corporate governance in vietnam prospective corporate governance method of foreign investors...
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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