Mon 2 Oct 2017
News - Vietnam keen to improve its Corporate Governance by Carole Wintersdorff
Vietnam keen to improve its Corporate Governance

Carole Wintersdorff
Independent Director

In May 2017 ILA via Monique Bachner contacted me to discuss to a joint initiative among ILA, House of Training and the Luxembourg Development Cooperation agency to provide training on selected corporate governance issues in Vietnam with the support of the Vietnamese Securities Commission SSC.

The project was discussed extensively with Monique, Ben Lyon and Tisiana Baguet of House of Training, as well as Andrew Capon of Lux-Dev, who works out of Hanoi. The training was initially aimed at directors of Vietnamese listed companies. The SSC then indicated that it would first like to offer the training to its own representatives, with a possible rollout to company directors in Hanoi and Ho Chi Minh in a second phase. The training dates were eventually set at 20-21 July.

On 19 July Andrew Capon and I met with SSC representatives of the Public Companies Supervision department at their offices. We received an overview of the current status of legislation on corporate governance - Vietnam has largely adopted the OECD corporate governance guidelines and plans to rollout a corporate governance before the end of 2017.

Later in the day we had a meeting with HNX representatives, including Mr Nguyen Hoang Linh, Head of Strategy and New Products Department, at the HNX office opposite the Hanoi opera. We learned that HNX and the Ho Chi Minh stock exchange (HSX) are expected to merge in the next few months, thereby creating one of the largest stock exchanges in South-east Asia based on the number of companies listed. It is noteworthy that the proportion of foreign investors and institutional investors who invest in Vietnamese listed companies is still very small and that, in order to increase this type of investment, listed companies will have to significantly improve their disclosure and corporate governance in order to match international standards. As it stands, however, the pressure to improve governance standards is not as strong as it would be if the proportion of institutional investors in the shareholdings of the listed companies was bigger. It is however a chicken and egg problem: are the institutional investors absent because the governance standards are too low, or is it the other way around? What is clear is that Vietnam is keen to improve its regional ranking in terms of adherence to the OECD Principles of Corporate Governance.

Both institutions made clear that they are unsatisfied with the current low level of compliance by listed companies. Large banks and insurance companies are the exception and tend to be the best performers in terms of good governance. However, most listed companies are SMEs with low capitalisation levels that struggle to apply the rules. For example, the requirement that a third of the board be comprised of independent directors is widely ignored by SMEs.

During the meetings with SSC and HNX I emphasised the advantages of the European “comply or explain” system. Such a system helps foster a dialogue about governance among the different stakeholders and allows, to the extent companies do not comply with certain provisions, a dialogue to take place about the reasons for non-compliance, with the aim to better explain the advantages of compliance to companies and eventually lead them to full compliance.

The trainings were held offsite in the seaside city of Danang, halfway between Hanoi and Ho Chi Minh. The training topic for Day 1 was on conflicts of interest while Day 2 would be dedicated to current topics for directors, such as ESG, cybersecurity, whistleblowing. The SSC requested that both trainings include real-life case studies. The main case study on conflicts of interest was a conflict-riddled $38 billion M&A transaction between Kinder Morgan and El Paso in the U.S. that was the subject of a much commented lawsuit brought by unhappy shareholders. Another case study entered around the unauthorised accounts scandal at U.S. bank Wells Fargo which emerged in 2016 and was extensively discussed in various newspapers and scholarly publications. The participants were SSC and Vietnam Securities Depository representatives, including Mr Pham Hong Son, the SSC Vice Chairman.

Although the sequential translation took away somewhat from the dynamic of the presentation, the impact of this was limited, in large part thanks to the excellent translator Mr Doan Manh Cuong. The Q&A sessions were also more dynamic than anticipated. Several questions centered around disagreements among board members, controlling shareholders who ignore the rights of minority shareholders — common issues in Vietnam where many listed companies tend be dominated by their founders who often are also CEOs and major shareholders. The real life case studies were well received and are indispensable to illustrate how bad things can get when basic good governance rules are ignored.

The trainings were a success and the ILA/Lux-Dev are hopeful that they will be rollout to a wider audience (the company directors) later in 2017 or in 2018. Trainings on other topics may also be considered.