Corporate governance in Vietnam Prospective corporate governance method of foreign investors

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Corporate governance in VietnamProspective
corporate governance methodof foreign investors
CORPORATE GOVERNANCE MEETING IFC WB OECD -
MOF 6/12/2004
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What is good corporate governance ?

• A global term, hamornizing the owners and the
  directors interests.
• A term emphasizing QUALITY, not QUANTITY
• A term being discussed in the world, by OECD,
  WorldBank, even the Governments

• Key Features
• Creating proper priority, showing the success
• Harmonizing the interests of related partners
  the owners, the managers, the labours and the
  society
• Increasing the value of enterprises
• Reducing cost of capital, increasing attraction
  for investors

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Corporate governance in Vietnam

• The Law on Enterprises is rather new
• The term of the Sample Regulations is not clear
• Both redundance and shortage of regulations (MOF,
  SSC, SBV, )
• For equitization, the transfer of a company from
  one owner to many owners relating to many issues
  in corporate governance

• Some issues usually happened in companies of
  Vietnam
• Lacking a practical and long- term strategy
• Not clear understanding the role of BODs and
  supervising Board
• The role of supervising Board is not clear
• Unequal behaviors for shareholderse
• The role of independent auditing copanies is not
  considered adequately

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Proposed Solutions

• Enterprises Strategy
• Priority Mechanisn
• Information on related partners
• Independent review

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Enterprises Strategy

• Issues
• Opportunities Motivation has reduced advantages
• The Community do not understand clearly laws

• Solutions
• Macro Analysis
• Micro Analysis
• Direction Identification
• Targets Idenfication (strategy finance - time)
• Disciplines factors

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• Enterprises Strategy
• Priority Mechanisn
• Information on related partners
• Independent review

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Why?

• MANAGING DIRECTORS
• Responsibilities
• Shareholders - Managing business
• Customers - Seeking the market
• Creditors - Development of companies
• Staffs
• Suppliers
• Incomes
• Salary a few times (4-5 times) than average
  salary of staffs
• Awards of BODs (if in BODs)

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Previous and current practices

• Measurements
• Not have compesation Committee
• With old rate through increasing
• Some ones accompany competitors
• Shortcomings
• Safety
• Not considering priority as an instrument for
  long-term targets but competion
• Not enough to attract the talents Lack of good
  management and succesfull teams
• Results
• Knowledge escaping
• Encouragement focusing on short term targets .
  Not concentrations
• Development prevention for enterprises and
  economy due to lack of big investment

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Some comparative data

• Chief Executive Officers salary (VND mill/month )

Foreign manufacturing companies Big companies of Vietnam Small and Medium sized companies of Vietnam Average of Vietnam
20.2 7.4 9.0 8.2

• Salary of staff not managing in foreign banks in
  Vietnam (VND mill/month)

Less 25 Average More than 75
Basic salary before tax 14.5 20.8 26.4
SourceMercer
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Some comparative data

• United State-2003
• Average salary of CEO 9.2m 301 times than
  American average workersõ (30,564/year)

Source Businessweek
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Implementation

• Establishing a compensation committee (CC)
• CC includes members in BODs in or out of
  companies
• Annual Meeting to review results of CEO and set
  the salary and awards
• Criteria ROE, ROI, ROA, assets circle

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How much ?

• Currently (1-3 years), salary of CEO should be
  around
• 20-30 times than average salary of staffs

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Structure
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Why?

• Associating with long term targets, increase
  responsibilities and obligations as well as
  transparency
• Concentrating on core business
• Practically, above rate is paid by many
  companies(even not equitized ones)
• Contributing to increase salary regime, promoting
  productivity
• Attracting the talents and labours circulation
  easierly
• Operational structure reduction
• Law on Enterprises, Article 80 no limitedá -gt
  high working capacity
• New Law on personal income encourages high income
  people and domestic labour usage.

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• Enterprises strategy
• Priority Mechanism
• Information to related partners
• Independent review

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What is IR ?

• IR is considerd as relation governance between a
  company and current and expected sharholders to
  help them understand clearly and attract them to
  invest in the companies.

• IR is also considered as a marketing activity to
  introduce true pictures on activities of
  potential of the company with current and
  expected investors

Marketing
Public relation
Relation with investors

• Principles
• Commitments to declare truly information to
  current and expected investors though they are
  good or bad

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Targets of IR
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Communication Contents
General information on the company
General information on operational environment
Qu?n tr? công ty
CONTENTS

• Finance

Information for shareholders
Update activity situation
Unexpected issues
Settlement of crisis
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Who ? Target Objects

• Target objets of IR
• Shareholders (current / potential / individuals /
  institutions)
• Analysists/ financial experts and investment
• Public communication agencies
• State management agencies
• Provincial Community
• Creditors and Customers
• Staffs.

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How ? Instrument of IR

• Marketing instrument, public relation and
  finance
• Annual Reports and financial reports
• Corporate governance (internal management rules)
• Pubic mean of communication (newspapers)
• Investment guides for investors (Letters / News
  )
• Events (Conferences, Seminars, copanies visits )
• Internet / intranet (web, forum )
• Analysized reports (finance/ investment/ market
  )
• Shareholders Registration Procedures
• Companies visits as schedule or sudden
• Welcom investors

• Principles
• Obeying regulations of information declaration of
  SSC and STC
• accuate information

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How ? Group IR

• IR activities can be managed by
• A team or a board of IR inside the company
• A professional company IR outside.

• Currently, in the listed companies Staff on
  information declaration
• Request for references
• Information declaration team
• Managed by members of BODs

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when? Planning IR

• IR activities needs planned before to ensure
  efficiecy
• Copany needs building IR plan and determine the
  time of imlementation for each specifically in a
  year
• Investors desire to reveive information timely.
  Any postponed or cancelled issues can lead to bad
  information
• Principles
• Information needs declaring quickly and timely,
  even both good or bad one

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Examples
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• Enterprises Strategy
• Priority Mechanism
• Information for related partners
• Independent Evaluation

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Relation of the owner management in joint stock
companies
BODs
Supervising Board
Management
Investors
Independent auditing

• Priority under results and responsibilities

• More than 50 shareholders are public companies

• Independence
• Professional
• Concentration

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The role of auditing companies

• 3 functions
• Build up financial reports
• Identifying book-entry principles
• Examing applying book - entry
• Independent review on companies situation, so,
  shareholdesr Congress can have the rights to
  decide auditting companies
• Relation with auditing companies is active and
  mutual understanding one
• Recent Parmalat, Enron, Worldcom, Daewoo is due
  to fails in relation between public companies and
  auditing companies

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Some issues How to set mechanism to

• Select auditing companies
• Examine auditing process
• Protect the companys interests
• Advise on book - entry principles
• Declare necessary information to have the most
  independent reports

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The role of Supervising Board

• About auditing companies
• Advising on conditions and scope of auditing
• Proposing selected auditing companies
• Advising on answering problems of auditing
  companies
• Examing management lettes of auditing companies
• Reviewing financial statements truly
• Reviewing performances of auditing companies

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The role of Supervising Board

• Advising for BODs on
• Book Entry Policies
• Issues required for subjective views
• Unexpected events
• Big Adjustments for financial statements
• Obeying rules on accounting
• Settling risks in business of the company