ASEAN CORPORATE GOVERNANCE

SCORECARD

VIETNAM COUNTRY REPORT

5-YEAR ASSESSMENT

2012-2017

i

Foreword

The ASEAN Corporate Governance Scorecard (ACGS) assessment is one of the most important

regional initiatives of the ASEAN Capital Markets Forum (ACMF) to build a regional integrated

capital market. This initiative was kicked off in 2011 with the key objectives to raise corporate

governance standards of ASEAN public listed companies (PLCs), to bring in greater international

visibility and to promote ASEAN as an asset class.

Vietnam officially joined the ACGS initiative in 2012 with the support of the Asian Development

Bank for the assessment activities in three years of 2012-2014. From 2015, the following two

assessments of corporate governance of PLCs in Vietnam have been supported by the

International Finance Corporation and the Swiss Economic Cooperation. Since its inauguration,

ACGS 2017 project is the fifth round of corporate governance assessment. The ASEAN Corporate

Governance Scorecard was guided by the G20/OECD principles of corporate governance, ICGN

principles of corporate governance, and other globally accepted principles of corporate

governance, which emphasize the substance of corporate governance of corporations.

This report provides the review results of ACGS assessments for the 5 years and specific focus of

results of corporate governance assessment of year 2017. The report shows that Vietnamese

PLCs have improved corporate governance practices gradually over the years, with consistent

improvement efforts by the companies and other stakeholders. Nevertheless, challenges are still

apparent as the gaps of corporate governance performance between Vietnamese PLCs and their

regional peers are still very significant. Besides, the report provides detailed analyses of areas to

focus on to improve corporate governance at listed firms.

Similar to other markets, improving corporate governance of listed companies demands efforts

by various parties, the regulators, the corporations, and market participants. At national level,

strategic long-term plans and a road map of action plans should be designed by the regulators. At

company level, the role of the board of directors is crucial with an in-depth understanding about

importance of corporate governance. Good corporate governance will definitely come with

consistent leadership of corporate directors, and effective implementation of corporate

governance supporting units inside the companies, being accompanied by healthy activisms

pressures of the market. For Vietnam soon to become an active member of the ASEAN corporate

governance initiative, both these external and internal corporate governance mechanisms should

be the focus of attention.

ii

Acknowlegement

The ASEAN Corporate Governance Scorecard is one of important initiatives of the ACMF, the

regional representative body of Finance Ministers of the ASEAN Countries, that raises corporate

governance standards of ASEAN public listed companies and brands ASEAN as an attractive asset

class. This regional project can not be a success without the leadership of ASEAN Corporate

Governance Scorecard Secretariats, the Securities Commissions of Malaysia and of the

Philippines, and the important collaborative efforts of the group of domestic ranking bodies of

the six participating jurisdictions. In Vietnam, this project can not be completed without the

important leadership of Vietnam State Securities Commission (SSC).

The ACGS initiative of the ACMF began in 2011 with Vietnam joining a year later. During 2012-

2014, with the support of Asian Development Bank, assessment activities have been implemented

in continuous three years. Then in years 2015-2018, IFC has continuously supported Vietnam in

participating in the ACGS initiative beside other corporate governance improvement activities.

In Vietnam, this project has involved the participation and efforts of a group of dedicated people.

The content of this report was developed by a research team being appointed by SSC, which is led

by Dr. Nguyen Thu Hien, Ho Chi Minh City University of Technology, Vietnam National University-

Ho Chi Minh City, and her key dedicated team members, Nguyen Ngoc Hanh Nguyen and Duong

Huyen Phuong.

The Scorecard was under direct supervision and support of Vu Chi Dung, SSC, Mohd Sani Moh

Ismail, Asian Development Bank and Nguyen Nguyet Anh, IFC’s Vietnam Corporate Governance

Lead.

The overall support of this publication was provided by Sir Tran Van Dung, Chairman of SSC, Tran

Anh Dao, Vice President of Ho Chi Minh Stock Exchanges, and Chris Razook, East Asia Pacific

Corporate Governance Lead of IFC.

Particular thanks go to our direct donors including International Finance Corporation (IFC) and

Swiss Economic Coorperation (SECO) for the project being done in Vietnam continuously since

2015.

Project team and author are particularly grateful to Nguyen Nguyet Anh, Corporate Governance

Officer International Finance Corporation, IFC for her counsel, advice and her availability to bring

in timely support to this project.

iii

Table of contents

Foreword ........................................................................................................................................................ i

Acknowlegement .......................................................................................................................................... ii

Table of contents ......................................................................................................................................... iii

Abbreviations ............................................................................................................................................... vi

1 BACKGROUND OF ASEAN CORPORATE GOVERNANCE SCORECARD ............................ 1

1.1 ASEAN CORPORATE GOVERNANCE SCORECARD IN VIETNAM ........................................ 2

1.2 ASEAN CORPORATE GOVERNANCE SCORECARD 2017 METHODOLOGY .......................... 2

1.3 PEER-REVIEWING PROCESS .......................................................................................... 6

1.4 VALIDATION PROCESS .................................................................................................. 6

2 CORPORATE GOVERNANCE COUNTRY REPORT OF VIETNAM ...................................... 7

2.1 CORPORATE GOVERNANCE LEGAL FRAMEWORK .......................................................... 7

2.2 VIETNAM STOCK MARKET ............................................................................................ 8

2.3 SAMPLING METHOD .................................................................................................... 8

2.4 OVERALL ANALYSIS ...................................................................................................... 9

General assessment of Vietnam’s corporate governance performance over 5 years .................................. 9

Corporate governance of Vietnam compared to ASEAN ............................................................................ 13

Corporate governance performance in 2017 .............................................................................................. 13

Benefits of corporate governance............................................................................................................... 16

Corporate governance and market price .................................................................................................... 16

Positive impact of corporate governance on stock price ............................................................................ 17

Corporate governance and operating efficiency......................................................................................... 18

Corporate governance by sectors ............................................................................................................... 19

Corporate governance and board of directors ........................................................................................... 21

Duality and corporate governance .............................................................................................................. 21

Roles of board subcommittees ................................................................................................................... 22

Corporate governance by company scale ................................................................................................... 24

3 CORPORATE GOVERNANCE PERFORMANCE RESULTS OF 2017 ASSESSMENT ............ 25

3.1 PART A – RIGHTS OF SHAREHOLDERS ......................................................................... 25

iv

Overall results ............................................................................................................................................. 25

Organizing AGMs ......................................................................................................................................... 26

Shareholder roles and shareholders’ rights protection .............................................................................. 26

3.2 PART B – EQUITABLE TREATMENT OF SHAREHOLDERS ................................................ 28

Overall results ............................................................................................................................................. 28

Information disclosure to foreign shareholders ......................................................................................... 28

Nominations of board members and external auditors ............................................................................. 29

Conflicts of interest prevention .................................................................................................................. 29

3.3 PART C – ROLE OF STAKEHOLDERS .............................................................................. 30

Overall results ............................................................................................................................................. 30

Customers, suppliers, and creditors protection .......................................................................................... 32

Employee encouragement .......................................................................................................................... 32

Relationship with stakeholders ................................................................................................................... 33

Whistleblowing policy ................................................................................................................................. 33

3.4 PART D – DISCLOSURE AND TRANSPARENCY ............................................................... 34

Overall results ............................................................................................................................................. 34

Quality of annual reports ............................................................................................................................ 35

Company website ........................................................................................................................................ 35

Timely disclosure ......................................................................................................................................... 36

Disclosure of governance information ........................................................................................................ 37

Disclosure of related party transactions ..................................................................................................... 38

3.5 PART E – RESPONSIBILITIES OF THE BOARD ................................................................. 39

Overall results ............................................................................................................................................. 39

Board independence ................................................................................................................................... 40

Board of directors roles in overseeing strategy and risk management ...................................................... 42

Roles of supervisory board .......................................................................................................................... 42

Internal audit ............................................................................................................................................... 43

Board composition and structure ............................................................................................................... 43

Carrying out board responsibilities ............................................................................................................. 44

Code of ethics.............................................................................................................................................. 45

3.6 BONUS AND PENALTY ................................................................................................ 46

Overall results ............................................................................................................................................. 46

Bonus items ................................................................................................................................................. 47

Penalty items............................................................................................................................................... 48

v

4 CORPORATE GOVERNANCE PRACTICES AT TOP PERFORMING COMPANIES .............. 50

Overall assessment ..................................................................................................................................... 50

Opportunities for the best companies ........................................................................................................ 51

5 CONCLUSION AND RECOMMENDATIONS ................................................................. 53

Corporate governance frameworks ............................................................................................................ 54

Training for corporate directors .................................................................................................................. 55

Recommendations for corporations ........................................................................................................... 55

Recommendations for investors and stakeholders..................................................................................... 57

Conclusion ................................................................................................................................................... 58

vi

Abbreviations

ACGS ASEAN Corporate Governance Scorecard

ACMF ASEAN Capital Market Forum

AGM Annual General Meeting

AR Annual Report

ASEAN Association of South East Asian Nations

BOD Board of directors

CEO Chief Executive Officers

CG Corporate Governance

CSR Corporate social responsibilities

DRBs Domestic ranking bodies

HNX Hanoi Stock Exchange

HSX Ho Chi Minh City Stock Exchange

ICGN International Corporate Governance Network

IFC International Finance Corporation

M&A Merger and Acquisition

OECD Organisation for Economic Co-operation and Development

P/B Price to Book value of shares

PLCs Public listed companies

ROA Return on Assets

ROE Return on Equity

SECO Swiss Economic Coorperation

Tobin’s Q Price to Book value of Total assets

1

1 BACKGROUND OF ASEAN CORPORATE GOVERNANCE SCORECARD

The ASEAN Corporate Governance Scorecard (ACGS) assessment was kicked off in 2011

and it is one of the important regional initiatives of the ASEAN Capital Markets Forum

(ACMF) to build a regional integrated capital market. The objectives of this initiative are

to raise corporate governance standards of ASEAN public listed companies (PLCs), giving

greater international visibility to well-governed ASEAN PLCs, and promoting ASEAN as

an asset class.

In four years of being implemented, the ACGS has become a well-recognized tool for

measuring ASEAN corporate governance, which enhances public awareness about

corporate governance and helps international investors to have a better assessment of

the listed companies in ASEAN. The first awarding event recognizing achievements of

PLCs was the Corporate Governance Awards of the top 50 ASEAN PLCs, which was held

in Manila, Philippines, in November of 2015. This inaugural event highlighted and gave

due recognition to the significantly improved performance of the top ASEAN PLCs which

proactively adopted internationally recognized best practices.

After four years of assessment, domestic ranking bodies of each participating country,

including Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam, have

reviewed the methodology and scorecard criteria to reflect new market developments

and new updates of the G20/OECD principles of corporate governance. In 2017 the

assessment process and methodology were revisited to enhance its independence and

reliability.

In 2017, participating countries have implemented the assessment of corporate

governance with the support of the domestic ranking bodies (DRBs) of respective

countries as follows:

• Indonesian Institute for Corporate Directorship;

• Minority Shareholder Watchdog Group, Malaysia;

• Institute of Corporate Directors, Philippines;

• Singapore Institute of Directors and the Centre for Governance, Institutions and

Organisations of the National University of Singapore Business School; and

• Thai Institute of Directors.

2

• A group of corporate governance experts, led by Dr. Nguyen Thu Hien (consultant

of IFC), from HCM University of Technology, Vietnam National University – HCMC

under the supports of International Finance Corporation (IFC) and Swiss

Economic Coorperation (SECO).

1.1 ASEAN CORPORATE GOVERNANCE SCORECARD IN VIETNAM

The ACGS initiative of the ACMF began in 2011 with Vietnam joining a year later in 2012.

During 2012-2014, with the support of Asian Development Bank, assessment activities

have been implemented in continuous three years. In years 2015-2018, IFC has

continuously supported Vietnam in participating in the ACGS initiative beside other

corporate governance improvement activities.

Improving corporate governance of listed companies demands efforts from various

parties, the regulators, the market parcitipants, and the corporations. To improve

corporate governance of listed companies in Vietnam, strategic long-term plans and

action plans should be set up from the top. At company level, the role of the board of

directors is crucial. Besides, improving disclosure and transparency could be a quick and

effective action to improve repulation and image of the corporations.

1.2 ASEAN CORPORATE GOVERNANCE SCORECARD 2017 METHODOLOGY

ASEAN Corporate governance assessment methodology is built to evaluate corporate

governance of listed companies based on publicly available information such as company

websites, annual reports, corporate governance reports, sustainability reports, articles of

association, investor announcements and notices, AGM documents, AGM minutes and

resolutions, corporate news on company websites, stock exchanges and securities

commission websites, news and media, etc.

