CEO Hiring: Impediments Remain

Hiring CEOs has become familiar to enterprises in other countries. However, in Vietnam, it is new and holds challenges for local companies. More than one year has passed since the Vietnamese Prime Minister brought out a decision allowing five State-owned corporations to hire CEOs, but things remained unchanged.

In the current situation with fierce competition, each firm needs an advanced management method with a “super brain” to run the business. Therefore, employing an outstanding CEO who can grasp market demand and build development and co-operation strategy is an indispensable requirement.

However, with many remaining legal regulations for management of State enterprises, the finding the right CEO is not an easy thing to do.

More than one year has passed since the government allowed five corporations including Vietnam Electrical Equipment Corp. (VEC), Viglacera, Song Hong Corp., Vinamotor and Vinashin to hire a CEO, but all of them are still in the preparation process. The reason for this is the many remaining impediments.

First is the salary issue. If a corporation wants to hire a good director it must pay a high salary. However, the pay will of course be higher than the maximum level regulated in the current salary frame of the government (for employees in a state-owned firm).

The management board director of Viglacera said the corporation had decided upon a CEO salary of about VND50-70 million/month, but then it had to cut this figure down to VND15 million so as not to violate current salary regulations.

Meanwhile, VEC said it would pay its CEO nearly VND300 million/year and Vinashin is considering around USUS$3,000/month.

In addition the corporations have to reconsider salaries for deputy directors. They also have to consider guarantee from CEOs because those managers will manage thousands of billions of Vietnamese dong in State capital.

The second issue is staff organisation. Under Vietnam’s regulations, ministries will appoint member of management board of corporations. The management board will then appoint a general director, chief accountant, directors and deputy directors, and all appointments must be agreed by the Party.

The assignment of management power for the hired CEO is another problem. According to VEC, if the CEO is given full powers of managing the corporation, the powers of other leaders will be narrowed. In Vietnam, general directors, in many cases, have to ask for permission before imposing their investment decisions.

Chairman of the management board of Vietnam Garment & Textile Corporation (Vinatex) Le Quoc An, CEO hiring will help Vietnam attract excellent persons from other countries. With limited interests and limited powers, there will be few chances for state corporations to find a good CEO.

According to Mr. Tran Tien Cuong, head of Enterprise Reform & Development Department under the Central Study Institute, there will be new regulations in the State-owned Enterprise Law, which will become effective in July. Accordingly, State-owned enterprises will be able to hire and sign contracts employing or dismissing general directors or directors. Management board will act on behalf of the State to propose the salary level for general directors and directors. There will also be changes in the powers of general directors and directors in investment projects and in asset liquidation. Hiring directors will provide momentum for the development of State-owned enterprises.