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B¸o c¸o ThÎ ®iÓm Qu¶n trÞ C«ng ty (Thùc hiÖn n¨m 2011 dùa trªn d÷ liÖu 2010) Corporate Governance Scorecard (Conducted in 2011 based on 2010 available data)

liên hệ: Juan Carlos Fernandez liên hệ: Nguyễn Nguyệt Anh Chuyên gia Cao cấp Cán bộ Chương trình Dự án Quản trị Công ty, Dự án Quản trị Công ty, Việt Nam Khu vực Ðông Á Thái Bình Dương CORPORATE GOVERNANCE SCORECARD REPORT

(This review was conducted in 2011 based on available data from 2010)

International Finance Corporation and The Global Corporate Governance Forum in collaboration with The State Securities Commission of Vietnam Copyright@2011 International Finance Corporation 2121 Pennsylvania Ave. NW, Washington, DC 20433 United States of America

A Member of the World Bank Group

IMPORTANT NOTE

IFC, a member of the World Bank Group, is the largest global development institution focused ex- clusively on the private sector. We help developing countries achieve sustainable growth by financ- ing investment, providing advisory services to businesses and governments, and mobilizing capital in the international financial markets. This Corporate Governance Scorecard report was commis- sioned by IFC and the Global Corporate Governance Forum (GCGF) in collaboration with the State Securities Commission of Vietnam.

The conclusions and judgments contained in this report should not be attributed to, and do not necessarily represent the views of GCGF, the State Securities Commission of Vietnam, IFC or its Board of Directors or the World Bank or its Executive Directors, or the countries they represent. IFC, GCGF and the World Bank and the State Securities Commission of Vietnam do not guarantee the accuracy of the data in this publication and accept no responsibility for any consequences of their use.

International Finance Corporation 3 Vietnam Scorecard Project - 2011 Report

4 International Finance Corporation Vietnam Scorecard Project - 2011 Report

Table of Contents

Acknowledgements...... 7 Abbreviations...... 8 . A Introduction...... 9 . a Background...... 9 b. Objectives...... 10 B. Executive Summary...... 11 C. Research Methodology...... 23 a. Background to Scorecard assessment...... 23 b. Industry classification and companies reviewed...... 25 c. Basis of review...... 25 d. Scorecard instrument development...... 26 e. Data and data collection...... 27 f. Evaluation methods...... 27 . D Analysis...... 30 a. Overall results...... 30 b. Comparison of corporate governance performance in 2009 and 2010...... 32 c. Corporate governance and profitability...... 35 d. Corporate governance performance by industry...... 36 e. Corporate governance performance by firm size...... 37 f. Corporate governance performance by ownership – foreign or state...... 38 g. Corporate governance and board characteristics – board composition...... 40 h. Corporate governance and board characteristics - board size...... 41 i. Corporate governance and board characteristics - proportion of non-executive directors...... 42 j. Corporate governance and board characteristics – proportion of female directors.. 42 k. Corporate governance performance by exchange...... 43 l. Top 10 companies with better CG scores versus bottom 10 companies 44 E. Specific Findings...... 46 a. Rights of Shareholders...... 46 b. Equitable Treatment of Shareholders...... 54 c. Role of Stakeholders...... 62 d. Disclosure and Transparency...... 64 e. Responsibilities of the Board (including Supervisory Board)...... 76 F. Conclusions and Recommendations...... 88 G. Appendices...... 93

International Finance Corporation 5 Vietnam Scorecard Project - 2011 Report

a. List of companies surveyed...... 93 b. List of companies surveyed in both 2009 and 2010...... 96 c. Industry grouping...... 98 d. List of documents assessed...... 100 e. Research Rating Team...... 100 f. Scorecard questionnaires...... 101

6 International Finance Corporation Vietnam Scorecard Project - 2011 Report

Acknowledgments

The Corporate Governance Scorecard is part of IFC’s Corporate Governance Program in Vietnam that is assisting regulators, companies and organizations to develop corporate governance standards.

The Corporate Governance Scorecard is a review and report on the corporate governance practices of the 100 largest listed companies in Vietnam. Its development has greatly benefited from the support of the Global Corporate Governance Forum (GCGF), which promotes regional and local initiatives to improve corporate governance in middle and low-income countries in the context of broader national or regional economic reform programs.

The preparation and publication of the Scorecard involved the participation and efforts of a significant number of dedicated people. The Scorecard’s content was collaboratively developed by Anne Molyneux the Project Advisor, Dr Nguyen Thu Hien the Project Team Leader and Tran Duy Thanh the Project Supervisor, with advice from the State Securities Commission of Vietnam (SSC) and IFC.

The Scorecard project was under direct supervision of Eugene A Spiro, Senior Projects Officer, GCGF and Juan Carlos Fernandez Zara, Senior Operations Officer, IFC Corporate Governance for East Asia Pacific. Overall support was provided by Philip Armstrong, Head of GCGF and Simon Andrews, IFC Regional Manager – Vietnam, Cambodia, Lao PDR & Thailand.

This publication would not have been possible without the active participation and support of SSC officials, in particular Chairman Vu Bang and Vice Chairwoman Vu Thi Kim Lien. Furthermore, the SSC corporate governance team provided constant support and Bui Hoang Hai, Deputy Direc- tor of the Securities Issuance Department and his team gave valuable guidance and feedback on the questionnaire and report.

Special support for the project was provided through the generosity of the Government of Japan. Particular thanks also go to our donor partners including Finland, Ireland, Japan, the Netherlands, New Zealand and Switzerland for their generous support of the corporate governance activities IFC and GCGF are delivering in Vietnam.

The project team and author are particularly grateful to Philip Armstrong, Head, Global Corporate Governance Forum, Eugene A Spiro, Senior Projects Officer, GCGF and Juan Carlos Fernandez Zara, Senior Operations Officer, IFC Corporate Governance for East Asia Pacific for their wise counsel and advice throughout the project. Special thanks is also due to Pham Lien Anh, Opera- tions Officer, IFC and Nguyen Nguyet Anh, Associate Operations Officer, IFC for their capacity to organize and bring such a complex project to a timely conclusion.

November 2011

International Finance Corporation 7 Vietnam Scorecard Project - 2011 Report

Abbreviations

AA Articles of Association AGM Annual General Meeting of Shareholders AFS Audited Financial Statement AR Annual Report BOD Board of Directors, board BOM Board of Management, management CEO Chief Executive Officer CG Corporate Governance CGG Corporate Governance Guidance CIPE Center for International Private Enterprise CSR Corporate Social Responsibility EGM Extraordinary General Meeting ESG Environment, Social and Governance GCGF Global Corporate Governance Forum HNX Hanoi Stock Exchange HOSE Ho Chi Minh Stock Exchange IAASB International Auditing and Assurance Standards Board IASB International Accounting Standards Board ICB Industry Classification Benchmark ICGN International Corporate Governance Network IFAC International Federation of Accountants IFC International Finance Corporation IFRS International Financial Reporting Standards IOSCO International Organization of Securities Commissions IPO Initial Public Offering ISA International Standards on Auditing MOF Ministry of Finance OECD Organisation for Economic Cooperation and Development ROA Return on Assets ROE Return on Equity ROSC Review of Standards and Codes RPT Related-Party Transaction SB Supervisory Board SSC State Securities Commission of Vietnam SX Stock Exchange VAS Vietnam Accounting Standards VSD Vietnam Securities Depository

8 International Finance Corporation Vietnam Scorecard Project - 2011 Report

A. Introduction

“Emerging markets offer an attractive opportunity, but they also involve multi-faceted risks at the country and company levels. These risks require investors to have a much better understanding of the firm level governance factors in different markets.1”

M. Ararat and G. Dallas

“Well-governed companies perform better. Companies that institute good governance practices expect to lower their cost of capital and can attract a wider range of investors, many with a longer-term view of investments.2”

Center for International Private Enterprise a. Background

There have been major efforts to build a sound regulatory structure into Vietnam’s securities market, including the adoption of:

i. The Law on Foreign Investment in 1987, its amendments in 2000 and its unification with the Law on Domestic Investment in 2005

ii. The Law on Enterprises in 1999 and its replacement in 2005

iii. The Law on State Bank in 1997 and the Law on Credit Institutions of 1997, amendments to both laws in 2003 and 2004 respectively, the new Law on the State Bank of Vietnam 2010 and the new Law on Credit Institutions 2010

iv. The Law on Insurance Business in 2000

v. The Competition Law in 2004

vi. The Law on Securities in 2006 and its amendments in 2010.

One of the goals of these regulatory activities is to build an environment of market discipline, trust and confidence and encourage further securities market development to benefit local and foreign investors.

In so doing, the SSC, IFC and GCGF first collaborated to conduct a Baseline Review of Corporate Governance (CG) practices in Vietnam during 2010 with available data from 2009. The Scorecard was launched in December, 2010. Given its considered value, it was determined that another review would be undertaken in 2011 looking at 2010’s data to see if progress had been made.

Vietnam’s CG Regulations3 were developed and issued in 2007 based on the OECD Principles of Corporate Governance, which serve as an excellent reference point for international practices and for this Scorecard. As this report was being written, the Vietnam CG Guidelines were in the process of being updated for best practices. It is expected they will be soon re-issued by the Ministry of Finance (MOF).

1 Ararat and Dallas, IFC/GCGF, Corporate Governance in Emerging Markets, Private Sector Opinion 22, IFC/GCGF, Washing- ton DC., 2011. 2 CIPE, Corporate Governance for Emerging Markets, CIPE, Washington DC., 2008. 3 The Vietnam CG Regulations were issued by the MOF on March 13, 2007 through Decision 12 QD/BTC. Henceforth, the Regulations will be referred to as the CG Guidelines or CG Regulations. International Finance Corporation 9 Vietnam Scorecard Project - 2011 Report

The SSC, IFC and GCGF are partnering in several initiatives to improve CG in Vietnam and the CG Scorecard is one such initiative. The Vietnam CG Scorecard Project’s goal is to assist the regulator and companies to enhance the application of international CG standards and practices. b. Objectives

In this survey, the second Scorecard survey of 100 companies listed on the Hanoi Stock Exchange (HNX) and Ho Chi Minh Stock Exchange (HOSE) - which combined represent more than 83% of the combined market capitalization of these exchanges, we are interested to see if there have been improvements in the application of CG principles during the highlighted 12-month period. A great change in CG standards is not expected, as it is typically slow to transpire and requires a major commitment on the part of companies.

Indeed because this rating is based on the same style and methodology as the review of 2009’s data, parts of this report may also be similar in approach and style. For example, the objectives of the review stated below are largely the same, except for the additional goal of assessing the degree of change from the first report to this one. However, new areas are being explored in the analysis of results and new information is coming to light.

The goal of such a rating system is, as it was last year, to develop a sound base to assess the implementation of good CG principles in Vietnam and to provide a framework for future policy discussions and CG development.

As with the initial Scorecard, this Scorecard report is expected to:

• Provide a standardized, systematic framework from which regulators and investors can assess companies’ CG standards and the overall level of CG in Vietnam

• Enable a company to assess the quality of its CG and stimulate companies to enhance their practices

• Provide a systematic way to analyze CG across industries, which is expected to assist improvements in CG practices

• Assist regulatory groups to identify strengths and weaknesses in CG regulations and practices, leading to further reforms

• Assess progress in CG practices compared to last year

• Be available to support general awareness raising and understanding of good CG practices.

However, “the best CG framework does not guarantee acceptance and implementation if companies are not complying with the framework”4.