Before assessment, international corporate governance standards and regulatory

developments of each participating countries were reviewed and embedded in the

scorecard assessment criteria. The development of the scorecard was guided by the

following principles:

• The scorecard should reflect global principles and internationally recognized

good practices in corporate governance applicable to PLCs and, in some instances,

may exceed the requirements and standards in national legislations.

3

• The scorecard should not be based on the lowest common denominator, but

should aim to encourage PLCs to adopt higher standards and aspirations.

• The scorecard should be comprehensive in coverage, capturing the salient

elements of corporate governance.

• The scorecard should enable gaps in corporate governance practices among

ASEAN PLCs to be identified and should draw attention to good corporate

governance practices.

• The scorecard should be universal and applicable to different markets in ASEAN.

• The methodology should be robust to allow the accurate assessment of the

corporate governance of PLCs beyond minimum compliance and box ticking.

• There should be extensive and robust quality assurance processes to ensure the

independence and reliability of the assessment.

Revision of ACGS 2017 scorecard

ACGS 2017 Scorecard is a result of revision process to reflect the updates of G20/OECD

principles of corporate governance, ICGN principles of corporate governance, and other

globally accepted principles of corporate governance. The revision is also to enhance the

effectiveness of the scorecard in reflecting the substance of corporate governance of

firms.

The scorecard has two levels, Level 1 and Level 2. The use of two levels of scoring is

designed to better capture the implementation of the substance of good corporate

governance. Level 1 comprises descriptors or items that are in essence indicative of (1)

the laws, rules, regulations, and requirements of each ASEAN member; and (2) basic

expectations of the G20/OECD principles. Level 2 consists of (i) bonus items reflecting

other emerging good practices, and (ii) penalty items reflecting actions and events that

are indicative of poor governance.

The questions in Level 1 and 2 have 5 parts, reflecting five G20/OECD principles of

corporate governance, there are: (1) Right of shareholders, (2) Equitable treatment of

shareholders, (3) Role of stakeholders, (4) Transparency and disclosure, (5) Role and

responsibilities of board of directors.

One significant change of the questions at level 1 is the change of the weightages of

principle Role of stakeholders from 10% to 15%, and principle Equitable treatment of

4

shareholders from 15% to 10%. This change reflects the increasing importance of the

roles of stakeholders in corporate governance, including stakeholders’ roles in

sustainable development, expected actions for environmental development, productive

relationship with employees, suppliers, customers, communities, etc.

Besides, it is important to ensure the reliability and validity of the ACGS. To measure the

substance and salient elements of corporate governance, the criteria in the scorecard that

reflect simple in-form practices have been eliminated, and the weightages of important

corporate governance practices have been increased. Some important criteria in Level 1

has been allocated weightages. The maximum score of Level 1 is 100 points.

The significant areas of corporate governance that have been emphasized are

composition and structure of board of directors, independence of board of directors,

independence of the Chairman, independence of the inspection committee/audit

committee of the board, presence and independence of other committees of the board of

directors, transparency of board decision in nominating new directors, role of board of

directors in strategic planning, monitoring the implementation of the strategy,

monitoring risk management, dispatching roles and responsibilities of the board of

directors, remuneration structure of board of directors and key executives. Besides, other

areas are also emphasized, such as practices in organizing AGM, AGM notice and

information disclosure of resolution/minutes; code of conduct/ethics, corruption

prevention, whistle blowing policies and whistle blower protection policy; policies

encouraging stakeholders in improving corporate governance, policies protecting

benefits of stakeholders, roles of firms to the environment for a sustainable development.

Structure and content of ACGS

ACGS has two-level structure. Details of ACGS are presented in Table 1. Total score of

Level 1 is the maximum achievable score of all parts in Level 1. Score of each part is

calculated by score of the part divided by the total maximum achievable score of the part

and multiplied by the weightage of the part.

Questions in Level 2 include Bonus and Penalty criteria for outstanding practices and

violation/poor practices that should be prevented. ACGS 2017 has 13 bonus and 25

penalty questions. Combining with Level 2, total achievable score a firm can have will

include score of Level 1 (a maximum of 100 points) plus a maximum of 30 bonus points

5

and minus a maximum of 67 penalty points if the firm practices outstanding corporate

governance activities or violates in significant areas of Level 2.

Therefore, the best-performing firm, which does the best in both Level 1 and Level 2

bonus areas and does not get deduction for any penalty for poor practices at Level 2 will

get total maximum score of 130 points, which is composed of 100 points of Level 1 and

30 bonus points of Level 2.

Table 1. Structure of ACGS scorecard – Level 1 and Level 2

Components of ACGS Number of questions

Maximum score in each area

Components of Level 1

Part A – Rights of shareholders 21 10

Part B – Equitable treatment of shareholders 15 10

Part C – Roles of stakeholders 13 15

Part D – Disclosure and transparency 32 25

Part E – Roles and responsibilities of the board 65 40

LEVEL 1 SCORE

100

Components of Level 2

Bonus area 13 30

Penalty area 25 -67

LEVEL 2 SCORE 30

TOTAL SCORE (Level 1 + Level 2) 130

The weightages of respective areas in Level 1 are: 10 points for Part A- Right of

shareholders, 10 points for Part B- Equitable treatment of shareholders, 15 points for

Part C- Role of stakeholders, 25 points for Part D- Transparency and disclosure, and 40

points for Part E- Role and responsibilities of board of directors.

Level 2 includes bonus and penalty questions, including bonus questions with +1 to +4

points, and penalty questions with -1 to -5 points.

6

The ACGS has adjusted the maximum achievable scores in each of the four years to reflect

the respective developments of corporate governance practices in the region and in the

world. Therefore, the maximum score in each year are distinguished and presented in

Figure 1. The total maximum score of 2017 is 130 points.

1.3 PEER-REVIEWING PROCESS

Peer review is another distinguished characteristic of the ASEAN corporate governance

scorecard compared with other scorecard methodologies. Specifically, similar to

previous years, in 2017 the assessment includes two rounds: Round 1 – Internal process,

DRBs1 of each of the six countries, called original reviewer, will implement local

assessment on its local firms; then, in Round 2 – Peer review process, the other DRBs,

called peer reviewers, will implement independent assessment on the country’s local

firms. The local and peer-reviewed results will be checked and reconciled to arrive at the

finalized and agreed assessment results.

In 2017, the top 35 companies in each country will be selected to go through the peer-

review process. The peer reviewers are assigned randomly to ensure that all firms in each

country will be peer reviewed by DRBs of all other countries. This process is a mechanism

to lever corporate governance evaluation of DRBs, a good example of a process of

integrating individual national markets into one single ASEAN market.

Following the peer review process, DRBs will discuss and clear gaps of evaluations.

Systematic mis-evaluations if any must be fixed and adjusted for the local scores of all

local firms, including those (35) companies that have not been peer reviewed.

1.4 VALIDATION PROCESS

This is a new process being implemented in 2017 with an objective to validate the public

information disclosed by companies. This validation process is applied for the candidates

of the top 70 ASEAN companies. An independent company is nominated to implement the

validation process by interviewing key corporate leaders and executives, including board

members and CEOs, corporate secretaries about corporate governance practices.

1 Please refer to page 1 for the list of DRBs of the six participating countries.

7

Based on the CG scores assessed from the two rounds, internal and cross-checking

rounds, 70 PLCs with the highest CG scores in ASEAN will be selected and included in the

verification process. The verification review process was conducted from May to June

2018. From the 70 verified enterprises, the best 50 PLCs was voted as the best managed

PLCs in ASEAN.

2 CORPORATE GOVERNANCE COUNTRY REPORT OF VIETNAM

2.1 CORPORATE GOVERNANCE LEGAL FRAMEWORK

After more than three years of implementation, Circular No. 52/2012/TT-BTC guiding

information disclosure on securities market and Circular No. 121/2012/TT-BTC on

corporate governance system applicable to public companies were thoroughly revised by

the Government and the State Securities Commission and replaced by new regulations.

Circular No. 155/2015/TT-BTC guiding information disclosure on securities market and

Decree No. 71/2017/ND-CP and Circular 95/2017 / TT-BTC on corporate governance

guidelines for public companies have been issued to further improve the legal framework

for disclosure of information and enhance stock market transparency to meet advanced

requirements of market development and global integration. One highlight of the new

Circular No. 155/2015/TT-BTC, replacing Circular No. 52/2012/TT-BTC since January

1st 2016, is the recommendation for listed companies’ information disclosure in both

Vietnamese and English so that foreign investors could gain more access to the

information. Circular 121/2012/TT-BTC is still valid until August 1st 2017. Since its

issuance, it has helped to overcome many limitations of previous regulations, established

a stricter regulatory framework for the stock market, and helped to improve corporate

governance compliance of Vietnamese listed companies.

In addition, the legislation system for corporate governance has been strengthened since

the application of the Law on the Handling of Administrative Violations in 2012. Then,

the issuance of Decree 108/2013/ND-CP on administrative penalties for violations in

securities and securities market has increased market supervision and enhanced market

transparency. This Decree regulates sanctions in securities and securities market with a

number of specific monitoring measures for corporate governance violations, reporting

and disclosure, transactions of shareholders and insiders, and other violations.

8

2.2 VIETNAM STOCK MARKET

Vietnam stock market officially came into operation in 2000, and after more than 15 years

of establishment and development, it has gained many achievements and significant

growth in terms of both market capitalization and transaction volume. As of December

31st 2016, there were 319 companies listed on the Ho Chi Minh Stock Exchange and 374

companies listed on the Hanoi Stock Exchange. In addition, 391 companies registered to

trade on Unlisted Public Company Market (UPCom), and 745 public companies not yet

registered to be listed. Beside the increase in the number of listed or registered

companies, market capitalization has grown considerably. According to statistics

provided by States Securities Commission, Vietnam stock market capitalization reached

almost VND 3.360 trillion, equivalent to 74.6% of GDP, as of December 31st, 2017.

However, this scale is still modest compared to other ASEAN countries. Data shows that

in 2016, the stock market capitalization to GDP of Thailand, Singapore, Malaysia, and the

Philippines were 104%, 227%, 135%, and 85%, respectively. Stock market is a capital

market operating on the principle of free and open competition, through which the

capital will be attracted to safe and efficient investment opportunities. Businesses with

good performance, and more importantly, good corporate governance system, would be

ideal destinations for domestic and foreign investments. Good governance is not only a

prerequisite condition, but also a priority to attract capital successfully and sustainably,

making the stock market a substantial source of capital for Vietnam economy.

2.3 SAMPLING METHOD

The ASEAN Corporate Governance Scorecard is based on the point of views of

international investors, so publications in English are used as the main source of

assessment information. Accordingly, companies having largest market capitalization at

the end of April 2017 listed on Ho Chi Minh City Stock Exchange (HSX) and Hanoi Stock

Exchange (HNX), with shareholder documents in English are included in the evaluation

list. The minimum requirement is the availability of annual report in English.

With the above sampling method, the sample is qualified to represent the respective

capital markets of jurisdictions. In 2017, there were 70 Vietnamese listed companies

being included in the assessment. Compared with the figure in 2015 with 55 companies

evaluated, this is a significant improvement in the use of English for shareholder

9

documents. The market capitalization of these 70 companies in 2017 accounts for 71%

of the total market capitalization of the two stock exchanges. As a result, similar to

previous years, the 2017 sample size can represent the stock market in Vietnam.

The sample includes 80% of Vietnamese PLCs in the VN-30 index at the end of 2017.

There are 6 companies in VN-30 not included in the samples because their investor

documents are not available in English. The sample includes 5 listed companies on the

HNX and 65 on the HSX.

2.4 OVERALL ANALYSIS

Since the scorecard is based on ASEAN corporate governance standards, each

jurisdiction’s regulations are prerequisite but not the sufficient conditions for a good

performance under ASEAN standards. Vietnam’s compliance rate to the standards is still

low, compared with other countries in the region, and the gap is quite large in each

assessment area.

General assessment of Vietnam’s corporate governance performance over 5 years

There have been remarkable improvements in corporate governance scores achieved by

listed companies in 2017 compared to those of previous years in most components.

The total achievable maximum scores have changed in each assessment year and are

shown in Graph 1. The total maximum score of year 2017, comprised of CG score of Level

1 and Level 2, is 130 points.

