Saturday, September 22 2018


Nepotistic practices limit business growth

Update: December, 27/2012 - 11:23


Doctor Warapatr Todhanakasem.
(VNS) Recently, many businesses have shown weaknesses, and the constant losses have forced countless firms to cut down on production. Of course, there are objective causes such as the stagnant world economy, rising domestic inflation and difficulties in access to capital. However, few companies realise that the problem is largely due to corporate governance. Vietnamese enterprises, even large companies, still favour nepotism over more meritocratic forms of governance – a fact that severely limits their potential to grow. Viet Nam News reporter spoke to Doctor Warapatr Todhanakasem from the Stock Exchange of Thailand on the issue.

Why do so many company leaders appoint their family members and relatives to the board?

Before, the companies belonged entirely to the families, and no one outside was involved. So when they appointed wives, sons and daughters, this was not a problem, because they did not use the public's money or money from investors outside the family. But when a firm is listed on the stock market, outside investors get involved; they may contribute up to 20 percent of funds. So that firm now needs outsiders to replace family members on the board.

There are currently many companies in Viet Nam with family members on the board of directors. What are the problems with this situation?

If you employ family members rather than professionals, your business might not do as well because of the lack of perspectives. If your wife is the deputy chairman and your son is the CEO, then you don't get many viewpoints when it comes to making a decision. But if you get two or three professionals, those people may look at things differently and provide good advice you might not have thought of. But it's up to company owners to decide whether they are looking for that broader prospective.

Here in Viet Nam, enterprises do not seem to understand the importance of having independent directors on the board. How can we change this situation?

This is a natural process for every changing economy, because most people would like to control everything. They don't want outsiders to come in and get involved in the company's problems. And while corporate governance starts from the very top, at typical family companies, that belief might not exist. People at those companies may not want to hear complaints about their management. You have to change that mindset. But it's difficult to change the mindset of small- and medium-sized companies. This happened in Thailand too. We started with big companies, which had to go out to get money from investors. They had good corporate governance, good independent directors. Then they proved that when they had independent directors on the board, they'd get money from investors both domestically and internationally. So then medium-sized companies followed their example.

Does it ever happen that independent directors are attracted by the profit or the interest that a position on the board offers?

Every director should be paid adequately and given a bonus for good performance. The thing is, you have to keep your independence no matter how much you get paid. You should not allow yourself to be bought by company owners. It is hard to find those people, but they must be here in the country. In addition, you need to train independent directors to think well. — VNS

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