This analysis points to areas of improvements so CG in Vietnam can move beyond compliance to an effective CG system operating within companies in Vietnam. The Scorecard is a tool to focus discussion, raise awareness and encourage change in CG standards.

4 Strenger, C., The Role of Corporate Governance Principles – The importance of compliance and main issues in Germany, OECD Eurasian Roundtable, Kiev, 2004. 10 International Finance Corporation Vietnam Scorecard Project - 2011 Report

B. Executive Summary

This is the second CG Scorecard for Vietnam and is based on publicly available data related to 2010. The first Scorecard review was undertaken using 2009 data and comparisons will be made between the two reviews.

The purpose of Vietnam’s CG Regulations, first introduced in 2007 and currently being updated, is to implement the “best international practice on corporate management suitable to the conditions of Vietnam to ensure a stable development of stock market and a transparent economy in Vietnam”5.

Better CG may:

• Enhance market stability

• Increase investor confidence and trust

• Lead to transparency of company activities and operations

• Encourage investment into Vietnamese markets from local and foreign sources

• Reduce the cost of capital for companies.

CG Scorecards have been used throughout Asia, in China, Hong Kong, Indonesia, South Korea, Sin- gapore, Thailand and the Philippines for several years as one mechanism to encourage CG improvements.

The goal of such a rating system are to develop a base for assessing the implementation of good CG principles in Vietnam and provide a framework for future policy discussions, CG development and highlight opportunities for CG research.

CG is ‘observed’ from publicly available information and materials available to current and potential investors. Indeed a company may, in fact, be compliant or adopt practices in a particular area, but fail to make this compliance and adoption evident in its publicly available information. As a result, information available to the market may be incomplete or inadequate.

The review and report is based on information available to investors concerning the 2010 reporting period, including the Annual Report (AR) and financial statements, documents relating to the Annual General Meeting of Shareholders (AGM), publicly available filings with stock exchanges and the SSC, company website materials and other media and public information on each company. The AR is seen as the key company communication document and the AGM as the key shareholder contact point. A full list of the documents and information accessed is provided in Appendix G.

The Scorecard review examined the 100 largest listed companies on the HNX and HOSE as of Janu- ary 1, 2010.

The survey instrument used in this study was designed to reflect the approach and emphases of the OECD Principles of Corporate Governance and the annotations to the Principles, which is widely applied and recognized as the international CG benchmark. This year, the review team attempted to keep the survey instrument largely unchanged from last year’s survey to provide scope for comparability. Hence the question/survey instrument used in the review remained largely the same.

The Principles and the survey instrument included the following subject areas:

5 CG Regulations, Article 4, Clause 2. International Finance Corporation 11 Vietnam Scorecard Project - 2011 Report

Table 1: Questionnaire Topic Area and Score Allocation

Number of Weighting - % of Topic Area Questions total score Area A. Rights of Shareholders 21 15

Area B. Equitable Treatment of Shareholders 18 20

Area C. Role of Stakeholders in CG 8 5

Area D. Disclosure and Transparency 32 30

Area E. Responsibilities of the Board 31 30

Total 110 100

Questions in each area also considered localized CG regulations and requirements in Vietnam. How- ever, good CG is viewed as being more than mere compliance with applicable regulations and includes aspirations to adopt globally accepted good practices. In cases where Vietnamese regulations were considered to not meet global best practices, those best practices were applied to be the benchmark for full observation of the relevant criteria. Compliance with Vietnamese regulations in such cases led to a rating of ‘partially observed’. In the survey questionnaire the number of questions on each individual area and the relative weighting given to each area in the CG score was determined by the project committee, comprising SSC and IFC representatives, the Project Advisor and Project Manager.

The review indicated that CG in Vietnam is at an early stage of development, with opportunities for improvement. Companies have yet to embrace the concept and approach CG largely from a compliance perspective – a minimalistic approach. CG is yet to be seen as a benefit to company leadership and management. Overall, CG take-up has occurred on the basic points established in law. However, good CG is much more than this. It is a commitment to global best practices in relation to the rights and treatment of shareholders and stakeholders, to the roles and Responsibilities of the Board and to greater and better transparency and disclosure. a. Review results

In assessing the overall performance, the mean or average results are relevant and are used here. Overall this year’s review revealed an average CG score across all companies of 44.7%. This is a marginal increase against 43.9% in the Baseline report last year. However, it is also important to note that overall the 100 companies have improved as there are far fewer companies achieving very low scores. Scores as low as 20% were evident in last year’s report, but the lowest score this year is 29.3%.

12 International Finance Corporation Vietnam Scorecard Project - 2011 Report

Chart 1: Overall results in CG categories

78.0% 74.0% 68.0% 61.0% 61.3% 58.6% 55.0% 48.5% Maximum 44.7% 43.2% 39.0% Average 36.1% Minimum 29.3% 29.4% 24.3% 19.3% 17.7%

0.0% Overall CG Area AAre aB Area CAre aD Area E Score

Most areas achieved a level of compliance of less than 50% (see the chart above), except Area B related to the Equitable Treatment of Shareholders in which the average company achieved a 61% level of adherence.

In comparison, the Asian Corporate Governance Association in its CG assessment6 considers an 80% level of adherence for ‘world class’ CG practices. No company in our survey group achieved these levels. In the survey, a notional level of good CG practices in a company would result in a total score between 65% and 74%. A score of 75% and above would recognize quality CG practices in line with global standards. This benchmark is based on knowledge of good practices internationally.

CG developments in Vietnam continue to be led by regulatory and legislative developments. For example, areas which are heavily regulated, such as the Equitable Treatment of Shareholders (Area B) and the Rights of Shareholders (Area A) achieved the highest average scores of 61% and 48.5%, respectively. CG practice in Vietnamese companies is more driven by compliance with regulatory requirements. Matters which are provided for in current laws and regulations are considered, but in some cases may be given scant attention or not adhered to.

In Area C, the Role of Stakeholders and Area E, the Responsibilities of the Board, in which relatively more company discretion is possible in the application of good CG practices, companies performed poorly when compared with global best practices. The area of least compliance evident in this review was Area C relating to the Role of Stakeholders, with an average score of 29.4%. Commitment to environment, social and governance (ESG) principles was not evident.

The public listed companies performed poorly regarding the Responsibilities of the Board (36.1% in Area E) and Disclosure and Transparency (43.2% in Area D). Indeed, in a review of all questions to determine poor performance areas, 87% of the lowest scoring individual questions (where more than 90% of companies achieved 0 points for a question) were related to Disclosure and Transparency and Responsibilities of the Board. This indicates CG practices in Disclosure and Transparency and Responsibilities of the Board appear to be poor and not in line with global practices. It seems a deep commitment to good CG practices has yet to be made in Vietnam, as was the case in 2009.

6 CLSA in collaboration with the Asian Corporate Governance Association produce an annual survey of corporate governance developments across Asia. The summary of the 2010 research, CG Watch – Stray not into Perdition is available at www.acga- asia.org International Finance Corporation 13 Vietnam Scorecard Project - 2011 Report b. Comparison of corporate governance performance in 2009 and 2010

The table below provides comparative statistics for the reviews of 2009 and 2010 data.

Table 2: Comparative results of the reviews of 2009 and 2010 data

Mean Minimum Maximum 2009 2010 2009 2010 2009 2010 % % % % % %

Overall CG performance 43.9 44.7 20.5 29.3 60.9 58.6 Area A – Shareholders Rights 46.8 48.5 2.4 19.3 78.6 74.0 Area B – Equitable Treatment of 65.1 61.0 25.0 39.0 86.1 78.0 Share holders Area C – Role of Stakeholders 29.2 29.4 6.3 0.0 68.8 68.0 Area D – Disclosure and 39.4 43.2 15.6 24.3 62.5 61.3 Transparency Area E – Responsibilities of the 35.3 36.1 11.3 17.7 53.2 55.0 Board

Overall there was a very small improvement in 2010 against 2009’s results. All areas, other than Area B related to the Equitable Treatment of Shareholders, improved slightly.

Importance of each CG area and its year-on-year comparison

The bubble chart below shows the improvement of each area from the 2009 review to the 2010 review. The horizontal axis measures the improvements or declines in each area between 2009 and 2010. The vertical axis measures the mean score of each area. The size of the bubble indicates the importance of each area to the overall CG score.

Chart 2: Improvements in performance in 2010 in each area

Area performance 80.0%

70.0%

Area B 60.0%

50.0% Area A Area D 40.0% Area E

Score of each area Score 30.0% Area C

20.0%

10.0%

00.0% -6.00% -4.00% -2.00% 0.00% 2.00% 4.00% 6.00% Improvements of CG score from previous year

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Area A, Area D and Area E (Rights of Shareholders, Disclosure and Transparency and Responsi- bilities of the Board, respectively) are three important areas and are shown to be moving in the right direction, albeit off a low base. Area D, Disclosure and Transparency, shows an improvement of 3.8%. A positive change such as this is likely to have been driven by the introduction of the new Circular 97, applicable in 2010 for the first time. Such a change would confirm the view that CG in Vietnam is particularly compliance driven.

Performance in Area B, the Equitable Treatment of Shareholders, is to the left of the center line indicating a decline in this area, which has dropped significantly by some 4.1%. This is due to the fact that when reviewing question B.138, more insider trading deals were discovered in 2010. Further- more, most companies have not clearly defined related-party transactions (RPTs) (B.14) and apply the high threshold of 20% of total assets to apply any policy concerning RPTs. The high materiality threshold means that many RPTs are not subject to company RPT policies as they fall under the high 20% threshold. In Korea, for example, listing rules require board approval for RPTs exceeding 1% of annual revenue or total asset value and require they be reported to shareholders in the Annual Report and at the AGM. In Hong Kong, transactions exceeding HK$10 million (US$1.28 million)9 must be evaluated by an independent advisor and approved by uninvolved shareholders.

In Vietnam, policies and mechanisms to ensure proper treatment of RPTs are formulaic and seem poor in practical application. The decline in Area B is the reason 2010’s overall average CG score was not a big improvement over 2009’s results.

However, because Area E, Area D and Area B are so important to CG, firms should focus on these areas to improve their practices.

Comparison of firms’ CG performances in 2009 and 2010

In the sample of 100 companies reviewed this year, some 66 firms were also reviewed last year. This group of companies, whose 2009 and 2010 data were reviewed, showed almost no improvement in the mean or average score, with 45.2% in 2010 against 45.1% in 2009. However, these 66 companies improved the range of scores achieved, with fewer companies recording very low scores. The lowest score in 2010 was 29.3%, an improvement on 20.5% in 2009.

7 Circular 09/2010/TT-BTC was issued by the Ministry of Finance on January 15, 2010, guiding the disclosure of information on the securities market. 8 Question B 13 is “ Are there any known cases of insider trading involving the company directors, management or staff in the past year?”. 9 CFA Institute, Related-Party Transactions, Cautionary Tales for Investors, 2009, pp33-34. International Finance Corporation 15 Vietnam Scorecard Project - 2011 Report

Chart 3: Comparison of overall CG performance of the 66 companies reviewed in 2010 and 2009

70%

60%

50% 45.2% 45.1% Maximum 40% Average Minimum 30%

20%

10% Year 2010 Year 2009

c. CG and profitability

Based on company financial information, firms with better-observed CG practices or scores seemed to demonstrate better profitability. The 25 firms with the highest CG scores have higher return on equity (ROE) and return on assets (ROA) ratios than those with low CG rankings. Companies with better CG scores had average ROE ratios of 19.9%, outstripping the 13.9% ROE average of companies with low CG rankings. It is a similar picture when considering ROA ratios. Whilst these results are not significant, this signal is most encouraging to firms in their pursuit of profitability and gives good reason to pursue high CG standards.

