Corporate governance deemed key to securing investor trust

Chris Razook, Lead for IFC's Corporate Governance in East Asia and Pacific, told VIR’s Minh An it was imperative that Vietnam’s listed companies strengthen corporate governance, and that despite notable strides forward in the market, Vietnam’s firms still had room for improvement. The corporation provided technical support for this year’s Vietnam Annual Report Awards, which has been co-organised over the past seven years by the Ho Chi Minh Stock Exchange, VIR’s sister publication Dau Tu Chung Khoan and the Hanoi Stock Exchange.

What is your assessment of the Vietnam Annual Report Awards compared to other similar regional and international contests? What could Vietnam learn from other nations in terms of corporate governance?

The annual report contest is a terrific initiative and one that is vitally important for the Vietnamese market. We’ve witnessed a positive trend over the years in terms of corporate disclosures in Vietnam and this year’s winners are excellent examples for other companies to follow. However, looking at the overall numbers both from this contest and from our own prior corporate governance scorecard initiative, there is still a very large percentage of listed companies with subpar disclosure practices in Vietnam.

Transparency is a common challenge across the capital markets in the region. However, Vietnamese companies can find positive examples in other ASEAN countries, such as Singapore, Thailand, and elsewhere. As regional markets become more and more integrated, it will be imperative that Vietnamese companies continue to raise the bar of their governance practices in order to compete and attract much needed investment.

Could you give us a few of the improvements made in corporate governance over the last year? What were the weakest points and which should be prioritised for improvement?

Over the past several years, the IFC and the World Bank have been actively promoting corporate governance in Vietnam through various initiatives, and from our perspective, we’ve been encouraged to see an overall positive trend across the market. For example, there’s been a solid foundation established through key changes in the legal and regulatory environment, aimed at promoting investor protection and shareholder rights, among other things. In addition, the overall level of awareness in the market has increased sharply.

However, despite this progress, there is still a lot of work to be done. In particular, improvements are needed to strengthen board practices, board independence, conflict procedures, director duties, and internal controls, as well as continued improvements in transparency and disclosure. There are still high levels of cross shareholding and concentrated ownership, either via the state or with closely-held private companies and the ultimate beneficial ownership is often clouded.

As Vietnam continues to open up and become more integrated in regional markets, investors and other stakeholders will expect to see high standards of governance. Thus, for ongoing competitiveness and sustainability, it’s important that Vietnam continues to build on the good progress it has made thus far.

What actions can be taken in Vietnam to continue strengthening corporate governance standards?

There are actions that can be taken at many different levels, all of which are aimed at helping ensure Vietnamese companies remain sustainable and competitive with other regional and international companies. To start with, we believe it’s critical that a reputable, independent Institute of Directors be established in Vietnam to help promote corporate governance on an ongoing basis.

From our own vast experience in working with such institutes globally, we believe this is a missing link in Vietnam and a crucial next step for the country. Beyond that, there are further improvements that should be targeted for listed companies and for the banking sector specifically, such as continued regulatory improvements and general education around board practices, shareholder rights, and related party transactions, among other things.

Further, given the large number of current and planned state-owned entities entering the capital markets in Vietnam, it will be important to proactively work with them on their role as shareholders and help ensure these entities have sound governance frameworks in place.

The update to the Law on Enterprises is another important change underway, and it will be important to incorporate international best practices as appropriate. And generally, there should be continued training and awareness raising across the market to ensure companies understand why this is so important for their own long-term competitiveness and sustain-ability as Vietnam continues to open up and integrate with other markets.


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