Corporate Governance or the lack thereof

In Grant Thornton’s recent Private Equity Survey the low level of Corporate Governance retained it’s ranking as the second issue of most concern to PE investors ranking just behind transparency. These two have ranked as the 2 most common concerns in most of the Grant Thornton PE surveys over the last few years, with little improvement.

In a recent survey by the Vietnam Chamber of Commerce and Industry (“VCCI”) which covered over 400 companies, including limited liability companies, joint stock companies and foreign invested enterprises, it was revealed that the level of corporate governance in the Vietnamese private sector was very low and that it was a low priority for attention and improvement.

The governance capacity of even listed companies is very low according to the Vietnam News, with an average score of 35.1 points compared to 84.5 points for Thailand, 75.2 for Malaysia and 57.3 for Indonesia.[1]

Despite the huge rise in in the number of newly registered enterprises in 2016 (over 110,000) the competitiveness of business remains a key issue with weak corporate governance as one of the causes.

Whilst Vietnam does have a strong entrepreneurial spirit as seen by the number of new businesses being established[2] the concept of corporate governance is still new to many business owners and this certainly hampers growth, efficiency and sustainability.

According to Nguyen Van Binh head of the Central Committee’s economic Commission only 7.8% of GDP is generated by large private companies whilst household businesses account for 31% of GDP.

A resolution on the Private Sector will be debated at the forthcoming 5^th Plenum of the 12^th party Central Committee recognizing the importance of the private sector in developing the economy. It will be interesting to see how much attention will be paid to governance and transparency and whether the Government publicly recognize the urgent need to implement policies to encourage both.