Chart 4: CG practices and profitability (as measured by ROE and ROA ratios)

CG and company performance

19.90% 16.30% 16.60% 13.90% ROA 9.40% 7.80% 8.00% 7.20% ROE

Top 25 50 middle Bottom 25 All firms companies companies companies

d. CG performance and firm size The mean CG score in larger firms is higher at 47.6% than the mean of all surveyed companies at 44.7% (see table below). These large 25 firms’ market capitalization at December 31, 2010 was between VND40,000 billion and VND4,000 billion. It should be noted that 14 of the 25 larger compa-

16 International Finance Corporation Vietnam Scorecard Project - 2011 Report

nies, or 56% of these companies, are in the financial sector, generally noted for its additional oversight and regulations under the banking regulator and additional complexity of business.

The chart below confirms that the larger the size of company, the better CG scores are overall.

Chart 5: Relationship between CG and company size

47.6%

48.0% 47.0% 44.7% 46.0% 43.9% 43.6% 45.0% 44.0% 43.0% 42.0% 41.0% Largest 25 Middle 50 Smallest 25 All firms companies companies companies

CG score

The relationship between CG scores and firm size may occur because as companies grow in size and complexity, additional CG policies and practices may assist in meeting legal requirements and in mitigating risk. The better CG scores may be reflective of the need to more strictly manage the complexity of these larger businesses and include impacts on CG with either a wider shareholder base, including perhaps foreign shareholders, and/or lender requirements with protective covenants, or legal requirements in other jurisdictions. e. CG performance by ownership – foreign or state This report reviews the relationship between CG scores and ownership with a look at the proportion of ‘ownership’, foreign or state. The results show that the average proportion of foreign ownership in companies achieving the highest CG scores is 27.3%. However, in the middle group of 50 companies with lower CG scores, the proportion of foreign ownership falls to an average of 14%. The bottom group of 25 firms with the lowest CG scores has a 17.4% average proportion of foreign ownership. The difference in proportion of foreign ownership in the three groups is statistically significant. This means a higher level of foreign ownership may indicate a greater chance of a better CG score relative to other companies. This may reflect the influence of foreign ownership in demanding better CG practices or indeed it may reflect the fact that foreign investors target companies that already demonstrate better CG. The chart below confirms that the groups with lower CG scores also have lower proportions of foreign ownership.

International Finance Corporation 17 Vietnam Scorecard Project - 2011 Report

Chart 6: CG performance and foreign ownership

27.3% 30.0%

25.0% 17.4% 18.2% 20.0% 14.0% 15.0% 10.0% 5.0% 0.0% Top 25 CG Middle 25 CG Bottom 25 CG All firms Scored Scored Scored companies companies companies

Foreign ownership proportion

When we break down the sample into two groups, firms where there is an ‘observed’ incidence of foreign ownership and ones where there is an ‘absence’ of foreign ownership10, the average CG score of companies with an ‘observed’ foreign ownership is 45.7%. Whereas, the average CG score is 43.1% for firms with an ‘absence’ of foreign ownership, firms with foreign ownership have a significantly higher average CG score than firms without such an influence.

Chart 7: CG performance and state ownership

34.9% 35.0% 32.8% 32.5% 30.0% 27.4% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Top 25 CG Middle 25 CG Bottom 25 CG All firms Scored Scored Scored companies companies companies

State ownership proportion

In relation to state-owned companies, the group of companies with the highest CG scores have an average proportion of state ownership at 27.4%. In the group of 50 companies with lower CG scores, the average proportion of state ownership is 34.9%. In the group of 25 companies with the lowest CG scores the average proportion of state ownership is 32.8%.

10 The ownership was ‘observed’ if the foreign shareholding was 10% or above. 18 International Finance Corporation Vietnam Scorecard Project - 2011 Report

This is evidence that state ownership does not significantly demonstrate a positive impact on CG scores.

This finding underlines a great opportunity to improve CG practices generally. If the government, as a shareholder, was to become a ‘champion’ of better CG and demand better CG in entities it has a stake in, it could make a considerable difference to CG practices in Vietnam, given the state has ownership stakes in most of the surveyed companies. f. CG performance and board composition

The review found that companies having board of directors (BODs) with a higher proportion of non-executive directors and a greater proportion of female directors also have higher CG scores. This is an interesting finding, particularly with the current global trend for greater board diversity. Board size and the average age of directors did not seem to impact on CG scores.

Table 3: Board characteristics – overall board characteristics11

No. of Average board No. of non-executive BOD average BOD structure female size directors11 age in years directors Top 25 CG scored 6.48 4.16 1.20 48.4 companies Mid 50 CG scored 5.90 3.40 0.68 49.3 companies Bottom 25 CG 6.24 3.36 0.76 47.9 scored companies

Firms with a higher proportion of non-executive directors have better overall CG scores than firms with a lower proportion of non-executive directors (see chart below). In the group of 25 companies with the highest proportion of non-executive directors, the average CG score was 46.4%. In the groups where there are fewer non-executive directors, the average CG scores were lower (44.9% and 42.8%, respectively). Non-executive directors have a positive impact on observed CG as they may bring expertise, new ideas and contacts to benefit the company. Non-executive directors may also provide a counter balance and check on the power of executives operating on a daily basis within a firm.

Chart 8: Relationship between CG scores and the proportion of non-executive directors

46.4% 48.0% 44.9% 44.7% 46.0% 42.8% 44.0% CG score 42.0%

40.0% 25 - highest 50 - middle 25 - lowest All rms proportion of proportion of proportion of NEDs NEDs NEDs

11 It is important to note that Vietnam’s Law on Enterprises does not distinguish between ‘non-executive’ directors’ and ‘independent’ directors. Independent directors are only mandated for financial institutions. International Finance Corporation 19 Vietnam Scorecard Project - 2011 Report

An interesting finding is that a greater proportion of females on a board may contribute to better CG scores, though the finding was not significant as it related to non-executive directors. Of the companies with the highest CG scores, female directors comprised 18.9% of the BOD. This level fell to 12.0% on the BOD of companies achieving the lowest CG scores. Board diversity is recommended as part of good CG practices as it reduces the risk of ‘group think’ and an unchallenged board, chairman and/or senior executive team. Generally, the representation of females on the boards of Vietnamese companies is low. When companies are searching for ‘independent’ or non-executive directors, females may provide a good pool of available talent.

Chart 9: Proportion of female directors on the board

18.9% 20.0% 13.8% 12.1% 12.0% 15.0%

10.0%

5.0%

0.0% Top 25 Middle 50 Bottom 25 All firms companies companies companies

% of females on BOD

g. Top 10 CG performers

It is important to note that none of the top 10 CG performing companies had a score of 60% or above. Therefore the 10 firms with the best CG scores, out of the 100 selected companies, still have quite low CG scores. The top 10 companies had an average CG score of 54.5% and the bottom 10 companies had an average score of 34.9%.

Within the 10 companies with better CG scores, two were newly listed, whereas four out of the 10 lowest CG scorers were newly listed. Being a newly listed company is no excuse for poor CG standards. Listing should be a statement of commitment to market rules and good CG.

No company in the sample group can be complacent, as a score of approximately 80% is seen as meeting global best practices. In general, CG development in Vietnam has a considerable way to go to achieving global best practices. While a large improvement is required, some companies have started the journey and should be encouraged.

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Executive Summary – recommendations

Regulator Led Development

1. Regulators should ensure they have the relevant authority to offer global best practice guidance on CG matters and can provide relevant guidance for companies on implementation of CG practices.

2. Regulators should build the skills and capacity of staff and other resources for monitoring CG for the active and visible enforcement of CG rules and regulations.

3. Regular training of SSC and SX staff on global CG developments and their application.

4. The concept and value of ‘independence’ of directors and the value of independence of auditors is not well understood. Regulators should define ‘independent’ directors and promote the role and benefits of independent directors and auditors.

5. Regulators should develop with stakeholder input, widely publicise and endorse a Corporate Governance Road Map which makes the determination of the government and regulators to improve CG in Vietnam clear to all parties.

6. Given Vietnam’s specific circumstances and a reluctance to undertake any CG action unless mandated, regulators should require CG training for all directors at the time of listing. Regula- tors may also demand regular BOD and Supervisory Board (SB) evaluations and these should be reported on.

7. The State, as a major shareholder in the Vietnamese securities market, needs to become a “champion” of better corporate governance. It is therefore necessary to improve the rules and regulations on state ownership representatives in joint-stock companies in general and listed companies in particular, and provide CG training to those representatives.

Institution Strengthening

8. Accounting and auditing professional standards and practices need improving to provide relevant, reliable and timely information on all material financial company matters to investors. A move to lift local accounting and auditing standards to an international level and be applied by accountants and auditors would improve financial reporting.

9. The early development of a Center of Corporate Governance, promoting CG best practices, training directors, keeping all interested parties abreast of global CG developments and interpolating these into Vietnam would be valuable.

10. The value of good CG should be promoted by ministers and senior government department leaders so they become ‘champions’ of good CG. Application of the OECD Corporate Gover- nance Guidelines for State-Owned Entities is recommended in state-owned entities.

11. Shareholder engagement with companies should be encouraged and companies should facilitate this.

Private Sector Developments

12. This review shows that companies should focus on implementing best CG practices in three important areas:

International Finance Corporation 21 Vietnam Scorecard Project - 2011 Report

• The Responsibilities of the Board

• Disclosure and Transparency

• The Equitable Treatment of Shareholders and their inclusion in company affairs.

13. Companies should voluntarily establish Audit Committees as sub-committees of the BOD and ensure a strong role is played by the SB in the company’s CG. The establishment of a CG and Nomination Committee to ensure quality board appointments, appointed in a transparent manner and to ensure BOD succession planning is also recommended.

14. Directors should be more engaged in the oversight and reporting of company risks and particularly ensuring the establishment of a framework, policies and processes for an appropriate control environment.

15. Quality CG training should be provided to directors and senior management. To overcome a natural reluctance to undertake training, it is recommended that the annual training of directors be reported in the Annual Report and a minimal level of training be mandated. Training programs, materials and case studies pertinent to Vietnam and demonstrating global best practices should continue to be developed.

16. Private sector parties, such as banks, other lenders and institutional investors should promote awareness of the benefits of good CG and incorporate companies’ demands for high-standard CG implementation.

17. Companies should distinguish between good CG and compliance with the law and demonstrate their commitment to the former by improving their AGM policies and practices, such as facilitating shareholders’ fuller participation in AGMs and providing shareholders with quality information in a timely manner.

18. Companies should develop good shareholder relations and encourage shareholder participation in company affairs.

22 International Finance Corporation Vietnam Scorecard Project - 2011 Report

C. Research Methodology a. Background to Scorecard assessment

The OECD Principles of Corporate Governance are the globally accepted benchmark for CG and are applied in all OECD economies and in many non-OECD economies. Behind these Principles stands the Methodology for Assessing the Implementation of the OECD Principles of Corporate Gover- nance. Whilst this methodology is normally applied at a national level, thematic issues and essential criteria that are considered in the Methodology may also be applicable at company level and have been used in the development of this Scorecard questionnaire.

The OECD Principles and Annotations, Methodology and the Vietnamese CG environment form the basis of the Vietnam Scorecard. They are also the basis of the Vietnam CG Guidelines. However, where the Vietnam regulations are considered to be less than those applied in global good practice, the Scorecard recognizes this by using the globally accepted practice as the criteria for scoring ‘full observation’. Globally accepted practices include the OECD Principles, standards and benchmarks set by the International Accounting Standards Board (IASB), the International Auditing and Assurance Standards Board (IAASB) of International Federation of Accountants (IFAC) and other standards and guidance of organizations such as International Organisation of Securities Commissions (IOSCO), the Basel Committee on Banking and the International Corporate Governance Network (ICGN). In such cases, compliance with Vietnamese requirements led to a rating of ‘partially observed’.