10

Graph 1. Vietnam corporate governance scores over 5 years of assessment 2012-2017

Graph 1 shows that corporate governance scores in every area have improved

throughout the last five years. The average corporate governance score increased by

12.3% in the latest assessment (from 36.8 points to 41.3 points). The standard with the

highest increase was Part A – Rights of Shareholders (by 30.3%), followed by Part E –

Responsibilities of the Board (by 14%), and Part D – Transparency and Disclosure (by

10.12%).

There is a change in Part B and C’s weightages, whereby Part B now weights 10% and

Part C’s weightage increases to 15%. The 2017 assessment results show that Part B -

Equitable Treatment of Shareholders has improved, but Part C – Role of Stakeholders has

not seen much change. Changes in scores of these two components (decline in Part B and

increase in Part C) are mainly due to their weightage change.

11

Despite improvements in each area and in the overall corporate governance scores have

been seen, this result is still modest. Vietnamese PLCs have not reached the high ASEAN

standards. The average score of 41.3 is far from the maximum attainable score of 130.

Corporate governance performance improvements of companies being assessed

throughout 5 years

Good corporate governance requires continuous and consistent improvements in both

internal and external governance mechanisms of any business to meet the expectation of

investors and the market. Therefore, the market expects a sustainable improvement over

the years in corporate governance of companies that have been present in all

assessments of the ASEAN Scorecard throughout 5 years. The results show that 26

companies present in all years’ assessment list have achieved significant corporate

governance improvements throughout the period. In 2017, the average corporate

governance score of these companies increased 19.4% from the previous year (from 40.6

to 48.7) and 13% per year over the last 5 years.

Although corporate governance scores of these 26 companies have improved

significantly, this has not helped to increase the overall performance of Vietnam as many

new companies were added for the sample of 2017 assessment. These new companies

have limited information disclosure to shareholders. This significantly affects the overall

results in 2017.

12

Graph 2. Corporate governance scores of the companies being assessed throughout 5 years

2012-2017

13

Corporate governance of Vietnam compared to ASEAN

Graph 3. Average scores of ASEAN countries

The assessment of corporate governance performance of ASEAN countries over the years

have shown a significant and continuous improvement in regional markets, and Vietnam

is not an exception. Graph 3 shows that Vietnam corporate governance score reached its

highest level in 2017 but it is still far away from its neighbors’ performance. Specifically,

the average score of Vietnamese PLCs is 41.3 in 2017, which is a big gap compared to that

of Indonesia of 70.6, of Philippines of 67.6, and of the highest-scored country of Thailand

of 85.7.

Corporate governance performance in 2017

The assessment results of 70 Vietnamese listed companies in 2017 reveal that a big gap

in corporate governance scores exists between the best and the worst companies as

shown in Table 2.

14

Table 2. Vietnam corporate governance score in 2017

The Level 1 maximum achievable score is 100, and the highest score in Level 1 is

72.12/100. The company with the lowest score in Level 1 reached 23.42/100. Level 1

score indicates compliance level to ASEAN corporate governance standards. Level 1

median score is 42.3/100, showing that more than 50% of the companies have not

satisfied basic ASEAN standards on corporate governance.

The maximum achievable score of Level 2 is 30 for the case of no penalty points being

deducted and all bonus points being fully earned. However, Vietnamese companies have

not well applied advanced corporate governance practices yet. The company with the

highest Level 2 score earned 4/30 points. The lowest Level 2 score is -7/30. The median

score of Level 2 is -2 points. This result shows that more than 50% of the evaluated firms

violated some key areas and got penalty scores.

The overall results show that the best Vietnamese company at Level 1 achieved a good

Level 1 score (72.12/100) but did

not earn any bonus point in Level 2.

This implies that even performance

of the best Vietnamese companies is

still far from the best in the region

due to the lack of advanced corporate

governance practices in Level 2, or

due to corporate governance

violations in Level 2 key areas.

Part A Max=10

Part B Max=10

Part C Max=15

Part D Max=25

Part E Max=40

Level 1

Max=100

Level 2

Max=30

Total CG score

Max=130

Average 6.37 6.84 5.90 12.94 10.98 43.04 -1.74 41.30

Min 4.62 5.79 0.00 4.38 4.80 23.42 -7.00 20.18

Max 10.00 8.95 14.06 21.25 24.53 72.12 4.00 73.11

Median 6.00 6.75 6.09 12.81 9.73 42.30 -2.00 38.74

The best performing company at Level 1

achieved a good Level 1 score (72.12/ 100) but

did not earn any bonus point in Level 2. This

implies that performance of the best

Vietnamese companies is still far from the best

in the region due to the lack of advanced

corporate governance practices in Level 2, or

due to corporate governance violations in Level

2 key areas.

15

Graph 4. Corporate governance score by components in 2017

As shown in Graph 4, there is a large gap between the best and the worst companies in

corporate governance performance. The best company achieved a total score of 73.11

compared with the 20.18 points of the worst. Firms in the median only scored 38.74,

indicating that half of the firms were in the low scoring group (below 38.74).

Nevertheless, the best Vietnam’s PLC only achieved 56% of the maximum attainable

score. In particular, the best company scored 73.11 compared to the maximum score of

130 points. This fact indicates that a great

deal of efforts of the market, and the

companies, especially companies with

relatively high corporate governance

standards, is needed to improve the

governance of Vietnamese PLCs.

A great deal of efforts of the market, and the

companies, especially companies with

relatively higher standards of corporate

governance practices, is needed to improve

the governance of Vietnamese PLCs.

16

Benefits of corporate governance

Many international prestigious surveys and researches have pointed out clear benefits of

corporate governance for companies, especially in terms of market value, including

capitalization value of shareholders and the company. In particular, companies with good

corporate governance often enjoy higher valuation than ones with poorer governance

system. Stock prices of companies with good corporate governance are also more stable

and less vulnerable to stock market volatility.

Corporate governance and market price

Analysis of 2017 results indicates that companies in top corporate governance scores are

also the ones having the highest P/B ratios (Price to Book value of shares). Particularly,

the best group had P/B of 2.33 while the group with the lowest corporate governance

score obtains a P/B ratio of 1.79. P/B is the ratio between market price and book value of

a stock. Similarly, the Tobin's Q ratio (the ratio of market value to book value of total

assets) of the group with the highest corporate governance scores was also higher than

the bottom group (1.13 versus 0.92). This difference is statistically significant.

Graph 5. Corporate governance score and market price

17

Positive impact of corporate governance on stock price

Stock price can be determined by many factors, e.g. market growth, operating efficiency,

profitability, debt ratios, firm size, industry characteristics, etc. Therefore, a regression

analysis of all five years of corporate governance score under the ASEAN Scorecard

assessment from 2012 to 2017 was conducted.

The regression results, after reviewing and controlling all factors that may affect stock

prices (profitability, debt ratios, firm size, industry characteristics) and market growth

over the years, has shown a clear result that

corporate governance scores have positive

impacts on stock prices. This effect is

statistically significant. Specifically, the

impact factor of corporate governance score

on P/B ratio is positive, expressed by the

upper slope of the regression line in Graph

6.

Graph 6. Correlation between corporate governance score and P/B

This analysis indicates that companies with higher corporate governance scores will gain

confidence and trust from investors and they are willing to pay higher prices for their

shares as well as to hold the stocks for long term and even when market conditions are

less favorable.

-2

-1

0

1

2

3

4

5

6

0 10 20 30 40 50 60 70 80

P/B

ratio

CG Score

CG score and P/B ratio

The regression results, after reviewing and

controlling all factors that may affect stock

prices (profitability, debt ratios, firm size,

industry characteristics) and market

growth over the years, has shown a clear

result that corporate governance scores

have positive impact on stock prices.

18

A similar analysis between the corporate governance score and the Tobin Q ratio showed

that higher corporate governance scores also boost the company's market value and

Tobin Q, including both share and loan

values. This implies that improving

corporate governance also facilitates

access to loans, which increases the

potential to raise capital for long-term

sustainability.

Corporate governance and operating efficiency

The analysis indicates that stocks with good corporate governance yield higher returns

than those with poor corporate governance. Specifically, ROA of the companies with high

corporate governance scores ranged from 1% to 32%; while those of the group with the

lowest corporate governance score ranged from 0% to 26%.

Likewise, the group with the highest corporate governance score also had the highest

ROE, ranging from 3% to 51%; while ROE of lowest corporate governance score group

ranged from 1% to 37%.

Table 3. Corporate governance score and operating efficiency

Top corporate governance scores (20 PLCs)

Middle corporate

governance scores (30

PLCs)

Bottom corporate

governance scores (20

PLCs)

ROA

Average 8.6% 8.3% 8.6%

Max 31.9% 24.2% 26.2%

Min 0.6% 0.2% 0.4%

Median 8.1% 5.4% 7.5%

ROE

Average 18.3% 15.5% 16.5%

Max 50.6% 37.6% 37.2%

Min 2.7% 1.0% 0.5%

Median 14.2% 13.0% 16.9%

International studies and surveys have also indicated that while good corporate

governance allows companies to control risk and mitigate uncertainties that affect the

The analysis also shows that improving

corporate governance also facilitates access

to loans, which increases the potential to

raise capital for long-term sustainability.

19

achievement of long-term growth objectives, it may not necessarily bring direct financial

results to the business. However, it can help businesses to stay productive and achieve

sustainable growth.

Consistent with other international studies, the analysis suggests that there is no

significant difference in the mean of ROA and ROE amongst firms with good corporate

governance and poor corporate governance. However, the key benefits arising from

improved corporate governance are more stable profitability and sustainable growth.

Graph 7. Corporate governance score and operating efficiency

Corporate governance by sectors

This analysis evaluates corporate governance performance by sector. As shown in Table

4, 70 companies in 2017 assessment list are classified into 10 sectors, with the number

of companies in each sector not evenly distributed. Most of them are from consumer

goods, finance, and industries fields. There is only one company in the

telecommunications industry.

20

Table 4. Corporate governance score by sectors

Sector Number of companies

Level 1 Score

Level 2 Score

Total corporate

governance score

Consumer Goods 20 39.83 (2.40) 37.43

Consumer Services 3 41.23 (3.67) 37.56

Energy 4 37.38 (4.25) 33.13

Financials 13 47.43 0.85 48.28

Bank 5 45.21 2.40 47.61

Non – bank 8 48.82 (0.13) 48.69

Healthcare 3 56.53 0.00 56.53

Industries 11 43.06 (1.27) 41.79

Materials 2 43.57 (2.00) 41.57

Property 10 41.89 (3.30) 38.59

Telecommunications 1 63.89 0.00 63.89

Utilities 3 37.65 (2.00) 35.65

Evaluating corporate governance by sector should take into account the number of

companies in each sector. In terms of scores, the telecommunications industry has the

highest average score (but only 1 company in this sector), followed by Healthcare (3

companies). The third highest score is from Finance, which is the largest sector (13

companies), including banks, insurance, and securities companies. These 3 sectors

generally use communication channels (websites, reports) with comprehensive

necessary information and appear to have a positive attitude towards public information

disclosure.

Banking sector is required to comply with stricter regulations, such as the Law on Credit

Institutions and standards for capital and risk management in accordance with Basel II.

Thus, the banking is also the group that has higher corporate governance scores than the

non-banking groups.

21

Table 5. Corporate governance performance of bank versus non – bank companies in 2017

Level 1 score Level 2 score Total score

Bank (05) 45.21 2.40 47.61

Non – bank (65) 42.87 (2.06) 40.81

Graph 8. Corporate governance score by sectors in 2017

Corporate governance and board of directors

The characteristics expected for the board of directors, the highest representative body

of a firm responsible for developing and overseeing the operation of corporate

governance system, are strategic vision, integrity, professionalism, competencies, and

independent role. An independent director would help the board to achieve a high level

of leadership and operational supervision. A board with dedicated subcommittees

responsible for key issues of governance can enhance its responsibility in the role of

business leaders.

Duality and corporate governance

Decree 71/2017/ND-CP stipulates the separation of Chairman and CEO positions in all

listed companies. Accordingly, by August 1st 2020, Vietnamese PLCs are no longer

allowed to have duality situation where Chairman is also CEO. In the year 2017, there

22

were many companies changing their governance structure to separate these two

positions. As a result, the number of duality cases fell to 20% from 30% in the previous

year. Analysis of corporate governance results between the two groups, with and without

duality, shows that companies without duality have higher corporate governance scores

than those having such structure.

Table 6. Corporate governance score and dual Chairman/ CEO structure

2013 2014 2015 2017

Duality 35.72 32.58 34.39 39.75

Non – duality 33.17 36.04 37.64 41.65

As illustrated in Table 6, all years’ assessment results, except for the year of 2013, show

that companies without duality

status have achieved better

corporate governance performance.

