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VietNamNews

Firms fall short on corporate governance

Update: November, 23/2012 - 11:07

HA NOI (VNS)— Corporate governance of 100 listed companies was unsatisfactory last year, according to a scorecard survey released yesterday by the State Securities Commission and International Finance Corporation.

The survey showed all scores were below 60 per cent with the average score across all companies sitting at 42.5 per cent, compared to 43.9 in 2009 and 44.7 in 2010.

Similar scorecards across Asia showed Thailand at 77 per cent last year, Hong Kong at 73 per cent in 2009 and the Philippines 72 per cent in 2008.

The 100 companies on the Ha Noi Stock Exchange and HCM City Stock Exchange represented more than 80 per cent of the total market capitalisation.

The survey indicated firms which had better corporate governance demonstrated better performance in business. The 25 firms with the highest scores had higher return-on-equity and return-on-asset ratios than those who ranked lower.

However, no company in the sample group could be complacent as the best failed to reach 60 per cent.

Of the 25 firms with better scores, there was an average foreign ownership of 27.7 per cent.

"Foreign ownership indicates a better chance of a higher level of corporate governance because foreign investors want to protect their investment," said IFC corporate governance consultant Anne Molyneux.

Meanwhile, another difference in this year's survey was in corporate governance of the VN30 index, which tracks the performance of the HCM City Stock Exchange's 30 leading shares.

"The (VN30) index had a better average of "observed corporate governance practices" than the 70 other companies in the sample," Molyneux said.

The VN30 showed a smaller dispersion of corporate governance scores, she said.

It could be concluded that companies were not playing their part in developing a quality market for investment in Viet Nam.

"This regression is despite a regulatory framework for good corporate governance being in place and the authorities having actively developed the right instruments in recent years."

There were a number of potential reasons for this step backwards. Last year, Viet Nam suffered an economic downturn, business was less vibrant and companies were in a cost reduction mode.

Also, annual reports were less expansive, perhaps due to challenging conditions and to mask poor results, and company disclosure declined, particularly in regards to board and supervisory board activities.

Also, information related to stakeholders was noticeably poorer. The role of stakeholders comparatively declined by a significant 6.7 per cent against 2010's results.

The report stated: "In difficult economic times, companies seemed to not consider, not do as much as previously and not report on activities regarding employees and the working environment."

Furthermore in 2011, the State Securities Commission was more active in monitoring and enforcing regulations and announcing violations to the market. As a result, more negative information about companies was available and regulatory challenges to related party transactions and to financial statement information were evident.

"It is accurate to say corporate governance practices in Viet Nam remain more evident in rules than in application and implementation," the survey report said.

Commission president Vu Bang said the agency would increase sanctions to ensure corporate governance compliance. — VNS

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