An analysis by the OECD12 of the recent financial crisis in global capital markets underscored that important CG principles and concepts should not just be accepted at a conceptual level and a ‘compliance’ or ‘box-ticking’ approach is insufficient. The assessment is based on a ‘reasonably well informed person’s’ point of view whether CG concepts are applied in practice in the company. These practices are ‘observed’ from publicly available information accessible to an investor. Consistent with this ‘investor’ perspective, raters are chosen for their business and management knowledge including CG, have been trained in CG and can make relevant judgments.

Caveat: There are ‘pros’ and ‘cons’ to any CG rating system. No CG rating system, such as this, can totally and accurately predict the level of real CG within a company. This can only be interpreted from an inside view, a view of the board as it goes about its day-to-day business. This Scorecard captures only what is externally evident from information released to the public and that is reflected in available material and documentary filings. As such, the outcome may not be as finely tuned and -in formative as if the rating had been undertaken internally with the benefit of internal, specific company knowledge. Nevertheless, the Scorecard approach is valuable. It is important to note that a ‘good’ rating does not necessarily preclude the company from facing future crises and scandals.

In developing and applying the Scorecard, efforts were expended to lessen the subjectivity of judgments on CG and to ensure consistency and accuracy of assessments. The Scorecard is not dependent on company input or co-operation. It is designed to be undertaken by independent consultants, independent of the companies involved and independent of the in-country regulators.

The major categories utilized as a basis for the Scorecard assessment of a company’s CG are those recognized by the OECD Principles13 as the keys to good CG:

12 OECD, Corporate Governance and the Financial Crisis: Key Findings and Main Messages, OECD, 2009, Paris 13 OECD Principles of Corporate Governance, amended in 2004, is an international benchmark for policy-makers, investors, corporations and other stakeholders worldwide. They continue to advance the CG agenda and provide relevant guidance for non-OECD as well as OECD countries. “Corporate governance is seen as one key element in improving economic efficiency and growth as well as enhancing investor confidence”. International Finance Corporation 23 Vietnam Scorecard Project - 2011 Report

• Rights of Shareholders • Equitable Treatment of Shareholders • Roles of Stakeholders in CG • Disclosure and Transparency • Responsibilities of the Board.

OECD Principle I ‘Ensuring the basis for an effective CG framework’ which requires “the CG framework should promote transparent and efficient markets, be consistent with the rule of law and clearly articulate the division of responsibilities among different supervisory, regulatory and enforcement authorities”14 is not dealt with in this Scorecard. This was not considered here, as it is an issue for governments and regulators.

Vietnam has a two-tier CG framework. Vietnamese laws and regulations require a two-tier board/CG structure which is similar to that developed in China and is different to the two-tier system of Ger- many or Indonesia. In Vietnam, the BOD is charged with guiding and setting the company’s strategy and business priorities, including the annual financial and business plans, as well as guiding and controlling managerial performances. Listed companies are obliged to establish a SB, which controls the company’s operations and financial activities. Its primary function is to oversee the work of the BOD and the company’s compliance with laws and regulations during business operations.

The approaches used in the structure and methodology of the Vietnam Scorecard are cognisant with successful Scorecard approaches in Germany, which has a two-tier CG framework and in China, which has a CG framework similar to Vietnam’s.

Therefore, the specific Vietnam Scorecard has been constructed with questions that reflect the OECD Principles, Annotations and Assessment Methodology and specific CG legal and regulatory frame- works in Vietnam15, especially the MOF’s Decision 12/2007/QD-BTC on CG. International Financial Reporting Standards (IFRS) and International Standards on Auditing (ISA) and other international benchmarks are also considered where applicable.

Importantly, the project committee considered the current strengths and weaknesses in CG practices in Vietnam and in Vietnamese companies and incorporated these emphases into the Scorecard. Evi- dence of Vietnam’s CG strengths and weaknesses comes from: • The World Bank ROSC Corporate Governance Country Assessment – June, 2006 • Vietnam’s contributions to the OECD stock-take of CG related developments and progress in Asia – February, 2010 • A professional review of CG with key market regulators and participants – 2010 • Recent CG issues arising in Vietnam • Other relevant, available reviews and surveys and press reporting.

14 OECD, Principles of Corporate Governance, OECD 2004, Paris. 15 The Scorecard has been informed by the key legislative and regulatory instruments impacting on CG in Vietnam, including the Law on Securities 2006 and its amendments in 2010, Decree 14/2007/ND-CP relating to implementing the Law on Securities, the Law on Enterprises, Decree 139/2007/ND-CP guiding the implementation of the Law on Enterprises, Decision 15/2007/ QD-BTC on the promulgation of the Model Charter, Circular 09/2010/TT-BTC on disclosure in the securities market, Decision 12/2007/QD-BTC on the regulations of CG applying to listed companies on the stock exchanges and other relevant documents. Some sectors are subject to specific regulations. (For example the banking sector is subject to Decision 59/2009/ND-CP, Deci- sion 36/2006/QD-NHNN and Decision 37/2006/QD-NHNN). These specific regulations are not included in this Scorecard. 24 International Finance Corporation Vietnam Scorecard Project - 2011 Report b. Industry classification and companies reviewed

In this CG review, the 100 largest publicly listed companies on the HNX and HOSE as of January 1, 2010 were selected for consideration. Collectively these companies represent more than 83% of the total market capitalization in Vietnam (see Appendix G List of Companies). Out of 468 listed companies on the HNX and HOSE, the selected 100 companies comprise 79 listed on the HOSE and 21 listed on the HNX.

The Scorecard takes the view that by listing on the stock exchange, companies have a public obliga- tion to adhere to laws and regulations and aspire to good CG practices. Therefore, the date of initial public offering (IPO) and the fact that companies may be only recently listed or be small, is not considered relevant. Recent listing and small size may explain a poor CG level, but will not excuse it. In this year’s Scorecard review, there are 34 companies new to the top 100 firms, while two firms that delisted in the intervening period have not been included in the review sample. Of the 34 companies new to the top 100 Scorecard, 33 are newly listed. Half of the firms newly incorporated in the Score- card are in the financial sector, 18% in consumer goods and the rest of the ‘new’ companies are in other sectors such as oil and gas, basic materials, consumer services, industrials and utilities.

The reviewed companies represented the following nine industry sectors: industrial, financial, consumer goods, basic materials, oil and gas, healthcare, consumer services, utilities and technology. These sectors were classified according to the Industry Classification Benchmark Universe (ICB) released in January, 2008. It uses a 10-industry classification. The first industry level has 10 industry sectors: (1) oil and gas, (2) basic materials, (3) industrials, (4) consumer goods, (5) healthcare, (6) consumer services, (7) telecommunications, (8) utilities, (9) financials and (10) technology. Vietnam has no telecommunications industry company listed in the top 100 companies. ICB Universe 2008 is used to classify firms into groups of industries. The ICB Universe allows the classification of firms into four levels. In this study, the first and also broadest industry level is used for the 100 firms. There are only nine industry groups represented in the 2010 report.

A company is classified into an industry based on the functions and activities disclosed in the company’s original listing prospectus. The appropriateness of the ICB classification was confirmed by the SSC. This classification was then cross-checked with two securities companies in Vietnam, Viet- stock, an information portal providing information on Vietnam’s financial and securities marketwww. vietstock.vn and Vietnam Dragon Securities Corporation (Rong Viet Securities), www.vdsc.com.vn.

Some sectors and entities in Vietnam, in particular the banking and financial services sector and state-owned entities, may be subject to additional CG requirements. These are not addressed in this Scorecard questionnaire through specific questions. Their particular issues may well be addressed in future iterations of the Scorecard. c. Basis of review

The assessment of each company is based on externally available information, information that is publicly available to current or potential investors. The relevant information is that which an investor may use to judge whether to invest, divest or hold the investment. Information sources included the company’s Annual Report, financial statements, CG reports, public and regulatory filings filed with the regulator and the stock exchange, notices for the AGM, reports on AGM results, AGM minutes, Articles of Association (AA) and company website materials.

International Finance Corporation 25 Vietnam Scorecard Project - 2011 Report d. Scorecard instrument development

Area categories The Scorecard categories and sequence of the Scorecard instrument have been developed based on international standards as set out in the OECD Principles of Corporate Governance which encompass five key areas/categories for assessment, as discussed earlier. The Scorecard not only reviewed adherence to Vietnamese laws and regulations. That is the proper role of Vietnamese regulators and would result in a minimal approach to CG. CG information was assessed under a combination of OECD recommended good practices and laws and regulations in place in Vietnam as of December 31, 2010 and other influential global benchmarks. To the extent laws and regulations are changing and better practices are being introduced, early adherence to these better practices was considered. This year, the Scorecard was amended for the newly issued and applicable MOF Circular 09/2010/BTC- TT (Circular 9), Circular on Disclosure of Information on the Securities Market.

Therefore, the questionnaire encompasses the local legal and regulatory environment and more. The assessment covered the different aspects of company CG practices. However, these are inevitably linked and closely related. Therefore, one assessment question/criteria may well be equally appropriate in another category of assessment. The guide for location in the Scorecard predominantly has been the emphasis in the OECD Principles of Corporate Governance.

Weighting of Areas/Categories

Different weighting practices have been used in various jurisdictions when a Scorecard system of CG analysis was established. Weightings may be applied to individual questions and/or to groups of questions.

For the Vietnam Scorecard, it was determined that weighting should only be applied to areas/categories or groups of questions and that the relative weightings should take account the particular strengths and weakness of Vietnam’s CG practices. The Scorecard’s three areas of focus in Vietnam were Shareholders’ Rights and protection, Disclosure and Transparency and the Responsibilities of the Board. The agreed weighting of scored areas/categories, adding to 100%, is:

Table 4: Weightings of Areas/Categories

Weighting - % of total Number Area/Category score and maximum in of Questions each area Area A. Rights of Shareholders 21 15

Area B. Equitable Treatment of Shareholders 18 20

Area C. Role of Stakeholders in CG 8 5

Area D. Disclosure and Transparency 32 30

Area E. Responsibilities of the Board 31 30

Total 110 100

26 International Finance Corporation Vietnam Scorecard Project - 2011 Report

Such a weighting process can also be applied to questions within each area. For the Vietnam Score- card, it was determined that all questions within a specific weighted area would be scored and have equal value. However, each area has different numbers of questions that address the relevant issues in that area. Some questions may depend on a pre-conditioning event occurring. If such an event does not occur or is not evident, then no marks will be awarded on that question and the total score possible for that particular company will be reduced.

Organization of the Scorecard

CG concepts are intertwined and CG issues, the subject of questions in the Scorecard questionnaire, may well apply to several areas. In the interests of preventing repetition, the author determined the principal location of the question. e. Data and data collection

The collection of data required the gathering of a wide variety of publicly available information. These included the company’s Annual Report and audited financial statements as disclosed at Decem- ber 31, 2010, HNX and HOSE filings, SSC filings and Vietnam Securities Depository (VSD) filings, and other documents, AGM documents, especially AGM minutes, company AA, board meeting minutes and resolutions, CG guidelines, public media and other sources of public information, including stock news, the company website, information from securities companies if available. Information for rating each question may come from one or more sources.

