Vietnam's stock market upgrade puts focus on corporate governance

Vietnam's stock market upgrade puts focus on corporate governance

Vietnam's stock market upgrade is raising expectations for corporate transparency and governance, with Singapore's experience offering valuable insights into strengthening independent directors and enhancing investor confidence.

Photo: VNICG

The issue took centre stage at a seminar held at the Ho Chi Minh Stock Exchange on October 27, organised by the Vietnam Institute of Corporate Governance Research (VNICG) and the Institute of Singapore Chartered Accountants (ISCA). The event focused on aligning Vietnamese and Singaporean corporate governance standards and strengthening independent directors' capabilities in an emerging market.

The seminar brought together representatives of professional organisations, regulatory bodies, and the business community to discuss the evolving responsibilities of independent directors and their role in improving corporate governance.

Vietnam's stock market was upgraded by FTSE Russell from frontier market to secondary emerging market status on September 21, marking an important milestone in the development of the country's capital markets.

However, foreign investors maintained a net selling trend for nearly the first 10 months of the year, including the period following the upgrade. Meanwhile, regulators have stepped up efforts to improve corporate governance standards, including imposing penalties on companies that fail to comply with requirements concerning independent board members.

Hoang Duc Hung, chairman and president of VNICG, said the market upgrade brought higher expectations regarding corporate governance, information transparency, and investor confidence.

"The market upgrade comes with higher requirements for corporate governance, information transparency, and investor expectations. This is the time for Vietnamese enterprises, particularly public and listed companies, to standardise their governance practices and strengthen the capabilities of their boards and independent directors in line with regional and international standards," Hung said.

He added that improving governance quality would help businesses enhance their ability to attract investment and identify long-term strategic partners.

Singapore's corporate governance framework provides useful lessons for Vietnam as its capital market enters a new development phase.

Under the Singapore Exchange's (SGX) listing rules, listed companies must have at least two independent directors, accounting for no less than one-third of the board. The Singapore Code of Corporate Governance also requires independent directors to constitute a majority of the board where the chairman is not independent.

Singapore has introduced additional safeguards concerning board independence. Independent directors serving beyond nine years are subject to shareholder approval requirements, while first-time directors of listed companies must complete mandatory training under SGX RegCo regulations.

These requirements reflect Singapore's emphasis on board independence, professional competence, and accountability as essential elements of effective corporate governance.

In Vietnam, Decree No.155/2020/ND-CP stipulates that listed companies must have between one and three independent directors, depending on board size.

Boards comprising three to five members must include at least one independent director, while those with six to eight members require at least two. Boards with nine to 11 members must have at least three independent directors.

Nevertheless, compliance remains uneven. According to a 2023 survey conducted by the Vietnam Independent Directors Association (VNIDA) and FiinGroup, only around 68.4 per cent of listed companies met the relevant requirements.

In some joint-stock companies, including public and listed enterprises, independent directors continue to play a largely nominal role, limiting their effectiveness in overseeing management and safeguarding shareholder interests.

Against this backdrop, strengthening the professional capabilities and practical contributions of independent directors is becoming increasingly important as Vietnam seeks to improve its capital market quality.

Speaking at the seminar, Fann Kor, CEO of ISCA, highlighted the growing challenges facing corporate boards. "Geopolitical developments, technological breakthroughs, and sustainability requirements are creating new challenges for corporate boards," Kor said.

She noted that these developments were reshaping directors' responsibilities and increasing the need for stronger professional capabilities and sound judgement in an increasingly complex business environment.

Through its cooperation with VNICG, ISCA aims to connect board members from Vietnam and Singapore, facilitate knowledge sharing, and promote professional development opportunities.

"Our cooperation with VNICG aims to connect board members in Vietnam and Singapore, encourage knowledge sharing, develop professional capabilities, and build a corporate governance community with an international outlook," Kor said, adding that such cooperation would contribute to improving the quality of board assessments and decision-making as businesses navigate an increasingly challenging operating environment.

VNICG and ISCA sign a cooperation agreement to strengthen corporate governance and independent director capabilities Photo: VNICG

A key highlight of the seminar was the signing of a cooperation agreement between VNICG and ISCA, marking a further step in strengthening professional collaboration between the two organisations.

The signing ceremony, attended by representatives of both organisations, including Hung and Kor, also featured the announcement of the Independent Director Dual Programme (IDDP).

The programme is designed to support the professional development of independent directors in response to the evolving requirements of corporate governance in Vietnam and Singapore.

Through the partnership, the two organisations aim to facilitate exchanges of expertise, strengthen professional connections, and support the development of independent directors capable of meeting increasingly demanding governance standards.

Speaking at the event, Pang Te Cheng, consul-general of Singapore in Ho Chi Minh City, welcomed the partnership between VNICG and ISCA.

"Combining the expertise of Singapore and Vietnam will contribute to improving professional standards, enhancing transparency, and strengthening investor confidence," Cheng said.

He added that such partnerships would deepen bilateral relations while supporting Vietnam as it enters its next phase of sustainable economic development.

The seminar also featured discussions on changing competency requirements for independent directors and their role in improving corporate governance quality in Vietnam.

Dang The Duc, vice-chairman and general secretary of VNIDA. Photo: VNICG

Dang The Duc, vice-chairman and general secretary of VNIDA, addressed the evolving expectations placed on independent board members, particularly their responsibilities in enhancing governance standards.

The discussions highlighted the importance of moving beyond formal compliance towards strengthening the substantive contribution of independent directors to corporate oversight, strategic decision-making, and long-term business development.

For Vietnamese listed companies, the transition towards higher governance standards is becoming increasingly relevant as international investors place greater emphasis on transparency, accountability, and board effectiveness.

The VNICG-ISCA partnership and the introduction of the IDDP represent efforts to address these requirements through professional development and closer cooperation between Vietnam and Singapore.

As Vietnam's stock market advances into the emerging market category, improving corporate governance practices and strengthening independent directors' capabilities will remain important factors in building investor confidence and supporting the development of a more transparent and sustainable capital market.

VIR