This is an interesting finding and has

practical implication.

Roles of board subcommittees

The results indicate that companies with subcommittees have better corporate

governance practices. Subcommittees in the assessment include the nomination and

remuneration subcommittee. The role of board subcommittees has become increasingly

important, as demonstrated by the

widening gap between corporate

governance scores over the years between

the two groups. Groups with board

subcommittees scored higher than those

without. While in 2013, the average score of

companies with subcommittees is higher by

2.55 points (35.78 versus 33.23), by 2017

the difference was 13.38 (50.28 versus

36.90).

The assessment results over the years show that

companies without duality status have achieved

better corporate governance performance.

The results indicate that companies with

subcommittees have better corporate

governance practices. The role of board

subcommittees has become increasingly

important, as demonstrated by the

widening gap between corporate

governance scores over the years between

the two groups.

23

Graph 9. Role of board subcommittees in corporate governance score

An encouraging fact is that more and more companies have established board

subcommittees, which is a good conformity to international practices on corporate

governance. In 2013, there were only 10 companies that have either nomination or

remuneration committee. But in 2017, the figure is 23 companies. Amongst 70 companies

evaluated in 2017, 47 companies did not have subcommittees. These subcommittees are

defined as nomination committee and remuneration committee.

Table 7. Companies and board subcommittees

2013 2014 2015 2017

Having board subcommittees

Corporate governance score 35.78 37.31 42.58 50.28

Number of companies 10 14 16 23

Not having board subcommittees

Corporate governance score 33.23 34.29 34.36 36.90

Number of companies 30 36 39 47

Having audit committees is compulsory under Vietnamese law, so it was not counted as

the other board committees as shown in Graph 9 and Table 7. In the traditional corporate

24

governance structure of Vietnam, roles and functions of audit committee is within the

scope of duties and responsibilities of supervisory board. However, since the

introduction of the Law on Enterprises in 2014, a new model has been proposed whereby

supervisory board can be replaced by board level audit committee.

Corporate governance by company scale

International researches and studies point out that large companies tend to have better

corporate governance practices than smaller ones. Some explanations are that larger

companies having more non-executive board members are more likely to set up

subcommittees and implement many good corporate governance practices.

The result of 2017 ASEAN scorecard assessment also reveals similar results. Larger

companies score higher than medium and small ones. A point worth noting is that smaller

companies have more violations and get more penalty points in Level 2 than large

companies do. In particular, penalty score is often due to failure to meet the requirements

of independent board members.

Graph 10. Corporate governance score by scale

25

3 CORPORATE GOVERNANCE PERFORMANCE RESULTS OF 2017 ASSESSMENT

3.1 PART A – RIGHTS OF SHAREHOLDERS

Overall results

As owners of a company, shareholders contribute capital in terms of shares and have

certain basic ownership rights such as right to obtain timely and relevant information, to

vote on material corporate changes, to share in corporation profits, beside other rights

as prescribed by law.

Table 8. Results of Part A – Rights of Shareholders

Part A Part B Part C Part D Part E

Average 6.37 6.84 5.90 12.94 10.98

Min 4.62 5.79 0.00 4.38 4.80

Max 10.00 8.95 14.06 21.25 24.53

Median 6.00 6.75 6.09 12.81 9.73

As shown in Figure 1, average corporate governance score of Vietnam PLCs has increased

by 12.3% this year (from 36.8 points in 2015 to 41.3 points in 2017). Part A – Rights of

shareholders – has witnessed the highest growth amongst all components, 30.3% rise,

and reached the average of 6.37 out of 10. The best company in the component achieved

10 points, and the lowest score was 4.62.

Significant improvements in this area are remarkable progress in pre-AGM preparation,

procedures and organization of shareholder meetings, voting procedures in AGM, and

disclosure of AGM resolutions. Moreover, PLCs become more aware of the importance of

disclosing information on shareholders engagement activities and detailed company

profile to attract investment capital and boost the business reputation amongst investor

community.

However, there is a need for further improvement in quality of AGM Notice and

documents to meet ASEAN standards and to release of AGM Minute and company’s

constitution in English. Timely dividend payment is one of the important shareholder

requirements that businesses need to pay attention to. ASEAN standards require cash

26

dividends to be paid within 30 days after being announced or approved by AGM, and

stock dividends to be paid within 60 days.

Organizing AGMs

According to G20/OECD corporate governance principles and Vietnam corporate

governance framework, shareholders’ access to sufficient and timely information on

relevant and material company information, including one concerning AGM, must be

facilitated and encouraged. Vietnamese PLCs have made good progress in publishing

AGM announcement and documents. The results show that in 2017, 32% of companies

(compared to 9% in 2015) have sent out notice for all AGMs and EGMs at least 21 days

before the meeting, and 43% (compared to 24% in 2015) meet ASEAN standards for

content quality of AGM documents. For further improvement, AGM documents need to be

more specific and include helpful details and explanation for items that require

shareholders’ approval at the meeting.

However, the majority of Vietnam PLCs did not appoint an independent party to validate

the votes at AGM, a good practice widely applied in other ASEAN countries. Only 12% of

PLCs (compared to 2% in 2015) have adopted this practice by having external auditor or

minority shareholder to take part in or oversee the vote counting process at the meeting.

Shareholder roles and shareholders’ rights protection

It is more evident that public companies now have devoted extra efforts into encouraging

shareholder engagement by promoting effective two – way interaction. One highlight is

27

the preparation for AGM to facilitate shareholders’ participation and their votes on

material matters. However, there is a need of AGM Minute to be publicly disclosed, since

part of shareholders, especially foreign investors, may not attend the meeting, to ensure

their equal rights be protected. Because of the low rate of disclosure of AGM Minute,

Vietnamese PLCs usually lose points in items relating to attendance details of board of

directors and top executives and the effectiveness of the meeting, including record of

questions raised by shareholders and corresponding answers. Particularly, only 29% can

show evidence from AGM Minute that shareholders have opportunity to ask questions to

the board and management team although this practice is quite popular in Vietnam.

One of the important shareholders’ rights is to share company profits and receive

dividends on time. Similar to previous years, the percentage of companies that ensure

dividend payment within 30 days after announcement or approval at AGM still remains

low, only 11.43%. This is a crucial point that Vietnamese PLCs need to pay more attention

to as it has direct impact on shareholders’ rights.

Information on independent party involved in M&A or takeover transaction evaluation

requiring shareholders’ approval still remains limited. Amongst 10% of companies which

had M&A transactions or transactions entailing substantial portions of corporate assets,

none appointed an independent party to evaluate the fairness of transaction price.

STRENGTHS

▪ The majority of basic shareholders’ rights are respected.

▪ Policies and activities to promote two – way interaction between companies and shareholders, especially institutional shareholders, are well implemented.

AREAS FOR IMPROVEMENT

▪ AGM Notice is not provided at least 21 days before AGMs or EGMs.

▪ AGM documents lack detailed information and explanation for agenda items requiring shareholders’ approval.

▪ Both English and Vietnamese versions of AGM Minute are not publicly available or their contents are not complete.

▪ The majority of Vietnam PLCs did not appoint an independent party to validate the votes at AGM.

▪ Dividend payments are not made within 30 days after announcement or approval at AGM.

▪ There is no appointment of independent party to evaluate the fairness of M&A transactions or it is not disclosed properly.

28

3.2 PART B – EQUITABLE TREATMENT OF SHAREHOLDERS

Overall results

Different groups of shareholders should be treated equally. Therefore, company needs to

ensure that all shareholders of the same class must own the same rights, obligations, and

interests. Where the company has different classes of shares, the rights and obligations

attached to each class of shares should be explicitly disclosed to all shareholders and be

approved by AGM. In fact, most Vietnamese companies have only one type of common

stock and each share has one vote. This guarantees the right to equal treatment for all

shareholders in accordance with good corporate governance practices.

Table 9. Part B – Equitable Treatment of Shareholders

Part A Part B Part C Part D Part E

Average 6.37 6.84 5.90 12.94 10.98

Min 4.62 5.79 0.00 4.38 4.80

Max 10.00 8.95 14.06 21.25 24.53

Median 6.00 6.75 6.09 12.81 9.73

In 2017 scorecard, the weightage of Part B reduces to 10%, which is a factor that explains

for no change in its score although this part has improved considerably. Particularly, this

part has an average score of 6.84/ 10 points. Company with the highest score gained 8.95

points, the lowest score was 5.79 points.

Information disclosure to foreign shareholders

An aspect that not yet received adequate attention from PLCs is the equal treatment

towards foreign shareholders. The percentage of companies disclosing investor

documents in English is very low. In 2017, only 70 companies have annual reports in

English. Compared to more than 700 companies currently listed on both stock exchanges,

this figure is very low while these companies are expecting to attract abundant capital

from foreign investors. In addition to publishing annual report, there are still many

limitations in providing AGM meeting documents in English, such as late release of the

English version with poor contents, lack of detailed information, and information

sometimes not consistent with the Vietnamese version. This may hinder foreign investors

from getting accurate, timely and sufficient information about AGM.

29

Nominations of board members and external auditors

Nominating and selecting board members is one of the important decisions of

shareholders, requiring shareholder's knowledge of the candidates. However, nearly

12% of the companies provided sufficient profiles of

board candidates in AGM documents that meet ASEAN

disclosure standards, a very low rate compared with the

peer countries. 50% of companies did not provide

complete details information of the nominated

candidates, and 38.6% of companies did not have any

election of members of the Board of Directors in the year.

An encouraging fact is the increasing number of

companies providing the list of candidates of independent audit firms to be approved at

AGM (nearly 26% of companies in 2017, compared with 22% in 2015).

Conflicts of interest prevention

In good corporate governance practices, benefits of the company and shareholders as a

whole should be first priorities, rather than the interests of one or some groups of

insiders or major shareholders. Vietnamese corporate law and legal documents on

corporate governance also have strict regulations to prevent conflict of interests. For

example, regulations that require board of directors, supervisory board, CEO and other

executives to be honest, to avoid conflicts of interest, and to prohibit insider transactions

or similar transactions that bring material and non-material benefits to these members.

However, in comparison with the ASEAN standard for conflicts of interest prevention, a

minor but not less important point that is missing in the Vietnamese law is a regulation

to require directors to abstain from attending board meeting and voting on the matter

that they have conflict of interests.

In addition, there is a lack of evidence showing companies’ commitment to protect

minority shareholders from conflicts of interest caused by transactions with related

parties. To be specific, more than 97% of Vietnamese PLCs do not have a statement in

annual report confirming that all related party transactions are conducted fairly and

based on arm’s length basis.

30

STRENGHTS ▪ Each resolution only deals with one item.

▪ AGM document provides list of audit firms seeking appointment.

AREAS FOR IMPROVEMENT

▪ English version of AGM documents is not fully disclosed or not released on the same date with the Vietnamese version.

▪ AGM documents usually lack profile of directors seeking election.

▪ Companies do not have policy requiring directors to abstain from attending board meeting on the matter that they have conflict of interests.

▪ Statement confirming the fairness and transparency of related party transactions is hardly found.

3.3 PART C – ROLE OF STAKEHOLDERS

Overall results

Beside shareholders’ interests, corporate governance principles also strive to protect

interests of stakeholders, such as employees, customers, suppliers, creditors,

environment, and local community, to ensure the sustainable development of both

companies and community. Part C is to examine companies’ commitment to stakeholders’

interests as well as to sustainable development when determine company policies and

strategies.

In 2017 ASEAN Corporate Governance Scorecard, Part C – Role of Stakeholders, has

weightage increased to 15%. The average component score in the 2017 assessment is 5.9

out of 15. The best company earned 14.06 points while the lowest score is zero.

Requirements of this part are more advanced than the ones in previous scorecard

versions, whereby companies have to develop coherent policies and concrete actions to

protect rights of stakeholders, and these policies and corresponding programmes also

need to follow ASEAN standards.

31

Table 10. Part C – Role of Stakeholder

Part A Part B Part C Part D Part E

Average 6.37 6.84 5.90 12.94 10.98

Min 4.62 5.79 0.00 4.38 4.80

Max 10.00 8.95 14.06 21.25 24.53

Median 6.00 6.75 6.09 12.81 9.73

From the five – year results of the ASEAN Corporate Governance Scorecard, a significant

change is noted in companies’ awareness of their responsibilities towards society and

community. Most of the companies, up to 81% in this year's review, have their own

section on social responsibility. Some companies even publish their own sustainability

report following the international GRI standard, which addresses the role of stakeholders

as well as positive business efforts towards welfare of employees, customers,

environment, and local community.