The review used data from companies listed on the two stock exchanges as of January 1, 2010 and other relevant data issued, used and accessible relevant to the 2010 period. f. Evaluation methods

Question scoring

Criteria was established, discussed and agreed with the SSC as appropriate rating criteria for each of the 110 questions. It was further determined that the quality of CG practices referred to in each question should be recognized on three levels, using the terminology of the OECD Principles Assessment Methodology:

• ‘Observed’ good practices (the highest level of CG practice) – 2 points

• ‘Partially observed’ good practices (the median level of CG practice and which would require at least fulfilment of Vietnamese laws and regulations) -1 point

• ‘Not observed’, deficient, missing or non-compliant practices (the lowest level of CG practice) – zero points.

It is important to note that if information was not observable through publicly available materials, the question was scored accordingly, rated as ‘not observed’ and zero points awarded. The ‘not observed’ rating may be correctly given when a company had good practices in place, but failed to disclose this in its company information. Therefore, good practices were not evident from external review. Further- more, the specific selected terminology used in this Scorecard (‘observed’, ‘partially observed’ etc.) recognized that the observation of good CG practice may or may not result in the true application of good CG practices.

Some questions do require a more limited ‘yes’/‘no’ or ‘no’/’yes’ response. In these circumstances, 2 points were awarded for a positive response and zero points awarded for a negative response.

International Finance Corporation 27 Vietnam Scorecard Project - 2011 Report

The assessors are competent in business and CG and trained in the application of the rating instrument. A pilot rating of 10 companies was undertaken prior to the review and any issues that arose were reviewed. In undertaking the assessment, the goal was to minimize assessor subjectivity throughout the rating process.

Each individual company rating had a strict methodology and a ‘check and balance’ system applied. Members of the rating team were allocated particular questions from the questionnaire to rate. No one company was rated by one individual. Then each evaluation was cross-checked/audited to ensure accuracy and consistency across ratings. Each company was scored on every question provided for in the questionnaire, unless a particular pre-conditioning event did not occur, in which case the total possible score was reduced for these companies. Whilst all care was taken to eliminate reviewer subjectivity and an audit process was in place, the evaluation of some questions required qualitative judgments on the part of the evaluator.

When the rating and audit process for each sub-section of the company rating was completed, all rating results for the company were combined into one company spreadsheet for calculation of the CG score.

Scoring and Total Weighted Score

Given the above determinations, to reach a total individual company weighted score, the following calculation occurred:

A. Each question in each subject area was assessed and all questions scores totalled

B. The sum of all the questions in the subject area was divided by the total score possible for all questions to give a percentage value for that subject area

C. The result from B was multiplied by the total area weighting to give a % for the company for that particular area

D. All weighted % scores across all five areas were totalled for a final score.

Final Company Scores

The Scorecard will facilitate the grouping of companies into broad outcomes of ‘excellent’, ‘good’, ‘fair’, ‘needs improvement’ CG categories. An ‘excellent’ rating would result in a company score of 75% and above, a ‘good’ rating would result in a score of between 65% and 74%, a ‘fair rating would result in a rating of between 50% and 64% and a ‘needs improvement’ rating would result in a rating below 50%. Such a grouping of companies was not applied in the baseline review undertaken on 2009 data or in this review. It may be utilized in subsequent Scorecards.

In compiling the statistics and data for this report, the results were tested for normal standard deviation and through correlation and regression analysis. Some statistical rounding errors could occur.

Scorecard process and team

The Project Advisor was Anne E Molyneux, a CG specialist and consultant to the GCGF and IFC. The Scorecard research team, led by Project Team Leader, Dr. Nguyen Thu Hien, School of Industrial Man- agement, University of Technology, National University of Ho Chi Minh City, comprised 12 individu- als. The research project was managed by Tran Duy Thanh, Project Supervisor (see Appendix G for full rating team). The Scorecard instrument was reviewed and approved by IFC and the SSC prior to its application. Similarly, the report was commented on by IFC, the GCGF and SSC prior to completion.

28 International Finance Corporation Vietnam Scorecard Project - 2011 Report

The research team underwent thorough training encompassing the background and motivation behind the project, a description of the survey sample, the manner in which the project would be undertaken, data collection, the assessment process and assessment checking. Considerable time was given to a pilot test of 10 companies in the application of the questionnaire. Issues arising from the pilot test were discussed and resolved prior to the full assessment process being applied.

International Finance Corporation 29 Vietnam Scorecard Project - 2011 Report

D. Analysis

The overall objective of the Scorecard is to improve CG in Vietnam. In future years, this study may be compared with the results of further studies and with the original baseline study to determine progress. In the interim, it offers an opportunity for companies and regulators to better understand the nuances of the implementation of good CG practices in Vietnam. a. Overall results

The Scorecard review examined 100 listed companies on the HNX and HOSE as of January 1, 2010 (see attached List of Companies, Appendix G). Collectively these companies represented more than 83% of the total market capitalization in Vietnam – a market capitalization at January 1, 2010 of VND619,994 billion.

The overall CG performance in each sub-category is reflected in the table below and graphically represented in the chart below. There is a very small difference in the overall scores in 2010 against 2009’s results.

The overall CG performance of reviewed companies indicated efforts to implement elements of good CG. Indeed there was a marginal 0.8% improvement discerned in overall CG in 2010 against 2009’s results. However, with an average CG score of 44.7%, the review’s results when compared to global best practices revealed that Vietnam is at the beginning of its CG journey and is far from achieving international best practices.

Table 5: Overall CG performance 2009 and 2010

Mean Minimum Maximum 2009 2010 2009 2010 2009 2010 % % % % % %

Overall CG performance 43.9 44.7 20.5 29.3 60.9 58.6

Area A – Shareholders Rights 46.8 48.5 2.4 19.3 78.6 74.0 Area B – Equitable Treatment of 65.1 61.0 25.0 39.0 86.1 78.0 Shareholders

Area C – Role of Stakeholders 29.2 29.4 6.3 0.0 68.8 68.0

Area D – Disclosure and 39.4 43.2 15.6 24.3 62.5 61.3 Transparency Area E – Responsibilities of the 35.3 36.1 11.3 17.7 53.2 55.0 Board

Overall there was a very small improvement in 2010 against 2009’s results. All areas, other than Area B related to the Equitable Treatment of Shareholders, improved slightly.

CG developments in Vietnam continue to be led by regulatory and legislative developments – a rule- driven ‘top down’ approach. For example, heavily regulated areas, such as the Equitable Treatment of Shareholders (Area B) and the Rights of Shareholders (Area A) achieved the highest average scores of 61% and 48.5%, respectively. CG practice in Vietnamese companies is more driven by compli-

30 International Finance Corporation Vietnam Scorecard Project - 2011 Report

ance with regulatory requirements than commitment to a higher practice of sound governance. CG practices are not provided for in current laws and regulations, as ones relating to the external auditor (independence, AGM attendance etc.) or stakeholders’ roles, may be given cursory attention by companies or not adhered to.

As was evident in last year’s report, within individual companies CG take-up occurred on basic points, but deeper knowledge or commitment to quality CG seems to be lacking, reflective of a ‘box- ticking’ approach. The more complex the area, the less adherence is evident. Concentration needs to focus on improvements from the ‘bottom up’, from individual companies and boards, if Vietnam is to see notable CG improvements.

In assessing the overall performance, the mean or average results are relevant and displayed here. Overall, the review of 2010 data revealed an average 44.7% CG score across all companies. This is a marginal increase against 43.9% in the Baseline report on 2009 data. It is also important to note that overall companies have improved as fewer companies achieved low scores of 20% as seen last year. The lowest score in 2010 was 29.3%.

Chart 10: Overall results in CG areas - 2010

78.0% 74.0% 68.0% 61.0% 61.3% 58.6% 55.0% 48.5% Maximum 44.7% 43.2% 39.0% Average 36.1% Minimum 29.3% 29.4% 24.3% 19.3% 17.7%

0.0% Overall CG Area AAre aB Area CAre aD Area E Score

A benchmark considered reflective of good CG practices in a company would result in a total score between 65% and 74%. Excellent CG practices would be expected to result in a score of 75% and above. Even though this is a subjective benchmark choice, it is based on knowledge of good practices internationally. For example the Asian Corporate Governance Association in its annual CG assess- ment16 considers an adherence level of 80% to represent ‘world class’ CG practices. No company in the Vietnam survey group achieved these levels.

Similar to last year’s review, the area of least compliance with global good practices was Area C, the Role of Stakeholders, with an average score of 29.4%. CSR/ESG reporting, including reporting on the Role of Stakeholders is on the rise generally in Asia and is encouraged in most jurisdictions.

16 CLSA in collaboration with the Asian Corporate Governance Association produces an annual survey of corporate governance developments across Asia. The summary of the 2010 research, CG Watch – Stray not into Perdition is available at www.acga- asia.org International Finance Corporation 31 Vietnam Scorecard Project - 2011 Report

However, as environmental legislation increases, companies increasingly will be expected to respond and will be expected to report on ESG activities. This trend is likely to occur in Vietnam also.

Public listed companies performed poorly on many aspects of Responsibilities of the Board (36.1% in Area E) and of Disclosure and Transparency (43.2% in Area D). Indeed, by reviewing all questions to determine poor performance areas, 87% of the lowest scored individual questions (where more than 90% of all companies achieve 0 points for a question) were related to questions on Disclosure and Transparency and on the Responsibilities of the Board. This indicates CG practices in Disclosure and Transparency and Responsibilities of the Board appear to be poor and not in line with global practices. As with 2009, a deep commitment to good CG in Vietnam is not evident yet. b. Comparison of corporate governance performance in 2009 and 2010

The overall CG performance is reflected in the table below. The mean or average score is marginally higher in 2010 than in 2009, by some 0.8%.

Chart 11: Overall CG performance in 2010 and 2009

70%

60%

50% 44.7% 43.9% 40% Maximum

30% Average Minimum 20%

10%

0% Year 2010 Year 2009 Importantly, the minimum score increased from 20.5% in 2009 to 29.3% in 2010. The reduction in the standard deviation of all CG scores of 2% during the two years would indicate that the observance of publicly available materials on CG practices is more concentrated and less varied across the sample of 100 companies.

Table 6: Overall comparison of performance between 2010 and 2009

SAMPLE OF 100 FIRMS CG 2010 CG 2009 Mean 44.7% 43.9% Median 44.4% 44.8% Maximum 58.6% 60.9% Minimum 29.3% 20.5% Std. Dev. 5.6% 7.6%

The table below indicates the number of firms in each score range in the 2009 and 2010 sample of 100 largest listed companies. In 2010, it can be seen that 80% of firms achieved scores of between

32 International Finance Corporation Vietnam Scorecard Project - 2011 Report

40% and 59%. More pleasingly, there were fewer firms in the 20% to 29% score range in 2010 than in 2009.

Table 7: Comparison of number of firms in each score range

No. of firms in each score range CG score range 2010 2009 20% to 29% 1 7 30% to 39% 19 14 40% to 49% 61 59 50% to 59% 19 19 60% to 69% 0 1 Total no. firms 100 100

A regression analysis of each of the five OECD areas and the results of the review in Vietnam indicates that Area E, the Responsibilities of the Board, had the greatest impact on CG scores and is followed in succession of importance and impact by the score on Transparency and Disclosure matters and Equitable Treatment of Shareholders. Changes in these areas, in particular, will impact on the observance of good CG practices.

Area A, Area D and Area E (Rights of Shareholders, Disclosure and Transparency and Responsibili- ties of the Board, respectively) are three important areas and are shown to be moving in the right direction, albeit off a low base. Area D, Disclosure and Transparency, shows an improvement of some 3.8%. A positive change, such as this, is likely to have been driven by the introduction of the new Circular 917, applicable in 2010 for the first time. Such a change would confirm the view that CG in Vietnam is particularly compliance driven.

