does this
discourage them from contributing fully to business development,
but it also creates the incentive to promote their own
interests.
Companies do not develop or maintain professional relationships
with investors. For example, many Management teams do not
consider periodic meetings with investors to be important. In my
opinion, this can negatively impact the company's share price.
Given two companies with similar business performance, I have
observed that the one with better investor relations can achieve
a better share price and liquidity.
Mr. Nguyen Hoang Hai, General Secretary
of Vietnam Financial Investors Associations (VAFI)
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