Thanks to the wider application of international reporting standards on these aspects,

contents relating to consumer protection, environmental protection, and community

contribution policies and their implementation are fully disclosed in a specific manner.

This improvement suggests that Vietnamese PLCs now become more aware of the role

and importance of stakeholders in their sustainable development strategy.

Areas for improvement are the full disclosure of company policies in supplier selection

towards sustainable development standards as well as

practices in place for effective implementation. In addition,

policies and action programs to protect creditors should be

clearer and more specific. Policies to strenghthen employees’

commitment by designing staff’s compensation policy based on

company long – term performance also need more attention

from company leaders.

Whistleblowing policy as well as policy to protect whistleblowers are new concepts to

Vietnamese companies. However, this is one of the important internal and external

governance mechanisms that need to be developed. An effective implementation of this

32

whistleblowing mechanism will not only allow early detection of governance violations,

but also a deterrent mechanism to prevent potential violations.

Customers, suppliers, and creditors protection

There are more than 61% of companies having disclosed policies and activities to protect

customers’ welfare in their annual reports or sustainability reports, including policies on

product quality, customers’ health and safety, together with capital refund policy. This

number has significantly improved compared to previous years.

However, the company should pay more attention and develop coherent policies aiming

at the role and interests of stakeholders, such as suppliers and creditors, to ensure

sustainable development goals. For instance, beside usual economic factors, the supplier

selection process and criteria need to include factors relating to environmental

protection, ethics, and social responsibility of suppliers as a key element of sustainable

value chain.

Creditors' policies and procedures are rarely mentioned in annual reports. Only 3

companies has mentioned it in their Code of Ethics. Loan contracts are often strictly

protected by law through terms of loan agreements. But, in terms of good corporate

governance policies and procedures, the company should have a general pledge in this

respect, showing their commitment to protect important stakeholders’ rights, a crucial

part of a holistic corporate governance framework.

Employee encouragement

Results show that 86% of companies has disclosed full policies and practices on staff’s

welfare, health, and occupational safety. Statistics on

training programs and staff development programs of 71%

of companies are also fully provided in annual report.

However, quite a few (31%) of PLCs focus on developing

reward policies to associate staff with company

performance in the long – term, such as employee stock

ownership plan or application of balance scorecard in

measuring staff performance.

33

Relationship with stakeholders

Company website usually has separate section for investor relations, but communication

channels for stakeholders, especially when they want to voice possible violations of their

rights, are rarely observed. According to 2017 assessment results, nearly 83% of the

companies do not provide contact details of specific person or department in charge of

addressing stakeholders’ rights.

Whistleblowing policy

One apparent weakness is that whistleblowing policy and as well as policy to protect

whistleblowers from retaliation are still new to Vietnamese PLCs. Only one firm has

developed policy and procedures that allow its employees to report illegal or unethical

behaviors directly to a department or person in charge; and also only one firm has policy

and procedure in place to protect employees who report wrongdoings.

STRENGTHS • Companies pay attention to policy and practices to ensure customers’ welfare, health, and safety.

• Companies implemented good policies and activities to protect environment and contribute to welfares of communities.

• Companies provide separate section or report on CSR or sustainability issues.

• Information on staff’s health, safety, and welfare is described in annual report.

• Statistics on staff’s training programs and activities are clearly disclosed.

AREAS FOR IMPROVEMENT

• Supplier selection procedures and creditor protection policy are not well established and disclosed.

• Staff’s compensation policy based on company long – term performance is not well disclosed or implemented.

• Whistleblowing policy and procedures are not in place; Contact details of whistleblowing hotline is not yet provided; Policy to protect whistleblowers is not disclosed and/ or implemented.

• Companies do not provide contact details of specific person or department that stakeholders can use to voice possible violations of their rights.

34

3.4 PART D – DISCLOSURE AND TRANSPARENCY

Overall results

It is important for a company to ensure that all material and relevant information is

disclosed in a timely, accurate, accessible, and reliable manner to all shareholders and

other stakeholders. Company information consists of two types, compulsory disclosure

and voluntary disclosure. Regulations on compulsory disclosure have been specified in

legal documents guiding information disclosure on securities market and monitored

closely by regulatory authorities. In addition to satisfying disclosure requirements

prescribed by law, some companies voluntarily provide information to meet market

demand, showing a higher level of transparency and disclosure.

Table 3. Part D – Disclosure and Transparency

Part A Part B Part C Part D Part E

Average 6.37 6.84 5.90 12.94 10.98

Min 4.62 5.79 0.00 4.38 4.80

Max 10.00 8.95 14.06 21.25 24.53

Median 6.00 6.75 6.09 12.81 9.73

As can be seen from five – year analysis of corporate governance scores, there is an

apparent improvement in corporate governance performance of Vietnamese PLCs,

including scores in Part D – Transparency and Disclosure. This component has 10.12%

increase and reached 12.94/ 25 points in 2017. The highest score was 21.25, the lowest

score was 4.38. The application of Circular 155/2015/TT-BTC with more stringent

regulations on information disclosure, especially recommendation regarding disclosure

in English, is very helpful in improving quality of information disclosure for foreign

investors.

Major improved is information on ownership structure of large shareholders, internal

shareholders, corporate structures with shareholding interests; information on

remuneration for board members and details of their meeting attendance; company

financial and non-financial information.

35

However, there are many aspects that need to be improved in order to meet the ASEAN

requirements, the indirect ownership of major shareholders and internal shareholders in

particular. Directorships of board members are not fully disclosed as required by ASEAN

standards. This important piece of information helps shareholders not only to evaluate

board members’ commitment but also to identify potential conflicts of interest that might

affect their benefits. Audit and non–audit fees also need to be disclosed so that

independence level of audit firms can be assessed. Improving English version of company

website is one of important requirements as it allows foreign investors to gain access to

material company information, such as company charter, AGM documents, AGM

resolutions, AGM minutes, and other necessary information for their decision making

process.

Quality of annual reports

Transparent information disclosure of a company must ensure quality of its annual

report. More and more companies have now focused on the quality of this report by

including all basic information, such as corporate objectives, financial and non–financial

indicators, total remuneration of each director, as well as their meeting attendance

details. Likewise, identity of major shareholders and detailed corporate structure are

fairly well disclosed. However, similar to 2015 results, many companies failed to provide

details on dividend policy, audit and non–audit fee, and directorships of board members.

Company website

The company website is an effective communication means for both domestic and foreign

investors to quickly get access to important company news. All companies in this year’s

assessment list have websites with all necessary information for shareholders in

Vietnamese language. However, there are still 7% of companies not having an English

version of their websites, or this version has errors and is inaccessible, or selected

language is English but only Vietnamese contents are available. This would hinder foreign

investors from gaining access to company information. The results show that nearly 50%

of companies perform well in providing financial statements of the current and prior

years. 34% of companies have published their company charters in English. In some

cases, its title is in English but the file path goes to the Vietnamese version instead or the

attached file is not available. Due to failure to publish the English version of company

charter as well as corporate governance internal regulations, more than two thirds of

36

Vietnamese listed companies lost points in the 2017 assessment. The publication of these

documents is simple but it shows the company's commitment to good corporate

governance practices.

A number of websites have a specific section for investor relations, which provides

detailed information and reports, such as financial reports, regulatory documents, and

AGM information, including invitation, meeting documents with proposals and

explanations, minutes and resolutions. Nevertheless, the number of companies with IR

section with a complete necessary information is still low, usually due to the lack of AGM

documents and minutes in English.

Many websites have not provided contact information of department responsible for

investor relations, a helpful channel for shareholders to reach when they have questions

or need supports. Only 41% of companies could fulfill this requirement.

Vietnamese PLCs still have limited use of different communication channels, such as

analyst’s briefings or press conferences (only 17% of companies). Company websites do

not publish articles or analysts’ report on company performance (only 27% provided

these helpful documents).

Timely disclosure

Timely disclosure of financial statements and annual reports is crucial, but the fact

remains that many companies failed to release both reports within 120 days from the

financial year end or the date of publication is unknown. The non–compliance rates for

financial statements and annual reports are 41% and 61%, respectively.

37

Disclosure of governance information

There are only a few annual reports having company statement on its compliance with

corporate governance regulations or explanations for non–compliance cases. Although

G20/OECD good corporate governance practices encourage disclosure of shareholdings

by board of directors, supervisory board, and top executives, a majority of companies still

do not provide this information in annual report, especially their indirect shareholdings.

Only 79% satisfied the disclosure requirement for board members’ ownership and only

59-66% fulfilled the requirement of disclosing ownership information of management

board and major shareholders. One positive fact is that more than 67% of companies

reported details of internal shareholder transactions during the year.

38

Disclosure of related party transactions

Disclosure of related party transactions in accordance with the ASEAN standards

requires details on company policy regarding the process of assessment, review, and

approval of material related party transactions. However, only 11% of companies could

satisfy this requirement. Information on related party transactions is not fully disclosed.

In particlar, 23% of PLCs do not meet this information disclosure requirement, including

stating name, relationship, nature, and value for each related party transaction.

STRENGTHS

▪ List of major shareholders and corporate structure with names and shareholding interest is included in annual report or company website.

▪ Annual report provides basic company information, such as corporate objectives, financial and non–financial performance indicators, total remuneration of individual directors, as well as board meeting attendance details.

▪ There is a separate section of Investor Relations in English, which has annual reports and financial statements of current and previous years, on company website.

▪ Trading of inside shareholders is fully disclosed.

AREAS FOR IMPROVEMENT

▪ There is a lack of statement affirming company’s compliance with corporate governance regulations.

▪ Details of shareholdings of board of directors, supervisory board, and board of management are not disclosed by ASEAN standards; Information on directorship of board members is not available.

▪ The audit and non–audit fees are not disclosed.

▪ Audited financial statement and annual report in English are usually released later than 120 first days of the following fiscal year or publication date is unknown.

▪ Company website lacks financial reports, company charter, AGM documents, AGM notice, AGM resolutions, and AGM minutes in English.

▪ Companies provide limited number of communication channels, such as analyst’s briefings or press conferences.

39

3.5 PART E – RESPONSIBILITIES OF THE BOARD

Overall results

Board of directors has a central role in setting up corporate governance framework,

overseeing corporate strategy implementation, monitoring risk management system,

supervising executive bodies, and ensuring shareholders’ benefits. An independent,

professional, and efficient board of directors will help to increase the quality and

effectiveness of the corporate governance system and better shareholder value in the

long–run. Part E of ASEAN Corporate Governance Scorecard has shown certain

improvements of Vietnamese PLCs in 2017 although the overall results are still modest.

Table 12. Part E – Responsibilities of the Board

Part A Part B Part C Part D Part E

Average 6.37 6.84 5.90 12.94 10.98

Min 4.62 5.79 0.00 4.38 4.80

Max 10.00 8.95 14.06 21.25 24.53

Median 6.00 6.75 6.09 12.81 9.73

The analysis of achieved corporate governance scores in each component throughout five

years has shown some improvements in corporate governance performance according to

ASEAN standards. The average corporate governance score has increased by 12.3%

compared to the closest assessment year (from 36.75 points to 41.3 points). Part E on

board responsibilities has the second biggest increase, up to 14%, and reached 10.98 over

40 points on average. The highest achieved score is 24.53 points while the lowest is 4.8

points.

A marked improvement in Part E is the separation of supervisory and execution roles in

governance structure. Many companies have followed this practice by splitting CEO and

Chairman positions. The fact that board of directors has better fulfilled their role in

identifying and evaluating existing and potential risks along with proposing effective risk

management measures is also an improved aspect in 2017.

Although it has the second biggest increase, part E, the component that carries the biggest

weightage and has dominant impact upon corporate governance performance of

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companies, only has a modest average of 10.98 or 27.45% of the maximum score of the

field. Areas for improvement include the increase of number and percentage of

independent board of directors members to introduce diverse perspectives and better

board of directors discussion quality, and the increase of independent monitoring role to

prevent any potential conflict of interests that may harm shareholders’ benefits.

Establishing board subcommittees to carry out key roles of board of directors, especially

subcommittees in charge of nomination, renumeration, and risk management, still

remains a challenge to Vietnamese PLCs. Roles of supervisory board and their

independence in monitoring and preventing corporate accounting and financial risks

need to be addressed as well. Also, governance structure of most Vietnamese companies

has not included internal audit function yet. Good governance principles require that

internal audit function or department to report directly to the board of directors/audit

committee of the board of directors and its head to be appointed and dismissed by the

board of directors or Supervisory board.