Performance in Area B, the Equitable Treatment of Shareholders, is to the left of the center line indicating a decline in this area with a significant drop of 4.1%. This is due to the fact that when reviewing question B.1318, more insider trading deals were discovered in 2010 data. Furthermore, most companies have not clearly defined RPTs (B.14) and apply the high threshold of 20% of total assets to apply any policy concerning RPTs. The high materiality threshold means that many RPTs are not subject to company RPT policies as they fall under the high 20% threshold. For example, in South Korea, listing rules require board approval for RPTs exceeding 1% of annual revenue or total asset value and require they be reported to shareholders in the AR and at the AGM. In Hong Kong transactions of more than HK$10 million (US$1.28 million)19 must be evaluated by an independent advisor and approved by uninvolved shareholders.

Policies and mechanisms to ensure best practice treatment of RPTs are formulaic and seem poor in practical application. For these reasons, the overall average score shows almost no improvement in 2010.

17 Circular 09/2010/TT-BTC was issued by the MOF on January 15, 2010 guiding the disclosure of information on the securities market. 18 Question B.13 is “ Are there any known cases of insider trading involving the company directors, management or staff in the past year?” 19 CFA Institute, Related-Party Transactions, Cautionary Tales for Investors, 2009, pp33-34. International Finance Corporation 33 Vietnam Scorecard Project - 2011 Report

Chart 12: Improvements in performance in 2010 in each area Area performance 80.0%

70.0%

Area B 60.0%

50.0% Area A Area D 40.0% Area E

Score of each area Score 30.0% Area C

20.0%

10.0%

00.0% -6.00% -4.00% -2.00% 0.00% 2.00% 4.00% 6.00% Improvements of CG score from previous year

The chart below also clearly shows the two years and the changes that have occurred. Again there is an improvement in Area D, a slight improvement in Areas A and E, a decline in Area B and almost no change in Area C. However, because Areas B, D and E are so important to CG, firms should focus on these areas to improve their practices.

Chart 13: Comparison between CG score results for 100 listed firms in 2010 and 2009

Overall CG score

70.0%

60.0%

50.0%

Area E 40.0% Area A

30.0%

20.0% Year 2010

10.0% Year 2009

Area D Area B

Area C

In the sample of 100 companies whose 2010 data was reviewed this year, some 66 companies got their 2009 data reviewed last year. This group of companies, reviewed in both years, showed almost

34 International Finance Corporation Vietnam Scorecard Project - 2011 Report

no improvement in the mean or average score of 45.2% in 2010 over 45.1% in 2009. However, these 66 companies improved the range of scores achieved, with fewer companies recording very low scores. The lowest score in 2010 was 29.3%, an improvement on 20.5% in 2009.

Chart 14: Comparison of overall CG performance of the 66 companies reviewed in 2010 and 2009

70%

60%

50% 45.2% 45.1% Maximum 40% Average Minimum 30%

20%

10% Year 2010 Year 2009 c. CG and profitability

Based on company financial information, firms with better-observed CG practices or scores seemed to demonstrate better profitability. The 25 firms with the highest CG scores have higher ROE and ROA ratios than those in the bottom CG ranking (see chart below). Companies with better CG scores had an average ROE ratio of 19.9%, outstripping poorer scoring companies with an average ROE ratio of 13.9%. ROA ratios paint a similar picture. Whilst these results are not significant, this signal is most encouraging to firms in their pursuit of profitability and gives good reason to pursue high CG standards.

Chart 15: CG practices and profitability (as measured by ROE and ROA ratios)

CG and company performance

19.90% 16.30% 16.60% 13.90% ROA 9.40% 7.80% 8.00% 7.20% ROE

Top 25 50 middle Bottom 25 All firms companies companies companies

International Finance Corporation 35 Vietnam Scorecard Project - 2011 Report d. CG performance by industry

A company is classified into an industry based on the functions and activities disclosed in the company’s original listing prospectus. The appropriateness of the ICB classification was confirmed by the SSC. This classification was then cross-checked with two securities companies in Vietnam, Vietstock an information portal providing information on Vietnam’s financial and securities market www.vietstock.vn and Vietnam Dragon Securities Corporation (Rong Viet Securities) www.vdsc.com.vn.

The largest listed companies were from nine industry sectors. There was no telecommunications company in the top 100 listed companies in Vietnam. The following chart indicates the industry classification of the companies in the sample of 100 listed companies.

Chart 16: Industry distribution of the sample

Healthcare, 3 Oil & Gas, 4 Technology, 3

Basic Materials, 7 Consumer Industrials, 24 Services, 4

Utilities, 5

Consumer u Financials, 35 Goods, 15)

Table 8: Industry Analysis20

Number of Business Sector20 companies in Maximum % Average % Minimum % sector Financials 35 55.4 44.8 35.7 Industrials 24 52.4 43.2 29.3 Consumer goods 15 58.6 43.9 36.2 Basic materials 7 52.8 46.3 42.0 Utilities 5 51.1 43.3 37.4 Consumer services 4 51.2 45.4 39.1 Oil and gas 4 51.6 47.5 43.6 Healthcare 3 55 52.1 49.1 Technology 3 54.8 46.7 42.1 Total companies 100

20 The telecommunications sector in Vietnam is not separately identified in this analysis as there was no telecommunications company in the 100 largest listed companies. 36 International Finance Corporation Vietnam Scorecard Project - 2011 Report

The CG scores vary across the diverse industry sectors, see table above. However, the average scores across sectors show little variation.

The healthcare21 sector, comprising three companies, achieved the highest average score of 52.1% overall. It also achieved the highest overall CG score in 2009. The industrials sector achieved the poorest average of all industry sectors with an overall average score of 43.2%.

Chart 17: Industry sectors and CG performance

0.7

0.6

52.1% 0.5 47.5% 46.7% 46.3% 45.4% 44.8% 43.9% 43.3% 43.2% 0.4

0.3

0.2

0.1

0 Helthcare Oil & Gas Technology Basic Consumer Financials Consumer Utilities (5) Industrials (3) (4) (3) Materrials Services (4) (35) Goods (15) (24) (7)

The financial industry22 comprised more than one-third of the sample group of companies and 50% of the newly listed companies. It achieved an average CG score of 44.8% - a decline of 1% compared to the 2009 review. The CG average score of all financial companies was lower than some other sectors and ranked sixth out of nine business sectors surveyed. This is an unexpected outcome as the banking and financial services industry is subject to closer scrutiny and tighter regulation. The expectation was that the financial sector may do better in relation to other industry groups as it did last year because of this additional level of regulation. However, this did not occur and the decline may be due to the 17 financial industry companies being new to the top 100 and not in last year’s review. The financial sector is a major influence on the economy and it is in the public interest that its CG is in good shape. All financial companies should, in the public interest, strive to achieve at least 50% in the next Scorecard review. e. CG performance by firm size

When one compares the CG scores of the largest companies, defined as the largest 25 companies by measurement of the market capitalization of equity, the mean CG score is higher at 47.6% than the mean of all companies at 44.7% (see table below). These big 25 firms’ market capitalization at De- cember 31, 2010 was between VND40,000 billion and VND4,000 billion. The chart below confirms that the larger the company, the better CG scores overall.

21 The healthcare sector, according to the ICB classification applied in Vietnam, includes healthcare equipment and services, pharmaceutical and biotechnology companies. 22 The financial industry, according to the Industry Classification Benchmark (ICB) 2008 applied in Vietnam, includes banks, insurance, real estate and financial services (consumer finance and mortgage finance). International Finance Corporation 37 Vietnam Scorecard Project - 2011 Report

Chart 18: Relationship between CG and company size

47.6% 48.0% 47.0% 44.7% 46.0% 43.9% 43.6% 45.0% 44.0% 43.0% 42.0% 41.0% Largest 25 Middle 50 Smallest 25 All firms companies companies companies

CG score

The chart above confirms that the largest firms have a higher CG mean score of 47.6% andthe middle-sized and smaller firms have lower CG scores of 43.9% and 43.6%, respectively. It should be noted that the study’s smallest 25 firms have a market capitalization of under VND1,000 billion and are quite small. Better CG in the larger firms may occur because as companies grow in size and complexity, additional CG policies and practices may assist in meeting legal requirements and in mitigating risk. The better CG scores may be reflective of the need to manage the complexity of these larger businesses more strictly and may also include effects on CG regarding a wider shareholder base, including perhaps foreign shareholders, and/or lender requirements with protective covenants. f. CG performance by ownership – foreign or state

This report reviewed the relationship between CG scores and ownership. We looked at the proportion of ‘ownership’, foreign or state.

The results showed that the average proportion of foreign ownership in the highest CG scoring companies was 27.3%. However, in the middle group of 50 companies with lower CG scores, the proportion of foreign ownership fell to an average of 14%. The bottom group of 25 companies with the lowest CG scores had a 17.4% average proportion of foreign ownership. The difference in proportion of foreign ownership in the three groups is statistically significant. It means that a higher level of foreign ownership may indicate a greater chance of a better CG score relative to other companies. This may reflect the influence of foreign ownership in demanding better CG practices or reflect the fact that foreign investors target companies that already demonstrate better CG.

The chart below confirms that the groups with lower CG scores also have lower proportions of foreign ownership.

38 International Finance Corporation Vietnam Scorecard Project - 2011 Report

Chart 19: CG performance and foreign ownership

27.3% 30.0%

25.0% 17.4% 18.2% 20.0% 14.0% 15.0% 10.0% 5.0% 0.0% Top 25 CG Middle 25 CG Bottom 25 CG All firms Scored Scored Scored companies companies companies

Foreign ownership proportion

When we break the sample into two groups, firms with an ‘observed’ incidence of foreign ownership and firms with an ‘absence’ of foreign ownership23, the CG scores of companies with an ‘observed’ foreign ownership average 45.7%. Whereas, the CG score average was 43.1% for firms with an ‘absence’ of foreign ownership. Thus, firms with foreign ownership have a significantly higher average CG score than firms without such a foreign ownership influence.

Chart 20: CG performance and state ownership

34.9% 35.0% 32.8% 32.5% 30.0% 27.4% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Top 25 CG Middle 25 CG Bottom 25 CG All firms Scored Scored Scored companies companies companies

State ownership proportion

In relation to state-owned companies, the group of companies with the highest CG scores have an average proportion of state ownership of 27.4%. In the group of 50 companies with lesser CG scores, the average proportion of state ownership was 34.9%. In the group of 25 firms with the lowest CG scores, the average proportion of state ownership was 32.8%.

23 The ownership was ‘observed ‘ if the foreign shareholding was a shareholding of 10% or above. International Finance Corporation 39 Vietnam Scorecard Project - 2011 Report

This is evidence that state ownership does not significantly demonstrate a positive impact on CG scores.

This finding presents a good opportunity to improve CG practices generally. If the government, as shareholder, was to become a ‘champion’ of better corporate governance and was to demand better CG of the entities it has a stake in, it could make a considerable improvement to CG practices in Viet- nam generally, given the state has ownership stakes in most of the surveyed companies. g. CG performance and board characteristics – board composition

In the Baseline study on 2009 data, there was no conclusive evidence of a link between BOD size and CG scores. This is again the case in this study of firms’ 2010 data. However, the review this year included a wider study of BOD characteristics, including BOD size, the number of non-executive directors, the number of female directors and BOD individual member’s age. The results are displayed in the following section of this report.

