Corporate governance in VietnamProspective corporate governance method

of foreign investors

CORPORATE GOVERNANCE MEETING

IFC – WB – OECD - MOF

6/12/2004

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What is good corporate governance ?

A global term, hamornizing the owners and the directors’ interests.

A term emphasizing QUALITY, not QUANTITY

A term being discussed in the world, by OECD, WorldBank, even the Governments

Key Features:

Creating proper priority, showing the success

Harmonizing the interests of related partners: the owners, the managers, the labours and the society

Increasing the value of enterprises

Reducing cost of capital, increasing attraction for investors

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Corporate governance in Vietnam

The Law on Enterprises is rather new

The term of the Sample Regulations is not clear

Both redundance and shortage of regulations (MOF, SSC, SBV, …)

For equitization, the transfer of a company from one owner to many owners relating to many issues in corporate governance

Some issues usually happened in companies of Vietnam:

Lacking a practical and long- term strategy

Not clear understanding the role of BODs and supervising Board

The role of supervising Board is not clear

Unequal behaviors for shareholderse

The role of independent auditing copanies is not considered adequately

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Proposed Solutions

Enterprises’ Strategy Priority Mechanisn

Information on related partners

Independent review

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Enterprises’ Strategy

Issues

Opportunities Motivation has reduced advantages

The Community do not understand clearly laws

Solutions

Macro Analysis

Micro Analysis

Direction Identification

Targets Idenfication (strategy – finance - time)

Disciplines factors

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Enterprises’ Strategy

Priority Mechanisn Information on related partners

Independent review

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Why?

MANAGING DIRECTORSResponsibilities

- Shareholders - Managing business

- Customers - Seeking the market - Creditors - Development of

companies

- Staffs- Suppliers

Incomes

- Salary a few times (4-5 times) than average salary of staffs

- Awards of BODs (if in BODs)

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Previous and current practices

Measurements

– Not have compesation Committee

– With old rate through increasing

– Some ones accompany competitors

Shortcomings

– Safety

– Not considering priority as an instrument for long-term targets but competion

– Not enough to attract the talents – Lack of good management and succesfull teams

Results

– Knowledge escaping

– Encouragement focusing on short – term targets . Not concentrations

– Development prevention for enterprises and economy due to lack of big investment

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Some comparative data

•Chief Executive Officer’s salary (VND mill/month )

Foreign manufacturing

companies

Big companies of Vietnam

Small and Medium sized companies of

Vietnam

Average of Vietnam

20.2 7.4 9.0 8.2

Less 25% Average More than 75%

Basic salary before tax

14.5 20.8 26.4

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

Source:Mercer

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Some comparative data

United State-2003

Average salary of CEO $9.2m – 301 times than American average workersõ ($30,564/year)

Source: Businessweek

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Implementation

Establishing a compensation committee (CC)

CC includes members in BODs in or out of companies

Annual Meeting to review results of CEO and set the salary and awards

Criteria: ROE, ROI, ROA, assets circle…

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How much ?

Currently (1-3 years), salary of CEO should be around:

• 20-30 times than average salary of staffs

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Structure

60%

20%

20%

Targets

Coå phieáu

Phuï caáp/Phuùc lôïi

Löông cô baûn

20%

78%

2%

Present

Coå phieáu

Phuï caáp/Phuùc lôïi

Löông cô baûn

d

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Why?

Associating with long term targets, increase responsibilities and obligations as well as transparency

Concentrating on core business Practically, above rate is paid by many

companies(even not equitized ones) Contributing to increase salary regime,

promoting productivity Attracting the talents and labours circulation

easierly Operational structure reduction Law on Enterprises, Article 80: no limitedá -> high

working capacity New Law on personal income encourages high

income people and domestic labour usage.

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Enterprises’ strategy

Priority Mechanism

Information to related partners

Independent review

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What is IR ?

Principles:− Commitments to declare truly information to current and

expected investors – though they are good or bad

Relation with investors

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

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

Marketing

Public relation

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Targets of IR

True evaluation of company’s

value

Atraction of investors

Settlement of crisis

Attraction of finance

resources

Efficient mutual communication

between companies and shareholders

MỤC TIÊU

Equal information for big or small shareholders

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Communication Contents

Finance

General information

on the company General

information on operational

environment

Information for

shareholders

Quản trị công ty

Settlement of crisis

CONTENTS

Update activity

situation

Unexpected issues

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Who ? – Target Objects

• Target objets of IR:

Shareholders (current / potential / individuals / institutions);

Analysists/ financial experts and investment;

Public communication agencies

State management agencies

Provincial Community

Creditors and Customers

Staffs.

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How ? – Instrument of IR

• Marketing instrument, public relation and finance:

Annual Reports and financial reports

Corporate governance (internal management rules)

Pubic mean of communication (newspapers)

Investment guides for investors (Letters / News …)

Events (Conferences, Seminars, copanies visits …)

Internet / intranet (web, forum …)

Analysized reports (finance/ investment/ market …)

Shareholders Registration Procedures

Companies visits as schedule or sudden

Welcom investors

Principles: − Obeying regulations of information

declaration of SSC and STC − “accuate information”

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How ? – Group IR

IR activities can be managed by:

• A team or a board of IR inside the company

• A professional company IR outside.

Currently, in the listed companies: Staff on information declaration

Request for references:

• Information declaration team

• Managed by members of BODs

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when? – Planning IR

IR activities needs planned before to ensure efficiecy

Copany needs building IR plan and determine the time of imlementation for each specifically in a year

Investors desire to reveive information timely. Any postponed or cancelled issues can lead to bad information

Principles:

– Information needs declaring quickly and timely, even both good or bad one

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Examples

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Enterprises’ Strategy

Priority Mechanism

Information for related partners

Independent Evaluation

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Relation of the owner management in joint stock companies

Management

BODs

Supervising Board

Independent auditing

Investors

Priority under results and responsibilities

Independence

Professional

Concentration

More than 50 shareholders are public companies

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The role of auditing companies

3 functions:

Build up financial reports

Identifying book-entry principles

Examing applying book - entry

Independent review on companies situation, so, shareholdesr Congress can have the rights to decide auditting companies

Relation with auditing companies is active and mutual understanding one

Recent: Parmalat, Enron, Worldcom, Daewoo… is due to fails in relation between public companies and auditing companies

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Some issues: How to set mechanism to

Select auditing companies

Examine auditing process

Protect the company’s interests

Advise on book - entry principles

Declare necessary informationto have the

most independent reports

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The role of Supervising Board

About auditing companies

Advising on conditions and scope of auditing

Proposing selected auditing companies

Advising on answering problems of auditing companies

Examing management lettes of auditing companies

Reviewing financial statements truly

Reviewing performances of auditing companies

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The role of Supervising Board

Advising for BODs on:

Book – Entry Policies

Issues required for subjective views

Unexpected events

Big Adjustments for financial statements

Obeying rules on accounting

Settling risks in business of the company