Board independence

As for board independence, there is more than 81% (compared to 70% in 2015) of

companies having separate roles of CEO and Chairman. This indicates that companies

have been preparing for the new Decree 71/2017/ND-CP, which strictly requires the

separation of these two leadership positions.

Although only 7% of the Chairmen are independent, this proportion is a significant

improvement from previous year results (3.6% in 2015). The appointment of a Lead

independent director in case the Chairman is not independent is still an unfamiliar

practice to Vietnam, and none of Vietnamese companies has adopted this good practice.

A Lead independent director is expected to have a powerful voice, representing opinions

and perspectives of other independent members at board meetings, especially when a

board voting is required. He also helps to reduce risks and potential conflict of interests

when the Chairman is not independent.

41

The results show that there are still many limitations in meeting governance standards

that requires a proportion of independent directors and term limits of board members.

ASEAN standards require independent members to make up at least 50% of board of

directors, higher than Vietnam standard of 1/3, only 2 companies could meet this

standard. None of the companies in 2015 could satisfy the ratio of 50%. Given Vietnam's

statutory standards requiring at least one-third of the Board members to be independent,

by the end of 2016 only nearly 14% of all PLCs on the HSX met this requirement,

according to a research at Ho Chi Minh City University of Technology.

In addition, the regional good corporate governance practice does not advocate current

board of directors member to be former CEO in the past 2 years to avoid potential

conflicts that may negatively affect the leadership of the new term. There are 13% of

companies not meeting this standard.

In order to ensure the effective commitment to responsibilities, ASEAN laws and

standards have set a limit of five board seats that an independent director can hold

simultaneously. This is also a rule in Vietnam law to enforce roles and responsibilities of

the independent board members. However, only one company reported its compliance

with the regulation. No relevant information is provided by the other companies.

Vietnamese PLCs are doing well in limiting the number of board seats outside the group

held by their executive directors. Nearly 66% of listed companies have at least one non-

executive director with prior working experience in the company's core business.

42

Board of directors roles in overseeing strategy and risk management

Board of Directors plays a primary role in guiding corporate strategy. International

investors expect board of directors to effectively dispatch their roles in practice.

However, figures show that only 1/3 of companies have stated and described the process

of board of directors to review and monitor the strategy implementation in the latest

year’s annual report.

The 2017 assessment results reveal that companies have high compliance level in basic

requirements, such as statement on updated company vision and mission in annual

report or company website, and helpful and detailed information on key risks that the

company is facing and corresponding risk management measures in annual report.

Roles of supervisory board

According to ASEAN standards, the independence of the Board of Supervisors or Audit

Committee is a crucial factor to ensure their objectivity when performing their role of

checking the legitimacy and prudence level in business operation; evaluating the

integrity, consistency, and suitability of accounting works, including doing statistics and

financial reporting; and assessing the effectiveness and efficiency of internal control

system, internal audit function, and risk management system. Therefore, independence

status of Supervisory board members should be clearly disclosed. ASEAN standards

require all Supervisory members to be non – executive directors, and the majority of

them must be independent. In 2017 sample, the practice

was adopted by 9% of companies. Moreover, it also

requires Head of Supervisory board to be independent. 4

over 70 companies could meet this standard. Another

good corporate governance practice is Supervisory board

having at least one independent member with accounting

expertise.

Furthermore, many Vietnamese PLCs have failed to show the crucial role of Supervisory

board and Board of directors as well as their activities towards the company internal

control or risk oversight by reviewing material controls, and commenting on the

adequacy of the system. Part of their responsibilities is to ensure that the effective risk

management system is in place, especially a system for financial and operational controls,

which needs to comply with the law and relevant standards. However, it shall be noted

43

that the compliance rate in this particular item is currently 27%, remarkably improved

compared to previous years’ results. This indicates a growing interest amongst

Vietnamese business community in risk oversight and management. The authorities of

Supervisory board over the appointment and removal of external auditor have not been

publicly disclosed yet. This information is usually in company charter but the English

version of this document is hardly found.

Although the 2014 Law on Enterprises allows public companies to have Audit committee

instead of Supervisory board, there is only one company having adopted the new model

till end of May 2017, when the 2017 scorecard assessment was carried out. Despite it is

stated in the Law, no sub–law document has detailed guidance for its roles,

responsibilities, as well as criteria in selecting Audit committee members, has made it

well described and explained to be applied in reality while this is a common practice in

many countries that have one–tier board corporate system.

Internal audit

The number of PLCs having internal audit function has increased; however, this is still

not a common practice in Vietnam. ASEAN standards also

require disclosure of information on the head of internal audit

along with details about Supervisory board or Audit

committee’s authorities over the appointment and removal of

internal auditor. 36% of companies has this department in

their organization chart, but only one mentioned that the

appointment and dismissal of internal auditor require the

approval of Supervisory board.

Board composition and structure

Selection criteria and procedure for appointment of new directors, as well as criteria and

process for annual appraisal of board of directors, board of directors members, and board

of directors subcommittees do need more attention from Vietnamese PLCs.

The policy encouraging board members to participate in training programmes has a

marked improvement compared to previous years outcome even though the compliance

rate is still lower than other countries in the region.

There is a growing awareness of the importance and necessity of board subcommittees,

though the establishment of subcommittees is not yet common in Vietnam. The figure

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shows that only 20-30% of companies have subcommittees handling nomination and

renumeration matters. There are many cases that the established subcommittees do not

meet the requirement of independence.

Carrying out board responsibilities

This year result shows that Vietnamese companies have done well in terms of ensuring

the number of board meetings during the year as well as the full participation of board

members in meetings.

However, there is little evidence that companies have scheduled board meetings before

the start of a new fiscal year as well as held at least one meeting amongst non-executive

members without any executives present. Even regulation on minimum quorum at board

meetings is hardly found because the English version of company charter is not publicly

available. Disclosure of Supervisory board members’ meeting attendance details still

needs improvement.

Likewise, compensation structure for board members and the CEO has not been fully

disclosed. Shareholders are concerned about both remuneration structure and policy,

including KPIs, of CEO and board members. The compliance rates for disclosing fee

structure of non – executive directors and remuneration policy for CEO and executive

directors are 16% and 6%, respectively.

45

In a standard corporate governance system, corporate secretary plays a very important

role in assisting the board to access information quickly and in a timely manner, and to

fulfill their duties and responsibilities. However, the role of company secretary in

Vietnam is still not observable and only 2 companies provided evidence that the company

secretary has attended legal, accounting or professional training.

Code of ethics

Vietnamese PLCs should pay more attention to the drafting and disclosure of the code of

ethics as this is a good international practice widely recognized by foreign investors.

Currently, only 7 companies have published English version of the Code on company

website. The Code of Ethics should be applied to all directors, executives, and staff.

STRENGHTS • Chairman and CEO positions are separated.

• The board has at least one non–executive directors having working experience in company’s major area.

• There is no executive director serving more than two boards outside the group.

• The company has adequate number of board meetings during the year and full participation of their board members.

• The company discloses the list of key risks and corresponding risk management measures.

• Updated vision and mission are clearly stated in annual report.

AREAS FOR IMPROVEMENT

• The percentage of independent directors remains lower than 50% and there is a lack of two–term limit requirement for independent directors.

• Many companies have not established board subcommittees on nomination and remuneration.

46

• Selection criteria and appointment procedure for new board members are not disclosed.

• There is little evidence showing board of directors has conducted a review of material controls and risk management system during the year.

• There is a lack of statement from board of directors or Supervisory board on the adequacy of existing internal control and risk oversight system.

• Code of ethics with full details is hardly found.

• Detailed compensation policy for board of directors members and CEO is not disclosed.

• Board meetings are not scheduled before the start of new fiscal year.

• Non–executive members do not have separate meeting without any executives present.

• Disclosure of Supervisory board members’ meeting attendance details needs improvement.

• There is lack of disclosure of assessment criteria and process for annual appraisal of board of directors, board of directors members, and board of directors subcommittees.

• The authorities of Supervisory board over the appointment and removal of external auditor have not been publicly disclosed yet.

3.6 BONUS AND PENALTY

Overall results

Level 2 includes bonus and penalty items. Rewards are to encourage exceptionally good

corporate governance practices above requirements of the ASEAN Corporate Governance

Scorecard Level 1. Likewise, penalties are to detect and limit poor corporate governance

practices.

Table 43. Bonus and Penalty.

Part

A

Part

B

Part C

Part

D

Part E

Level 1

score

Level 2 score

Total corporate governanc

e score

Average 6.37 6.84 5.90 12.94 10.98 43.04 -1.74 41.30

Min 4.62 5.79 0.00 4.38 4.80 23.42 -7.00 20.18

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On Bonus and Penalty part, Vietnamese PLCs get an average score of -1.74 points

compared to the highest attainable score of Level 2 of 30 points. This suggests that

companies were penalized more than what they earned as reward points. This is also the

main reason why Vietnam corporate governance score stays lower than that of their peer

ASEAN countries. Vietnamese companies have good scores at Level 1, the best one

reached 72.12 over 100 points, while the highest score in Level 2 is only 4. The maximum

overall corporate governance score is relatively low at 73.11 over 130 points due mainly

to poor performance on Level 2.

Bonus items

In 2017, nearly 15% of companies have established separate board level Risk committee,

showing the board's growing concern for risk management. It shows that the board is

more committed to enhancing the quality of corporate risk management. Similarly, few

companies are rewarded for having policies and process of information technology (IT)

governance. Having an increasingly crucial role in every industry, policy and process

around IT issues do need the board’s attention. All risks associated with IT systems, cyber

security, and disaster recovery should be identified, processed, and reported to the

board.

Developing policy on board diversity is what companies should study if they want to be

attractive to foreign investors. Gender diversity and variety of expertise would help to

give the board a multiperspective viewpoints in board decisions. The assessment result

shows that the number of companies with at least one female independent directors

reduced slightly in 2017.

As for board independence, there is one company earned reward points as its

independent members make up more than 50% of the board of directors.

Moreover, sustainability reports following Global Reporting Initiative (GRI) reporting

framework, especially G4 Guidelines, were released by 30% of companies. This is a

remarkable improvement compared to previous years, indicating a change in the

Max 10.00 8.95 14.06 21.25 24.53 72.12 4.00 73.11

Median 6.00 6.75 6.09 12.81 9.73 42.30 -2.00 38.74

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Vietnamese business community’s perception of social responsibility and sustainable

development.

Furthermore, a small number of companies have gained bonus scores by adopting good

corporate governance practices such as disclosing full AGM documents at least 28 days

prior to the meeting date, releasing their audited financial report within 60 days from the

financial year end, and disclosing details of CEO’s.

Penalty items

Even though scores earned in bonus part are higher than

previous years, Level 2 total score is still the lowest in 5 years

of assessment due to high penalty. A substantial percentage of

companies, 37%, lost point as they failed to identify

independent board members. Some companies received

penalty points despite having full list of independent directors

because their date of first appointment is not disclosed. The

date of first appointment is an important piece of information

to evaluate independence status of these directors. It is generally believed that their

independent role cannot be fulfilled if they have served the company for more than two

terms.

In addition, since the Chairman has been the company CEO in the last three years, 24% of

companies had to face penalties. Several companies also violated new penalty item that

independent directors receive performance shares or company bonuses (3/70

companies).

Nearly 63% of companies received penalty points due to lack of evidence showing the

attendance of Chairman, CEO, and Head of Supervisory board. The main reason is AGM

minutes or AGM resolutions do not provide board attendance details or are not available

in English. Likewise, companies need to make early announcement of any additional AGM

or EGM agenda item in order not to have penalty scores.

In terms of related party transactions, there is 7% of companies committing violations

by providing financial support in the form of loans to entities other than wholly–owned

companies. Regarding ownership structure, 7% of companies have pyramid ownership

structure or cross holding structure. These types of ownership structure allow some

shareholders to gain a degree of control over the company disproportionate to the

49

shareholders’ equity ownership in the corporation. This practice is not recommended by

international corporate governance standards.

In order to avoid penalty, the company should disclose special shareholders agreement

that enables certain shareholders to possess a degree of control disproportionate to their

publicly disclosed equity ownership. Companies will also be penalized if there is any

violation of law on issues related to workers, consumers, government, or commerce and

competition.

STRENGTHS • A separate board level Risk committee is set up in several companies.

• Many companies have followed GRI G4 guideline when drafting their sustainability reports.

• There is at least one female independent director in the board.

AREAS FOR IMPROVEMENT

• Independence status of board members are not clearly identified.

• The date of first appointment of independent board members is not disclosed.

• Chairman has been the company CEO in the last three years.