In all the 100 companies reviewed, there were 69 companies in which the CEO role was separate from the role of the chairman.

Chart 21: CEO and chairman separation

CEO is also the Chairman CEO is not the Chairman

The table below indicates that companies with BODs possessing higher proportions of non-executive directors and female directors also have higher CG scores. This is an interesting finding, particularly with the current global move for greater board diversity. Board size and the average number of directors did not seem to impact on CG scores. It should be noted that the separate identification of ‘independent’ directors in a CG study in Vietnam is problematic, as the term is not separately defined or distinguished from non-executive directors for listed companies except in financial institutions.

40 International Finance Corporation Vietnam Scorecard Project - 2011 Report

Table 9: Board characteristics – overall board characteristics24

Average No. of non-execu- No. of female BOD average CG-BOD structure board size tive directors24 directors age

Top 25 CG scored 6.48 4.16 1.20 48.4 companies Middle 50 CG scored 5.90 3.40 0.68 49.3 companies Bottom 25 CG 6.24 3.36 0.76 47.9 scored companies h. CG and board characteristics - board size Again firms are cut into three BOD size groups for the following analysis. In the first group, comprising 25 companies with higher CG scores, firms have an average of 6.5 BOD members. For the second group, some 50 companies, the average BOD size was 5.9 members. For the third group, some 25 low-scoring companies, the average BOD size was 6.2 members. These BOD sizes are not remarkably different from one another.

The overall average BOD size of the surveyed companies in Vietnam was 6.1 members. In a study undertaken in 2010 comparing the largest and smallest listed companies in several Asian countries, the results (see below) indicated that BODs in Vietnam are smaller than their counterparts in Asia. However, more research is needed to determine a link between BOD size and CG implementation. It may well be that BOD sizes in Vietnam are smaller because the companies are smaller and/or their businesses less complex in nature and/or the BOD does not have as many BOD committees requiring non-executive director attention.

Table 10: Size of Board – a comparative analysis25

Size of the BOD (comparative analysis)25

Country Average Board size Minimum Maximum

Indonesia 6.90 5 10 Malaysia 8.30 5 12 Philippines 10.50 7 15 Singapore 11.10 8 14 Thailand 13.10 10 19 Vietnam 6.12 5 11

A BOD should be of an adequate size to undertake and manage a company’s business, BOD activities and committee work. It is noted that Vietnamese companies generally do not have an Audit Committee or a CG and Nomination Committee. This may be one reason for the smaller BOD sizes. However, the reviewers recommend that both these committees are needed to more properly adhere to global better CG practices.

24 It is important to note that Vietnam’s Law on Enterprises does not distinguish between ‘non-executive’ directors and ‘independent’ directors. Independent directors are only mandated for financial institutions. 25 Venkatesh, S., The composition and compensation practices of boards of directors, LAP Lambert Academic Publishing, 2010. International Finance Corporation 41 Vietnam Scorecard Project - 2011 Report i. CG and board characteristics - proportion of non-executive directors

Although Vietnamese law requires listed firms to have non-executives make up at least one-third of BOD members to ensure the ‘independence’ of the board26, there were 15 firms in the sample below the required threshold. On average, firms with good CG performance have four or more non-executive directors on the board, whereas firms with the lowest observable CG practices have fewer non-executive directors on the board, 3.36 non-executive directors on average.

In this analysis, we break the firms into three groups. One group includes 25 firms with the highest proportion of non-executive directors on the board, one group includes 25 firms with the lowest proportion of non-executive directors on the board and the middle group of 50 companies has a medium proportion of non-executive directors on the board.

Firms with a higher proportion of non-executive directors have better overall CG scores than firms with a lower proportion of non-executive directors (see chart below). The 25 firms with highest levels of non-executive directors on the BOD have average CG scores of 46.4%. Yet, the 50 firms with medium proportions of non-executive directors achieved average CG scores of 44.9% and the 25 firms with the lowest proportion of non-executive directors achieved an average CG score of 42.8%.

Non-executive directors may prove to have a positive impact on observed CG as they may bring expertise, new ideas and contacts to benefit the company. Non-executive directors may also act as a counter balance and check on the power of executives operating within a firm on a daily basis.

Chart 22: Relationship between CG scores and the proportion of non-executive directors

46.4% 48.0% 44.9% 44.7% 46.0% 42.8% 44.0% CG score 42.0%

40.0% 25 - highest 50 - middle 25 - lowest All firms proportion of proportion of proportion of NEDs NEDs NEDs j. CG and board characteristics – proportion of female directors

In the chart below, firms with better CG scores have female directors comprising 18.9% of the BOD, yet companies with the lowest CG scores have only 12% female BOD members. The reasons for this are unclear and in countries such as Norway, where 40% of the board is mandated to be female, research on the benefits of female board members is inconclusive.

26 Vietnam law and corporate governance regulations do not distinguish between ’non-executive’ and ‘independent’ directors. Independent directors are only mandated for financial institutions. 42 International Finance Corporation Vietnam Scorecard Project - 2011 Report

Chart 23: Proportion of female directors on the board

18.9% 20.0% 13.8% 12.1% 12.0% 15.0%

10.0%

5.0%

0.0% Top 25 Middle 50 Bottom 25 All firms companies companies companies

% of females on BOD

Current thinking on board diversity, especially the representation of women on boards, is exempli- fied by these comments from Baroness Hogg27: “Diversity widens the perspectives brought to bear on decision-making, avoids too great a similarity of attitude and helps companies understand their customers and workforces. A board with too few women on it risks a weakness in at least one of these respects.”

The Financial Reporting Council (FRC) in the United Kingdom is currently undertaking a consultation on the role of females in the boardroom and the consultation document28 states: “Specific issues with the low percentages of women directors are rooted in three concerns about board effectiveness: • That a lack of diversity around the board table may weaken the board by encouraging ‘group think’ • That such low percentages of women on boards may demonstrate a failure to make full use of the talent pool • That boards with no, or very limited, female membership may be weak in terms of connectivity with, or understanding of, customers and workforce and offer little encouragement to aspira- tion among female employees”.

Diversity on a board is recommended in good CG as it is seen to reduce the risk of ‘group think’ and an unchallenged board, chairman and/or senior executive team. However, the representation of females on boards in Vietnamese companies is generally low. When companies are searching for ‘independent’ non-executive directors, females may provide a good pool of available talent. k. CG performance by exchange

Of the 468 listed companies on the HNX and HOSE as of January 1, 2010, some 188 were listed on the HNX and 280 on the HOSE. The selected 100 companies comprise 79 listed on the HOSE and 21

27 Baroness Hogg is the chair of the Financial Reporting Council of the UK, which is currently investigating why boards with females perform better and display better CG. 28 Financial Reporting Council, Consultation Document: Gender Diversity on Boards, FRC, London, 2011. International Finance Corporation 43 Vietnam Scorecard Project - 2011 Report

on the HNX. The companies were selected on the basis of equity market capitalization and were the 100 largest listed companies.

The overall mean CG scores of companies listed on the HOSE were marginally higher at 44.9% than those listed on the HNX at 44.2%. Furthermore, the highest individual company score was achieved by a HOSE-listed company. This exchange distinction may well be due to the fact that the HOSE introduced mandatory compliance with the CG Regulations two years earlier than the HNX.

Companies listed on the HOSE represented 79% of all companies reviewed. However, HOSE companies outperformed their relative number by comprising 84% of companies with better CG practices in the top CG quartile of 25 companies. This may be also a reflection of the fact that the HOSE is an older stock exchange with its companies more attuned to stock exchange regulations and CG requirements. It may also be a reflection of different listing parameters and disclosure requirements. l. Top 10 companies with better CG scores versus bottom 10 companies

Of those companies with the 10 top and 10 lowest CG scores, the industry representation was as fol- lows:

Table 11: Industry sectors of Top 10 and Bottom 10 companies

No. of firms Industry Sector of No. of firms Industry Sector of Top 10 Bottom 10 1 Healthcare 2 Financials 1 Basic Materials 2 Utilities 1 Technology 1 Consumer Goods 2 Consumer Goods 5 Industrial 5 Financials

Table 12: Comparison between the 10 companies with the best CG scores and the 10 companies with the lowest CG scores

Mean CG core ROA Ratio ROE Ratio CG Score Group % % %

Top 10 companies 54.5 13.6 25.7

Bottom 10 companies 34.9 7.4 13.2

From the table above, it can be seen that the 10 companies with better CG scores significantly outperformed the poorer CG scoring firms. This may be due to many factors, but it does seem as if CG may be one such factor. Of the 10 better performing companies, two were newly listed whereas in the 10 companies with poor CG scores, four were newly listed. However, being a newly listed company is no excuse for poor CG.

The 10 companies with the highest CG scores achieved CG scores of between 58.6% and 52.8%. Therefore, it may be profitable to consider the distinguishing factors of these 10 companies to learn from the good practices being applied. In the top group, the average board size was 6.8 members with an average SB size of 3.2 members and an average of 4.7 non-executive directors. The companies with better CG scores were, on the whole, more transparent and had better disclosure processes. For

44 International Finance Corporation Vietnam Scorecard Project - 2011 Report example, 90% of these top 10 companies provided BOD and SB compensation information.

When a comparison is made with the 10 companies receiving the lowest CG scores, between 37.5% and 29.3%, the board size was an average of 6.1 members. However, the SB was larger with an average of 3.6 members. One distinguishing factor is that companies with poor CG score have far fewer non-executive directors on the board with an average of only 2.6 members. The firms also seemed less transparent, as 80% of the 10 low-scoring companies failed to provide BOD and SB compensation data.

However, no company in the sample group can be complacent as none attained a score of 60%, while global best practices would achieve a score of approximately 80%. There is still a long way to go, but these top 10 companies have commenced their CG journeys and should be encouraged. Again we need to recognize the caveat that, even in the top 10 companies, observable better CG practices do not guarantee that actual practices in the boardroom are also good and that CG failures may still occur.

International Finance Corporation 45 Vietnam Scorecard Project - 2011 Report

E. Specific Findings

The specific findings review each question and report on how well the companies implemented CG measures and which can be identified as good CG practices. In this section of the report, the companies’ areas of strength and weakness are highlighted. Points of strength in each CG area assessed are indicated by companies achieving an overall CG score of more than 70%. Points of weakness are identified by companies achieving an overall CG score of less than 40%. Indeed, in this entire section of the 2011 Corporate Governance Scorecard Report, red coloring in charts indicates weak areas. a. OECD Principle II - Rights of Shareholders

In the evaluation of the OECD Principle: Rights of Shareholders, (the first area reviewed in this Scorecard (Area A)), some 21 questions focussed on evidence of basic shareholder rights and how shareholders’ rights were protected and exercised, including shareholders’ participation in the AGM. Basic shareholder rights are defined as the capacity to own, register and transfer shares, to obtain relevant information from the company (especially on major transactions affecting the company), to participate and vote in shareholder meetings to elect and remove board members and to share in the profits of the company.

