Corporate Governance

Vietnam at the Crossroads for Corporate Governance

Vietnam must regulate for companies from many countries

As foreign investment pours into Vietnam from many different countries, the need for corporate governance based on the best international practice has become critical.

For the past six years, foreign investment has been poured into Vietnam. In 2018, the country saw year-on-year growth in FDI projects, at $ 10.8 billion, with 26.5 percent growth through 277 projects, according to investment monitor FDI Markets. Levels of investment have stayed at about $ 10-12 billion over the six-year period.

These levels are expected to increase this year, as Vietnam benefits from the US-China trade was, according to the Mizuho Research Institute.

According to the US Chamber of Commerce, Chinese FDI accounted for the largest portion of foreign investment in the first four months of 2019-which increased more than 50 per cent over the same period in 2018. But Chinese investment in Vietnam had been rising even before Asian companies to move to Vietnam, from Korea, Japan and Taiwan as well as from the PRC.

 

Corporate Governance Clash

Vietnam, however, with vastly different approaches to corporate governance, has set the stage for a clash of standards and business practices. Vietnam has become a microcosm of conflicting corporate governance models, especially between China and the West, ” writes analyst Alex Capri.

And there has been a regulatory gap: “Vietnam still has a long way to go, and to make ethical business behaviors and sound decision-making at board level,” according to the Murdoch University study.

The government has shown a real awareness of this issue, and has made a number of efforts to improve corporate governance standards in the country, as a study by Australia’s Murdoch University shows. “Corporate governance in Vietnam has been implemented in a top-down way, relying on legal framework and penalty measures,” the study notes.

 

Vietnam launches corporate governance code

To fill the gap, the government on August 19, 2019 launches the country’s first Corporate Governance Code. Officially released by the State Securities Commission of Vietnam (SSC), the Code has been developed by the International Finance Corporation (IFC) and the Swiss State Secretariat for Economic Affairs (SECO).

According to SSC chairman Tran Van Dzung, the code is a series of recommendations on corporate governance practices for Vietnamese government companies at all companies, big and small. It includes standards that go beyond the minimum legal and regulatory requirements, encouraging companies to move towards international best practices in an attempt to align Vietnam with other ASEAN nations as a well-regulated investment target.

“The ultimate goal is to promote investor confidence and grow Vietnam’s capital markets, which will help fuel the sustainable development of the national economy,” Van Dzung adds.

From a technical and legal perspective, the code is voluntary for all companies, public and private. Corporate Governance in Different Channels (ie company’s website, annual report, etc.) “Public and listed companies are encouraged to use this code as a guiding document to adopt good corporate governance practices. ” Writes the Ho Chi Minh City office of PwC.

However, it is being monitored by the SSC, as is issuer of this Code, and therefore via the Ho Chi Minh City Stock Exchange (HOSE) and Hanoi Stock Exchange (HNX) channels, according to the PwC report. This suggests that there is considerable regulatory pressure to adopt the code.

 

Principles for Best Practice

As PwC notes, the new Code is based on five principles for best practice:

  • Principle 1: Establishing clear Roles, Responsibilities and Commitment of the Board.
  • Principle 2 : Establishing a Competent and Professional Board.
  • Principle 3: Ensuring Effective Board Leadership and Independence.
  • Principle 4: Establishing Board Committees.
  • Principle 5 : Ensuring Effective Performance for Board.
  • Principle 6: Establishing and Maintaining Ethical Corporate Culture.

“These principles should provide a basis for best practices for a balanced and competent board which focuses on its independence, its structure and composition evaluation,” comments PwC. Shareholders and stakeholders. “

The principles guide in diversity in composition that should be complemented by breadth and range of qualifications and experience.

With a minimum of three non-executive directors, and a majority, including the committee chairman should be independent.

There should be a Code of Ethics, which is a policy for conflict-of-interest and other major issues, so that board members have no doubt about how their actions will be judged. And there should at least be an annual assessment of board performance and board member contributions.

And the principles call for systematic disclosure of all relevant issues to shareholders. Following this principle, the Board should ensure and oversee adequate, effective and transparent communication and disclosure to shareholders and stakeholders. There should be policies and procedures for communicating and disclosing information including relevant and non-financial reporting (Environmental and Social). Information on performance and remunerations of board members and key executives are recommended, “PwC explains.

 

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