• Independent board member is holding more than five directorships in companies outside the group.

• Independent board members receive performance shares or bonuses.

• Company has offered financial assistance to entities other than wholly–owned subsidiary companies.

• Pyramid ownership structure and cross holding structure still exist in several companies.

• Company fails to disclose special shareholders agreement.

• There is a lack of evidence that Chairman, CEO, and Head of Supervisory board fully attended the most recent AGM.

50

4 CORPORATE GOVERNANCE PRACTICES AT TOP PERFORMING COMPANIES

Overall assessment

The analysis of the top companies shows that there are large gaps of scores between the

Top 3 and Top 10 groups of firms and the all-firm sample throughout the five assessment

years 2012-2017. Specifically, scores of Top 3 companies and Top 10 companies are 40.4

and 36.7 points, respectively, higher than those of all-firm sample in 2012 – the first year

of assessment. However, the gaps are larger in 2017, which are 71.3 and 61.9 points,

respectively, compared to the average score of the all-firm sample of 41.3 points. This

shows that, for listed companies that care about corporate governance, their efforts have

resulted in good outcomes, which help these firms to improve its reputation and equity

value in the past years. However, on a broader view, for the whole market, it is much

more challenging for regulators to improve the whole market to help upgrading the

country ranking.

Figure 10 – Corporate governance score of best-performing companies over the years.

SSC and the stock exchanges have made a lot of efforts to make VN stock exchange to be

upgraded from frontier to emerging market in June 2019. According to Morgan Stanley

Capital International (MSCI), in principle VN market is qualified to be upgraded, however,

51

it still lacks of factors for sustainable development. Currently, Vietnam has not met

various criteria, especially qualitative criteria, to be upgraded.

Beside quantitative criteria, such as market capitalization, liquidity, capital transfer,

foreign investor ownership, MSCI also requires various criteria of governance, such as:

shareholder right protection, equitable treatment of shareholders, disclosure and

transparency, information available in English for foreign investors, etc. Therefore,

improving corporate governance is a significant step for VN stock market to be upgraded.

Working toward a market upgrade by improving corporate governance of the best

performing companies, which are also the largest market-capitalization companies in the

market, could be a wise strategy.

As shown in Figure 10, the Top 3 and Top 10 companies have improved governance

scores over the years. Top 3 group increases more than 76% since the first assessment

year, and more than 22% since the last assessment year. The group of top 10 companies

increased by 68% compared to the first year of evaluation, and increased by 20%

compared to the preceding year. These results are very encouraging for the top-

performing companies. Improving corporate governance at these top companies not only

helps levering the activies of the whole market, but also helps these companies to appear

on the Top ASEAN list, and helps Vietnam to enhance its visibility in the global capital

market.

Opportunities for the best companies

Detailed scores analysis in Figure 11 shows that Top 3 and Top 10 groups perform well

at Level 1. They achieved almost the highest scores in Part A and B. Part D and E need

more attention. While improving criteria in Part D requires more transparency and better

disclosure of information about governance, business activities, stakeholders activities,

improvements in Part E require the most efforts.

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Figure 11. Detailed scores of best-performing companies

Besides, though the Top 3 and Top 10 do fairly at Level 1 criteria, they do not perform

well at Level 2 criteria. Scores at level 1 are fair, which are 68.7/100 and 59.9/100 for

Top 3 and Top 10, respectively. Scores at Level 2 are very humble, which are 2.7/30 and

2/30 for Top 3 and Top 10, respectively.

To improve the governance, the best-performing companies should focus on areas of

roles and responsibilities of the board of directors. Specifically:

There should be active mechanism to prevent conflict of interests: without exceptions,

firms should require board of directors to abstain from the meetings, discussing and

voting on related party transactions that they have related benefits.

There should be not only policies but also implemented practices to encourage

stakeholders to cooperate in improving corporate governance. The stakeholders should

have access to relevant, sufficient and reliable information on a timely and regular basis.

More attention should be paid into building an effective whistle blower policy that allows

stakeholders to be able to freely communicate their concerns about illegal or unethical

practices to the board and their rights should not be compromised for doing this.

The independence of auditors should be ensured: while providing both audit and non-

audit services, the auditing firms should ensure that benefits from non-audit services

should not be greater than that from audit service, information of fees paid to auditing

firms should be transparently disclosed.

Information about how board of directors have dispatched their roles and

responsibilities should be provided: board of directors are expected to actively lead the

53

firms, including leading and monitoring strategy implementation, dispatching key roles

in controlling and monitoring risks.

Code of conduct/ethics should be set up which requires all company’s employees to

comply with. Mechanism to monitor and enforce the code of conduct/ethics should be

clearly specified.

Increasing the presence of independent directors in the board is still a challenge for the

best-performance companies though, in meeting the regional standards of 50%

independent directors and term limit of independent board members, to ensure the

independent monitoring role of the board of directors.

Roles of the board in nominating new directors, setting remuneration of the board and

key executives is crucial for company’s sustainable development. The independence of

the nomination, remuneration committees with a majority of committee members being

independent is highly recommended by ASEAN standards.

Currently the independent roles of inspection committee/audit committee have not been

well regulated by Vietnam’s laws. This is however crucially important in ASEAN regional

standards: Chair of inspection committee/audit committee must be independent, all

members of inspection committee/audit committee must be non-executive with a

majority of the members being independent. Companies are encouraged to have internal

audit unit with the head of the unit being nominated and removed by inspection

committee/audit committee.

More attention should be paid to training and orientation activities for new and current

directors. Information on training and orientation activities should be publicly disclosed

with specific plans and programs. Board evaluation and assessment with transparent

processes should be clearly disclosed.

5 CONCLUSION AND RECOMMENDATIONS

Vietnam has recently issued new regulations for enhancing corporate governance, which

is an important initiative to improve corporate governance in Vietnam, enhancing

transparency and visibility of the ASEAN market to international investors. However, to

be able to catch up with the regional developments, efforts from the regulators in

monitoring and enforcing corporate governance regulations, and together with active

market actions are highly credited. In this overall corporate governance improvement

54

landscape, ACGS is among the effective tools that allow monitoring, evaluating and

yielding inputs to build road maps for improving corporate governance in each

participating countries, including Vietnam, in the recent years.

ACGS 2017 shows that Vietnam has recorded some encouraging improvements in English

disclosure, with more companies providing AR in English, more detailed information is

provided in investor documents, information is disclosed more promptly. Other CG

improvement areas have been identified. Firms have implemented more active

interaction with shareholders, especially institutional investors; better prepration for

AGMs with earlier announcement, more information provided in AGM resolutions; better

sustainable development reporting. Efforts in improving independence of the board of

directors have been recognized. More firms have nominated independent Chairmen, and

separated the roles of Chairmen and CEOs, etc.

However, beside the mentioned improvements, the gap between corporate governance

practices of Vietnam and other regional countries is still significant and remains a

challenge, which could be quickly cleared only with more efforts from regulators and

market activisms. The findings from ACGS 2017 have identified rooms for improvement.

5.1. RECOMMENDATIONS TO GOVERNMENT AGENCIES

Corporate governance frameworks

Enhancing corporate governance institutional framework with regulations is highly

expected for a developing market. Depending on the development of each country,

regulatory framework and environmental corporate governance mechanisms should be

formed appropriately.

In jurisdictions where corporate governance development is poor, improvement of

corporate governance requires regulated frameworks by two measures, (1) minimum

regulatory requirements, and (2) more advanced corporate governance standards. The

minimum regulatory requirements should be well established in regulations with

compulsory mandates. If not complied, strict enforcement mechanisms will follow. In

fact, observations from ACGS has shown that the level of regulated areas are higher in

countries like Indonesia, Philippines and Vietnam than in more developed markets.

Beside mandated regulations, the more advanced standards should be promulgated with

comply or explain basis, which are not mandated but encouraged for firms to comply

55

with, otherwise they must explain. Normally these advanced standards are introduced in

national codes of corporate governance. Codes of corporate governance will be soon

introduced in Vietnam to encourage and help firms to identify, and be prepared to apply

more advanced corporate governance standards and practices.

Training for corporate directors

To effectively enhance awareness and understanding of corporate governance, training

activities for corporate directors need to be in place. Training programs should be

provided for not only corporate directors, inspection committee/audit committee

members but also for corporate secretaries, investor relation officers, internal auditors,

etc.

Besides, seminar/conference activities for shareholders, especially minority

shareholders, about corporate governance, about their roles as market activists in

enhancing corporate governance of firms should be organized.

Recently, with the incorporation of Vietnam Institute Of Director (VIOD,) an independent

organization, which promotes corporate governance standards and best practices in the

Vietnamese private sector, and support the professional development of directors, with

a focus on improving the effectiveness of their boards and board committees, it is

expected that Vietnam will soon have a pool of professional corporate directors who are

well equipped with good expertise and knowledge about CG, roles and responsibilities of

directors and ready to take initiatives in improving CG of Vietnam corporations.

Recommendations for corporations

The corporate governance assessment of 2017 has shown that corporations have spent

more efforts in improving corporate governance by applying ASEAN CG standards.

Improvements have been seen in various areas of corporate governance. However, more

efforts are expected. The following part will summarize general expected actions from

corporations.

It is expected that the board of directors should take the leadership in the project to

improve corporate governance of the firm. Besides, to put corporate governance policy

into actions requires a collaborative effort of various units in companies including but

not limited to corporate secretaries, investor relation unit, information disclosure unit,

internal audit unit, etc.

56

Organizing AGMs

It is observed that AGMs procedures have been improved, however, firms should

announce the AGMs earlier with all AGM documents, resolutions being provided with

comprehensive details and explanations for shareholders to make good decisions for

their benefits. Companies should improve disclosure in English to ensure information

symmetry and simultaneous disclosure of English and Vietnamese documents to ensure

equitable treatment between foreign and local investors. Counting of votes during AGMs

should be observed by independent parties.

Board director nomination

Procedure to nominate and select directors of the board should be transparent with

disclosed criteria. Director nomination criteria should specify expected director

characteristics, including expertise, experiences and backgrounds, that are needed for

company’s strategic development, for company’s good governance structure and control,

and for the diversity of leadership of the board. Profiles of nominated directors that seek

shareholders’ approval should be informative, which show expertise, experiences,

backgrounds, current commitments with other companies, and the independent status at

the company that he/she is seeking directorship.

Conflict of interest prevention

There should be articles specified in company charter or corporate governance policy,

committing that company transaction with related parties are fair, and transparent.

There should be procedures for board voting process for related parties transactions that

require the member with related benefits to abstain from discussion and voting process.

Company website

Most companies assessed have websites in English with separate sections for investor

relation or corporate governance. However, improvements are expected to make

company charters and corporate governance principles available in English.

Profit sharing

Companies should pay dividends to shareholders promptly. Dividende policy should be

disclosed with appropriate explanations such as policies, rationales, forms, and amount

of dividends. Shareholdings of large shareholders, inside shareholders should be

57

disclosed with both direct and indirect shares owned by each identified shareholders of

the mentioned groups. Information about directorship of board members in other

countries, especially in public listed companies, should be transparently disclosed to help

shareholders to identify potential conflicts if any.

Independence of auditing firm, internal audit, audit committee

The independent role of auditing firm is crucial for shareholders. The expected

information to be disclosed is the fees of audit and non-audit services, with expectation

that the fees of the audit services not to be less that other non-audit services provided for

the firms. Internal audit units should have an independent status, and be nominated by

inspection committee/audit committee. Roles and independence of inspection

committee/audit committee should be enhanced. Companies should consider applying

new governance structure in which an independent audit committee at the board should

be established, following the new LOE recommendation.

Recommendations for investors and stakeholders

Improving corporate governance demands for efforts of not only the companies, but also

the investors, and all market stakeholders, market forces which will raise the bar, and

demand firms to identify their governance issues and to act appropriately to improve

corporate governance.

Roles of investors

Shareholders, especially minority shareholders, hold shares but have diffculties in

capturing information and exercising their roles as shareholders in controlling the

companies. Therefore, shareholders should be aware about the importance of corporate

governance, and utilize channels and mechanisms to request for the board and key

executives to improve corporate governance. Companies should have an active investor

relation unit, which protects the rights of shareholders, acts on shareholders’ concerns.

The investor relation unit should not merely comply with the law but also present the

utmost attitude towards protecting shareholders. Investor relation unit should provide

mechanisms to encourage shareholders to actively monitor and collaborate with firms to

improve corporate governance.

