> IFC:
Vietnam Must Continue to Improve Corporate Governance to Meet Rising Expectations By Chris Razook
In late July, the Ho Chi Minh City Stock Exchange and Vietnam Investment Review – with support from the IFC (the World Bank Group member focused exclusively on the private sector) and other partners – hosted the 7th annual report award event to recognise the listed companies that exhibited strong levels of transparency and disclosure over the past year. Such an event may have limited appeal in many markets, but the one in Vietnam was held with great fanfare, attracting more than 200 companies and broad coverage from local newspapers and television stations.
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he event’s success is testament to the improving state of transparency – and more generally of corporate governance – in the Vietnamese market. This comes mainly as a result of fundamental reforms carried out over the past several years. For example, there have been changes in laws and regulations to promote investor protection and shareholder rights as well as various initiatives to raise the overall level of awareness and practices in the market. Having supported the push for such reforms in Vietnam, the IFC and the World Bank Group have witnessed first-hand the government’s commitment to making real changes in many areas.
“High levels of crossshareholding and concentrated ownership in the banking sector and the overall market means related-party transactions, particularly lending, remain a key challenge.”
There is, however, still plenty of work left to do as Vietnam prepares for the much-anticipated integration with the ASEAN Economic Community scheduled for 2015. With this integration, goods, services, and investments are expected to flow more freely across borders, while trade and investment-related laws and regulations will need to be harmonised.
owned enterprises (over 350 of more than 600 listed companies have some state ownership, per World Bank, 2012). To its credit, the government has long been trying to address this issue and is continuing its big push to “corporatize” more state-owned enterprises in the near future. Such entities will need to adopt higher levels of transparency and more commercial governance practices in order to attract long-term investors and business partners.
In some respects, Vietnam needs to catch up with its neighbours such as Singapore, Thailand, and Malaysia, which have all made significant reforms in corporate governance over the past decade, particularly following the Asian financial crisis. For example, state ownership remains at a high level in Vietnam with more than a third of the country’s gross domestic product stemming from state-
High levels of cross-shareholding and concentrated ownership in the banking sector and the overall market means related-party transactions, particularly lending, remain a key challenge. In the boardrooms, studies by the IFC and the World Bank Group have shown that many Vietnamese companies need to strengthen director duties and board composition, independence,
and effectiveness. A large percentage of listed companies still need to substantially improve their transparency and disclosure levels. It has been demonstrated that investors have greater confidence in companies with good corporate governance and markets that are backed by a sound legal and regulatory regime. Pushing ahead on both fronts is crucial to improving Vietnam’s attractiveness for international investors and partners, who will not only bring capital but also transfer knowledge that can boost the competitiveness and sustainability of companies in the long run. Given that Vietnam represents roughly 14% of ASEAN’s population but only 7% of its GDP – about half that of Thailand’s on a per-capita basis – one could argue that continued reforms in Vietnam are important for the success of ASEAN in general. Looking forward, the public and private sectors need to work together to build on the progress made thus far. To start with, a reputable, independent institute of directors should be established in Vietnam to promote corporate governance. The government needs to make continued regulatory improvements. The update to the Law on Enterprises is an important change that is currently underway and will help incorporate international best practices as appropriate.
“There should also be more training and awareness-raising around good board practices, protection of shareholder rights, and ways to avoid conflicts of interest - particularly for listed companies and the banking sector.” 168
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