Corporate governance needs improving at SOEs

Nguyen Dinh Cung, vice president of the Central Institute for Economic Management (CIEM) pointed out the unclear role of an SOE’s board of directors (BOD) as one of the major challenges to good corporate governance. Cung said the BOD should be the nucleus of the SOE’s operations and dutifully engage themselves in mapping out and supervising implementation of strategies as well as financial allocation. But, things are different in reality.

“The board of directors does exist at the SOE now but is not able to work effectively,” Cung told on the sidelines of the closing day of the Vietnam Corporate Governance Forum in HCMC last Friday (9 Oct).

Le Song Lai, vice president of State Capital Investment Corp. (SCIC), shared Cung’s view, saying the BOD at the SOE limited its roles to the vision, business strategy, financial plan and risk management. Lai said in his presentation at the two-day forum held by the business information solutions provider LexisNexis and International Finance Corporation (IFC) that there remained problems with the BOD members’ capacity and most of them lacked leadership and professional skills.

The BOD is not successful in supervising the performance of the chief executive and the management board as well as advising them on important matters in the company, Lai said. There is also confusion between the role of the BOD and the management board, as well as the board chairman and CEO.

Cung of CIEM said the level of corporate governance at SOEs in Vietnam was far behind the world’s good practices. The distance would remain great if drastic changes did not happen at such enterprises, he said. Cung insisted a proper mechanism and regulations be in place to make it easy for shareholders to fulfill their duties at SOEs. Cung said SOEs still operated with many assigned goals, and decisions of different Government agencies. So, he called for the agencies to work consistently and suggested that one agency give decisions to certain SOEs to help them perform better.

Lai said that despite achievements in recent years, it was still difficult to attract investments into equitized enterprises because investors were concerned about legal procedures, policy changes and operations. “Corporate governance is one of their biggest concerns.”

Lai said statistics showed that most of the investors at equitized SOEs were small, and that up to 87% of them having invested in the SCIC-involved equitized enterprises had charter capital of less than USD500,000.

Though Lai clarified the performance of a company depended on many factors, he emphasized that improving corporate governance at SOEs was one of the key factors for them to attract investors and survive increasing competition.

Lai said surveys showed the companies with good corporate governance often recorded high revenue and profits, growth and low management costs as well as attract quality investors. “It makes investors decide how much they will invest in a company.”

Lai said improving corporate governance was urgent at SOEs. Better governance helps sustain and provide quality goods for the country’s stock market as two-thirds of the more than 300 listed firms are former businesses wholly owned by the State.