Roles of other stakeholders

58

Stakeholders of companies, such as employees, lenders, suppliers, customers,

communities, are also very important in monitoring corporate governance, identifying

violations, and inefficiencies in governance procedures or structure. There should be a

good whisle blowing channel that is reliable, prompt and active in processing the

compliants or concerns of all stakeholders. The whisle blowing policy should be disclosed

with details that specify how complaints are resolved, and processed. The whisle blowing

policy should specify procedures to ensure that the whisle blower is protected from being

retaliated.

Roles of media, auditing companies, securities companies, investment companies and

institutions should also be active in providing awareness rasing activities to create

collaborative efforts in improving corporate governance in Vietnam.

Conclusion

Improving corporate governance is a big project that requires not only the instant efforts

of the regulators, but also a step-by-step road map of actions for each stage. Besides,

improving corporate governance must come from the internal efforts of each company,

from its governance leaders, the board of directors, and corporate governance supporting

units in the companies, accompanied by activisms of the market. For Vietnam to become

an active member of the ASEAN corporate governance initiative, both external and

internal corporate governance mechanisms should be the areas of focus.

59

APPENDIX 1

LIST OF COMPANIES WITH BEST CORPORATE GOVERNANCE

TOP 3 COMPANIES

IN 2017 ASEAN CORPORATE GOVERNANCE SCORECARD2

Code Company name Industry Stock

exchange

DHG DHG Pharmaceutical Joint Stock Company

Healthcare HOSE

HCM Ho Chi Minh City Securities Corporation Financials - Non-bank HOSE

VNM Vietnam Dairy Products Joint Stock Company

Consumer Goods HOSE

TOP 10 COMPANIES

IN 2017 ASEAN CORPORATE GOVERNANCE SCORECARD 3

Code Company name Industry Stock

exchange

BVH Bao Viet Holdings Financials - Non-bank HOSE

CTG Viet Nam Joint Stock Commercial Bank For Industry And Trade

Financials - Bank HOSE

DHG DHG Pharmaceutical Joint Stock Company

Healthcare HOSE

DPM Petrovietnam Fertilizer And Chemicals Corporation

Industries HOSE

FPT FPT Corporation Telecommunications HOSE

HCM Ho Chi Minh City Securities Corporation Financials - Non-bank HOSE

NVL No Va Land Investment Group Corporation

Property HOSE

2 The list is in alphabetical order of stock code.

3 The list is in alphabetical order of stock code.

60

TRA Traphaco Joint Stock Company Healthcare HOSE

VCB Bank for Foreign Trade of Vietnam Financials - Bank HOSE

VNM Vietnam Dairy Products Joint Stock Company

Consumer Goods HOSE

TOP 50 COMPANIES

IN 2017 ASEAN CORPORATE GOVERNANCE SCORECARD 4

Code Company name Industry Stock

exchange

ACB Asia Commercial Bank Financials - Bank HNX

BBC BIBICA Corporation Consumer Goods HOSE

BID Joint Stock Commercial Bank for Investment and Development of Vietnam

Financials - Bank HOSE

BMP Binh Minh Plastics Joint Stock Company Consumer Goods HOSE

BSI BIDV Securities Joint Stock Company Financials - Non-bank HOSE

BVH Bao Viet Holdings Financials - Non-bank HOSE

BVS Bao Viet Securities Joint Stock Company Financials - Non-bank HNX

CHP Central Hydropower Joint Stock Company

Utilities HOSE

CNG CNG Viet Nam Joint Stock Company Energy HOSE

CTD Coteccons Construction Joint Stock Company

Industries HOSE

CTG Viet Nam Joint Stock Commercial Bank For Industry And Trade

Financials - Bank HOSE

DCM PetroVietnam Ca Mau Fertilizer Joint Stock Company

Industries HOSE

DHC Dong Hai Joint Stock Company of Bentre Materials HOSE

DHG DHG Pharmaceutical Joint Stock Company

Healthcare HOSE

4 The list is in alphabetical order of stock code.

61

DMC Domesco Medical Import Export Joint Stock

Healthcare HOSE

DPM Petrovietnam Fertilizer And Chemicals Corporation

Industries HOSE

EIB Vietnam Commercial Joint Stock Export Import Bank

Financials - Bank HOSE

EVE Everpia Joint Stock Company Consumer Goods HOSE

FPT FPT Corporation Telecommunications HOSE

GMD Gemadept Corporation Industries HOSE

HBC Hoa Binh Construction and Real Estate Corporation

Property HOSE

1

TOP 50 COMPANIES (CONTINUED) 5

Code Company name Industry Stock

exchange

HCM Ho Chi Minh City Securities Corporation Financials - Non-bank HOSE

HPG Hoa Phat Group Joint Stock Company Industries HOSE

HQC Hoang Quan Consulting – Trading – Service Real Estate Corporation

Property HOSE

HSG Hoa Sen Group Materials HOSE

KDH Khang Dien House Trading and Investment Joint Stock Company

Property HOSE

MSN Masan Group Corporation Consumer Goods HOSE

NLG Nam Long Investment Corporation Property HOSE

NTP Tien Phong Plastic JSC Consumer Goods HNX

NVL No Va Land Investment Group Corporation

Property HOSE

PAN The PAN Group Joint Stock Company Consumer Goods HOSE

PNJ Phu Nhuan Jewelry Joint Stock Company

Consumer Goods HOSE

PVD Petrovietnam Drilling & Well Service Corporation

Industries HOSE

PVT PetroVietNam Transportation Corporation

Consumer Services HOSE

REE Refrigeration Electrical Engineering Corporation

Industries HOSE

SAB Saigon Beer - Alcohol - Beverage Corporation

Consumer Goods HOSE

SBT Thanh Thanh Cong Tay Ninh JSC Consumer Goods HOSE

SHS Saigon - Hanoi Securities JSC Financials - Non-bank HNX

SSI Sai Gon Securities Incorporation Financials - Non-bank HOSE

SVC Saigon General Service Corporation Consumer Services HOSE

TCM Thanh Cong Textile Garment Investment Trading JSC

Consumer Goods HOSE

TDH Thu Duc Housing Development Corporation

Property HOSE

5 The list is in alphabetical order of stock code.

2

TLG Thien Long Group Corporation Consumer Goods HOSE

1

TOP 50 COMPANIES (CONTINUED)6

Code Company name Industry Stock

exchange

TRA Traphaco Joint Stock Company Healthcare HOSE

VCB Bank for Foreign Trade of Vietnam Financials - Bank HOSE

VIC Vingroup Joint Stock Company Property HOSE

VJC Vietjet Aviation Joint Stock Company Industries HOSE

VNE Vietnam Electricity Construction Joint Stock Corporation

Energy HOSE

VNM Vietnam Dairy Products Joint Stock Company

Consumer Goods HOSE

VNR Vietnam National Reinsurance Corporation

Financials - Non-bank HNX

6 The list is in alphabetical order of stock code.

2

APPENDIX 2

LIST OF ALL ASSESSED COMPANIES IN 2017 ASEAN CORPORATE GOVERNANCE SCORECARD7

No Code Company name Industry Stock

exchange

1 ACB Asia Commercial Bank Financials - Bank HNX

2 BBC BIBICA Corporation Consumer Goods HOSE

3 BID Joint Stock Commercial Bank for Investment and Development of Vietnam

Financials - Bank HOSE

4 BMI Baominh Insurance Corporation Financials - Non-bank HOSE

5 BMP Binh Minh Plastics Joint Stock Company Consumer Goods HOSE

6 BSI BIDV Securities Joint Stock Company Financials - Non-bank HOSE

7 BVH Bao Viet Holdings Financials - Non-bank HOSE

8 BVS Bao Viet Securities Joint Stock Company Financials - Non-bank HNX

9 CAV Vietnam Electric Cable Corporation Industries HOSE

10 CHP Central Hydropower Joint Stock Company Utilities HOSE

11 CNG CNG Viet Nam Joint Stock Company Energy HOSE

12 CSM The Southern Rubber Industry Joint Stock Company

Consumer Goods HOSE

13 CTD Coteccons Construction Joint Stock Company

Industries HOSE

14 CTG Viet Nam Joint Stock Commercial Bank For Industry And Trade

Financials - Bank HOSE

7 The list is in alphabetical order of stock code.

3

15 DCM PetroVietnam Ca Mau Fertilizer Joint Stock Company

Industries HOSE

16 DHC Dong Hai Joint Stock Company of Bentre Materials HOSE

17 DHG DHG Pharmaceutical Joint Stock Company Healthcare HOSE

1

No Code Company name Industry Stock

exchange

18 DMC Domesco Medical Import Export Joint Stock

Healthcare DMC

19 DPM Petrovietnam Fertilizer And Chemicals Corporation

Industries DPM

20 EIB Vietnam Commercial Joint Stock Export Import Bank

Financials - Bank EIB

21 EVE Everpia Joint Stock Company Consumer Goods EVE

22 FIT F.I.T Group Joint Stock Company Consumer Goods FIT

23 FPT FPT Corporation Telecommunications FPT

24 GAS PetroVietnam Gas Joint Stock Corporation

Utilities GAS

25 GDT Duc Thanh Wood Processing Joint Stock Company

Consumer Goods GDT

26 GMD Gemadept Corporation Industries GMD

27 HBC Hoa Binh Construction and Real Estate Corporation

Property HBC

28 HCM Ho Chi Minh City Securities Corporation Financials - Non-bank HCM

29 HPG Hoa Phat Group Joint Stock Company Industries HPG

30 HQC Hoang Quan Consulting – Trading – Service Real Estate Corporation

Property HQC

31 HSG Hoa Sen Group Materials HSG

32 ITA Tan Tao Investment and Industry Corporation

Industries ITA

33 KBC Kinh Bac City Development Holding Corporation

Property KBC

34 KDC KIDO Group Corporation Consumer Goods KDC

35 KDH Khang Dien House Trading and Investment Joint Stock Company

Property KDH

2

36 LIX Lix Detergent Joint Stock Company Consumer Goods LIX

37 MSN Masan Group Corporation Consumer Goods MSN

38 NBB NBB Investment Corporation Property NBB

1

No Code Company name Industry Stock

exchange

39 NLG Nam Long Investment Corporation Property HOSE

40 NSC National Seed Joint Stock Company Consumer Goods HOSE

41 NTP Tien Phong Plastic JSC Consumer Goods HNX

42 NVL No Va Land Investment Group Corporation

Property HOSE

43 PAC Dry Cell And Storage Battery Joint Stock Company

Consumer Goods HOSE

44 PAN The PAN Group Joint Stock Company Consumer Goods HOSE

45 PC1 Power Construction Joint Stock Company Energy HOSE

46 PGD PetroVietNam Low Pressure Gas Distribution JSC

Utilities HOSE

47 PNJ Phu Nhuan Jewelry Joint Stock Company Consumer Goods HOSE

48 PVD Petrovietnam Drilling & Well Service Corporation

Industries HOSE

49 PVT PetroVietNam Transportation Corporation

Consumer Services HOSE

50 REE Refrigeration Electrical Engineering Corporation

Industries HOSE

51 SAB Saigon Beer - Alcohol - Beverage Corporation

Consumer Goods HOSE

52 SBT Thanh Thanh Cong Tay Ninh JSC Consumer Goods HOSE

53 SCR Sai Gon Thuong Tin Real Estate JSC Property HOSE

54 SHP Southern Hydropower JSC Energy HOSE

55 SHS Saigon - Hanoi Securities JSC Financials - Non-bank HNX

56 SRF Seaprodex Refrigeration Industry Corporation

Industries HOSE

57 SSI Sai Gon Securities Incorporation Financials - Non-bank HOSE

2

58 SVC Saigon General Service Corporation Consumer Services HOSE

59 TCM Thanh Cong Textile Garment Investment Trading JSC

Consumer Goods HOSE

1

No Code Company name Industry Stock

exchange

60 TDH Thu Duc Housing Development Corporation

Property HOSE

61 TLG Thien Long Group Corporation Consumer Goods HOSE

62 TMS Transimex Corporation Consumer Services HOSE

63 TRA Traphaco Joint Stock Company Healthcare HOSE

64 VCB Bank for Foreign Trade of Vietnam Financials - Bank HOSE

65 VHC Vinh Hoan Corporation Consumer Goods HOSE

66 VIC Vingroup Joint Stock Company Property HOSE

67 VJC Vietjet Aviation Joint Stock Company Industries HOSE

68 VNE Vietnam Electricity Construction Joint Stock Corporation

Energy HOSE

69 VNM Vietnam Dairy Products Joint Stock Company

Consumer Goods HOSE

70 VNR Vietnam National Reinsurance Corporation

Financials - Non-bank HNX