Corporate governance in Vietnam Prospective corporate governance method of foreign investors

1. CORPORATE GOVERNANCE MEETING IFC – WB – OECD - MOF 6/12/2004 Corporate governance in VietnamProspective corporate governance methodof foreign investors

2. 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

3. 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

4. Proposed Solutions • Enterprises’ Strategy • Priority Mechanisn • Information on related partners • Independent review

5. 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

6. Enterprises’ Strategy • Priority Mechanisn • Information on related partners • Independent review

7. Why? MANAGING DIRECTORS • Responsibilities • 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)

8. 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

9. Some comparative data • Chief Executive Officer’s salary (VND mill/month ) • Salary of staff not managing in foreign banks in Vietnam (VND mill/month) Source:Mercer

10. Some comparative data United State-2003 • Average salary of CEO $9.2m – 301 times than American average workersõ ($30,564/year) Source: Businessweek

11. 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…

12. How much ? • Currently (1-3 years), salary of CEO should be around: • 20-30 times than average salary of staffs

13. Structure

14. 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.

15. Enterprises’ strategy • Priority Mechanism • Information to related partners • Independent review

16. What is IR ? Principles: • Commitments to declare truly information to current and expected investors – though they are good or bad • 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 Relation with investors

17. Equal information for big or small shareholders True evaluation of company’s value Efficient mutual communication between companies and shareholders MỤC TIÊU Atraction of investors Attraction of finance resources Settlement of crisis Targets of IR

18. Communication Contents General information on the company Finance Quản trị công ty General information on operational environment CONTENTS Information for shareholders Update activity situation Unexpected issues Settlement of crisis

19. 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.

20. 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”

21. 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

22. 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

23. Examples

24. Enterprises’ Strategy • Priority Mechanism • Information for related partners • Independent Evaluation

25. Relation of the owner management in joint stock companies BODs Supervising Board Investors Management Independent auditing • Priority under results and responsibilities • More than 50 shareholders are public companies • Independence • Professional • Concentration

26. 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

27. 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 information to have the most independent reports

28. 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

29. 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