Poor governance makes Vietnamese businesses 'slow to grow'

Companies must change the corporate governance to match the current economic context. Source: Internet.

On April 21, in Hanoi, the Vietnam Chamber of Commerce and Industry (VCCI) in collaboration with the State Securities Commission (SFC) and the International Finance Corporation (IFC) organized the "Corporate governance Forum - Vietnam Business Annual Report 2016/2017".

The annual report of Vietnam Business 2016/2017 with the topic of corporate governance shows that the inherent problems of the business sector has not been resolved such as low productivity, low efficiency of capital use, the technology is backward, the competitiveness is weak, the lack of business forces with large enough of potential to integrate etc. One of the fundamental causes of these problems is the management capacity, especially corporate governance of our businesses is limited.

As assessed by VCCI, in the process of improving the business environment for enterprises, corporate governance framework has been gradually built, supplemented and finalized. According to Ms. Pham Thi Thu Hang, General Secretary of VCCI, corporate governance, good practice will create transparency, ensure business efficiency and build trust for businesses.

Also on this issue, Mr. Vu Chi Dung, Director of International Cooperation Department, State Securities Commission said that good corporate governance will attract investment and improve the operation of enterprises. Thus, from 2010 to now, the State Securities Commission has developed programs to raise awareness of the market, including the issuance of a Handbook on corporate governance; the market incentives measures; step by step to complete the legal framework of corporate governance.

However, despite the relatively long development time, the concept of corporate governance with many business leaders is very new, confused between corporate governance and operational management.

Survey results of 400 enterprises under the modern model (limited liability companies, joint stock companies, FDI enterprises) in 2016 of VCCI showed that 40% of businesses published only the financial statements; the proportion of enterprises who only published the annual report is 6.5%; the proportion of enterprises reporting both financial statements and annual reports is nearly 23%. In particular, up to 30% of companies do not publish any reports.

According to Ms. Pham Thi Thu Hang, enterprises are still confused and slowly react to changes in business environment, especially in the context of financial crisis. Moreover, the process of implementing corporate governance principles in Vietnam is not good. Compared to other countries, especially countries in the region, Vietnam is at the average level. Therefore, Vietnamese enterprises have not created trust and have not brought good results in business.

"The weakness in corporate governance also makes Vietnamese companies ‘slow to grow’, crowding in numbers but poor in quality," Ms. Hang said.

From the above situation, experts have stated that enterprises must change the corporate governance; application of international financial report accounting (IFRC) standards; establishing prizes to honor enterprises with good corporate governance practices.

According to Ms. Pham Thi Thu Hang, good corporate governance must be implemented in the enterprises’ reality. Hence, Ms. Hang proposed the establishment an Institute of a Board of Trustees Council to train members, board members about the principles of good corporate governance and base on this foundation, enterprises will apply and run in a better way.

In particular, Mr. Vu Bang, Chairman of the State Securities Commission said that the legal framework is only the minimum level that must be directed to corporate governance principles, so there must be a set of management rules for businesses to strive and practice.

"Currently, the State Securities Commission is working with IFC to get comments on the draft of corporate governance rules. This code will soon be finalized and promulgated this year", Mr. Vu Bang said.

Also at the talk, the National Advisory Council on Corporate Governance was launched. This is an effort to gather and coordinate with all parties from the governing body to the private sector from the fund management company, the audit organizations and the foreign organizations in the country, experts in the field to jointly coordinate actions to further promote the development of corporate governance.

The 2017 Action Plan first focuses on developing and issuing a set of corporate governance principles. In addition, the Advisory Board is also planning to implement some important issues to develop the scorecard, corporate governance, and corporate governance forums. The most important goal towards the formation of a Corporate Governance Institute is to further strengthen the training and policy advice for state management agencies to improve corporate governance.