3:26:37 PM | 7/8/2005
The Finance Institute under the Ministry of Finance has cooperated with the MCG Management Consulting Co. to declare a report on "assessing the actual business administration in Vietnam". This is an important basis for the "increasing administrative capabilities for Vietnamese enterprises" project to design an international standard company administration-training programme. The project was sponsored by the ASEM Fund via the World Bank (WB) channel.
WB specialists carried out direct interviews with enterprises, responsible State agencies, and policy makers through 314 sample administration assessment questions. The results showed that with the six OECD administration criteria, Vietnam still considerably lacks legal grounds, sanctions to force implementation and fundamental bases and others although it has begun building legal frames to regulate relations between agents in an enterprise.
Six fundamental principles in the company administration introduced by the Organisation for Economic Cooperation and Development (OECD) are a legal framework for the company administration, interest guaranty for minor shareholders, equal treatment among shareholders, regulation of relations among concerned parties, information transparency and responsibilities of the Management Board.
Currently, the capital size of the Vietnam stock market stands at about USUS$240 million, accounting for 0.5 per cent of GDP but over the counter stock market is estimated at USUS$1 billion. However, there are no rules to regulate this market. Presently, enterprises in Vietnam are operating under three different existing laws the Foreign Investment Law, the Enterprise Law and State-owned Enterprise Law. There are now about 4,500 State-owned enterprises (SOEs), 5,000 foreign-invested firms and 125,000 local enterprises. The highest document to regulate the stock market is the Decree 144/2004/ND-CP however this decree doesn’t cover equitized SOEs and foreign-invested enterprises which then turn into joint stock companies.
As for shareholder rights, shareholders face numerous difficulties in executing their own rights, especially in transferring shares, due to hindrances exposed by leaders of enterprises in an aim to avoid changing shareholder lists. Minor shareholders are normally not summoned to the annual shareholders meeting and they are restricted from approaching information of their companies, which have not yet listed on the securities trading centres, to avoid risks and disadvantages in investment.
According to Associated Professor Pham Duy Nghia of the National University, large differences in administration quality in Vietnam with countries applying OECD criteria are attributed to the fact that equitized enterprises in Vietnam mainly are descendants of State-owned enterprises. Therefore, equitized enterprises are variants of SOEs. Newly established enterprises either in limited liability or joint stock company form are not really actual joint stock companies. Therefore, differences with the OECD criteria are indispensable.
According to Ms Vu Thi Kim Lien, head of the publishing department of the State Securities Commission, the company administration is permanent to all enterprises but is still out of the focus of the law. As regards equitized enterprises, although there are clear definitions about enterprise owners and deputised managers, “representatives” in enterprises are normally lack of motives to strive for the benefits of the State and enterprises. In another extreme, they intervene too deeply into enterprise operations, hardening their enterprises to make decisions.
As for information transparency and publicity, Lien said the Decree 187/2004/ND-CP is clearer and in more detail but still unfinished. Enterprises do not have to declare information with attached auditing and financial reports and investors therefore see difficulties to evaluate enterprises. Besides, lacks of sanctions to force execution of the Decree 187 leads to difficulties in controlling stocks sold by enterprises. Dominating shareholders, especially State-owned sector, normally draw up regulations to benefit themselves while harming minor shareholders.
According to Mr. Pham Duy Nghia, the company administration should concentrate on interests of shareholders, specially the minor not the dominator. However, the Vietnam stock market is now quite tiny and it needs a long time to become a "shareholders society," said Nghia.
According to assessments by experts, the company administration in Vietnam still proves shortcomings and incomplete. Mr. Klaus Rohland, WB director in Vietnam, said that the company administration not only challenges developing countries but developed ones with the collapses of World Com, Enron and others world-top firms being the clearest evidences. Klaus stressed besides basing on the most common company administration principles, each country must set up its own criteria, which go in line with its law system, culture and history. As for Vietnam alone, WB recommended the State Securities Commission and the Ministry of Finance to release an administrative strategy with necessary priorities and improvements. WB is willing to help improve the administrative quality in Vietnam.
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