Table 13: Evidence of implementation of the Rights of Shareholders – comparison

Measure Score % 2009 Score % 2010

Possible maximum score for this area 15 15

Maximum achieved 11.8 11.1

Minimum achieved 0.4 2.9

Mean 7.0 7.3

It appears the overall Rights of Shareholders require more attention if good CG standards are to be achieved. However, it is worth noting that the average implementation of basic shareholder rights marginally improved from 2009. It is good that the long tail of weak performances has improved in this area and the minimum achievement was higher. Nevertheless, when reviewing each indicator of the Rights of Shareholders separately, the basic Rights of Shareholders to vote and to distributions were well explained. It is also evident that many companies offered other ownership rights beyond the most basic rights, such as the right to approve dividends and equal treatment for all shareholders for share repurchases. The AGM, too, was recognized as the main shareholder contact point and there were adequate company systems in place to ensure shareholders’ attendance at AGMs. The chart below indicates each question related to the Rights of Shareholders, on which the observation of company data delivered relatively good results with scores of more than 70%. From the information publicly available and disclosed the following areas could be considered points of strength for Vietnamese companies. Evidence shows that companies offer rights to shareholders, often more than basic rights and give shareholders the right to approve major corporate transactions. Furthermore, there are opportunities

46 International Finance Corporation Vietnam Scorecard Project - 2011 Report

for shareholders to participate in AGMs, ask questions at AGMs and elect members to the board. However, in Vietnam, there is evidence that shareholders do not fully utilize and exercise these rights.

Chart 24: Rights of Shareholders – areas of better performance

A.05 49 44 7

A.10 75 025

A.12 88 120

A.02 96 4 0

A.09 99 10

0% 20% 40% 60% 80% 100%

Observed Partially observed Not observed

The chart below indicates each question related to the Rights of Shareholders, on which the observations of company data were relatively poor and achieved scores of 40% or below. From the information publicly available and disclosed, the following could be considered points of weakness in Vietnamese companies.

Chart 25: Rights of Shareholders – areas of worst performance

A.16 2 1 97

A.14 1 13 86

A.18 2 13 85

A.15 4 12 84

A.17 721 72

A.13 1 39 60

A.03 1 76 23

0% 20% 40% 60% 80% 100%

Observed Partially observedNot observed

The specific weak points relate to the effectiveness of shareholders’ rights. For example, whilst the shareholders have the right to nominate and remove directors to and from the board, the shareholding thresholds are high, thus effectively limiting this right. The right to vote on board remuneration is limited by the lack of adequate information provided to shareholders. Finally, another area of weakness is shareholders’ capacity to elect and hold the external auditor accountable. Information provided on the auditor and his/her competence and independence, is generally superficial and whilst shareholders can ask the auditor questions at the AGM, in many cases either the auditor did not attend the AGM or no questions were asked. In current practices, shareholders are encouraged to participate in the affairs of the company and to exercise their rights.

International Finance Corporation 47 Vietnam Scorecard Project - 2011 Report

Question by question analysis

A1. Rights of Shareholders - Basic Shareholder Rights and Additional Rights (A.01 – A.05)

Questions A.01 to A.05 inclusive were drafted to assess the extent to which there is evidence of the way companies deal with basic shareholder rights and to assess if the company offers rights to shareholders, other than the bare minimum.

Chart 26: Basic Shareholder Rights

120

100

Not observed 60 Partially observed

40 Observed

0 A.01 A.02 A.03 A.04 A.05

A.01 Are the voting Rights of Shareholders clear and unequivocal?

A.02 Does the company offer ownership rights, more than basic rights (voting rights, right to freely transfer shares and right to timely information)?

A.03 Do shareholders have the right to nominate and remove members of the BOD and the SB?

A.04 Are the dividend and dividend payment policies transparent?

A.05 Do shareholders have the right to approve major corporate transactions (mergers, acquisitions, divestments and/or takeovers)?

It can be seen from the chart above that publicly available information was generally clear on the basic Rights of Shareholders, including capacity to register and transfer shares (A.01). Most companies offered more than the basic rights expected (A.01 and A.02). However, the provision of quality and full information on voting rights for each class of shares, dividend rights, distribution rights and share transfers could improve (A.02). It is good practice for firms to disclose both the redemption of shares on demand by shareholders and also redemption of shares pursuant to a resolution of the company.

Shareholders have clarity about the right to nominate and remove members of the board and members of the SB (A.03) as required in the Model Charter. However, the thresholds for the application of these rights are complex (involving shareholding thresholds and shareholding periods) and tend to be higher than international practices, which are normally a shareholding requirement of between 3% and 5%. Furthermore, the reviewers observed some internal inconsistencies in individual company policies regarding thresholds for director nomination practices. The evidence suggests that whilst

48 International Finance Corporation Vietnam Scorecard Project - 2011 Report

there is a right in place to nominate and remove directors and members of the SB, it is not really effective as there are impediments to shareholders exercising these rights.

Less evident were shareholders’ rights to participate in the approval of dividend policy (A.04). Whilst approval was evident, less obvious was the rationale for the dividend payment and even a payment date. In most companies, shareholders have the right to approve major transactions (A.05) such as mergers and acquisitions, as this is encompassed in the Model Charter. Some banks and financial institutions had a lower threshold than regulated, lower than 50% of total assets. The lower the threshold, the better the practice.

Regarding the last issue on major transactions, the Model Charter in Vietnam requires shareholder approval for major transactions and the Charter stipulates the level of voting required for such approval. For example, all AGM resolutions require approval by no less than 65% of participating shareholders’ votes. However, if the transaction is considered a ‘major’ transaction, such as a sale of company assets valued at 50% or more of the total assets of the company, then a 75% approval level is required (A.05). These thresholds are high relative to good practices elsewhere in Asia.

A.2 Rights of Shareholders - Participation in the AGM (A.06 – A.11)

The AGM is the highest decision-making body in the company. It is a basic right of shareholders to attend and vote at the AGM. In normal good practices, the AGM makes decisions on major issues affecting the company and is a key point for effective communication with shareholders.

Chart 27: Shareholders’ participation in the AGM

120

100

Not observed 60 Partially observed

40 Observed

0 A.06 A.07 A.08 A.09 A.10 A.11

A.06 Was the AGM held within four months of the end of the fiscal year?

A.07 Are there adequate company systems for shareholder attendance at AGM?

A.08 Are the AGM shareholder meeting notices effective?

A.09 Are the policies and processes for shareholders to ask questions at the AGM clear and is time provided for on the agenda?

A.10 Does AGM information of the past year record opportunities for shareholders to ask questions?

A.11 Was the attendance of the chairman/head of SB/other board members/CEO at the last AGM evident?

The extent of shareholder interaction at the AGM is mixed (see chart above).

International Finance Corporation 49 Vietnam Scorecard Project - 2011 Report

In general, the AGMs were held in a timely manner, within four months of the end of the fiscal year in accordance with the Law on Enterprises in 88% of cases (A.06) and good systems were in place to facilitate shareholder attendance (A.07) and meetings were generally held at a convenient time and place in 96% of cases.

Less impressive was the quality of AGM meeting notices, which generally lacked adequate information for shareholders to support AGM resolutions (A.08). Only 27% were deemed to have quality AGM information and meeting notices. For example, no firm provided the Annual Report with the AGM notices. It is understood that printing can be costly. However, it is good practice to include at least a comment about the availability of the AR, in soft copy and its location, with the AGM notices. Indeed some firms do not make the AGM notices and related materials publicly available. Informa- tion is sent directly to investors’ addresses, which can be problematic for shareholders absent from postal addresses during the AGM season or where postal services are unreliable. Furthermore, information concerning auditors’ appointments or re-appointments is basic, usually comprising a list of auditors with very little information regarding their background and sector experience.

One company is to be congratulated on its entrepreneurial approach to the AGM. It organized the AGM simultaneously in Hanoi and HCMC using technology. It established the AGM in e- conference format – a methodology that will be useful for supporting cross border participation and voting.

Just under half the companies surveyed allowed time on the AGM agenda for shareholders to ask questions (A.09) and records of the questions, discussions and responses were also evident (A.10) in 48% of cases. However, the reviewers noted that the quality of AGM minutes could be improved. It is important to note that in 21% of the companies surveyed, there was clear evidence in the AGM minutes or other documents of the individual attendance of the chairman, or directors, or SB members at the AGM to support effective communication between the board and shareholders (A.11). In many cases this information was not readily observed and hidden deep in company information. The pres- ence of key personnel at AGMs is essential for shareholder communication.

A.3 Effective participation in director nomination and remuneration (A.12 – A.13)

Effective participation of the shareholders in key CG decisions, such as the nomination and election of directors should be facilitated. To ensure this happens in practice, full information on the director nominees, including experience and other personal information and commitment to good CG should be available to shareholders. Also, clear information on voting policies and practices and voting in absentia should be available. In recent times, a clear focus on director remuneration has emerged and in many jurisdictions shareholders are encouraged to vote on the remuneration policies and practices for board members and key executives (see chart below). In particular, in good practice the remuneration policy should state a relationship between pay and the long-term performance of the company.

50 International Finance Corporation Vietnam Scorecard Project - 2011 Report

Chart 28: Shareholder participation in the nomination of directors and in company remuneration policies

120

100

Not observed 60 Partially observed

Observed 40

0 A.12 A.13

A.12 Are AGM policies and processes in the past two years (notices and information) sufficient for shareholders to evaluate individual board nominations?

A.13 Do shareholders effectively vote (receive information on, make their views known and vote) on board and key executive remuneration annually?

Whilst shareholders have a right to participate in the nomination and election of directors, they receive insufficient information preventing an informed judgment and a real evaluation of individual directors prior to the AGM and a vote electing them (A.12). Information should include other current board appointments, board experience and background and information on the nomination process itself. Also, the provision of such information to shareholders seven days before the AGM is not adequate for shareholders to consider the candidates.

Disclosure of the remuneration policy and its link to long-term company sustainability and performance, along with individual director remuneration, is good practice. For example, remuneration policies may explain how the company’s practices align the interests of directors and senior managers with those of profitable, sustainable growth for the company.

Remuneration, globally within a CG context, is increasingly attracting attention from regulators and shareholders. Shareholders are now expected to give their opinion, and in many cases vote, on the remuneration policy at AGMs. In reviewing the selected companies’ information, it is apparent that information about board remuneration and that of directors and key executives prior to AGM approval was poor in approximately 60% of the companies surveyed. Even where it is stated in a company’s AA that information regarding remuneration should be presented, this was often not evident (A.13) or not sufficiently comprehensive. Furthermore, as regards the information presented to shareholders on board and key executive remuneration, generally disclosures to shareholders lacked the inclusion of all benefits, how the remuneration related to long-term performance targets and evaluation of the achievement of those targets. Generally, evidence of shareholders’ views on remuneration considered at the AGM was lacking. Often shareholders do not exercise their rights in this respect and authorize the BOD or chairman to be responsible for remuneration.

International Finance Corporation 51 Vietnam Scorecard Project - 2011 Report

A.4 Rights of Shareholders - Shareholder interaction with the auditor (A.14 – A.16) Shareholders may take comfort in the fact that the financial statements are audited by a competent, qualified and independent auditor. The appointment of the external auditor is a key part of a company’s control framework and the appointment of quality personnel to undertake the audit is an important role of shareholders. The auditor gives the shareholders and stakeholders an independent opinion that the company’s financial statements represent (or do not represent) a true picture of the company’s financial position and enhance the credibility of those financial statements. The Model Charter of Vietnam requires the auditor is annually appointed by the shareholders at the AGM and that the auditor may express an opinion on audit issues at the AGM.

Chart 29: Relations with auditor at AGM

120

100

Not observed 60 Partially observed

Observed 40

0 A.14 A.15 A.16

A.14 Did the external auditor attend the AGM and the express his/her views on audit issues?

A.15 Did the shareholders effectively approve the appointment of the external auditor?

A.16 Was adequate information provided to shareholders for the appointment of the external auditor?

In Vietnam, the shareholders’ role and interfacing with the auditor is poor (see chart above).

The survey suggests that there is little evidence that the auditor attends the AGM and expresses his/ her views on audit issues. Even if the auditor did attend the AGM, there was little record of shareholder interactions with him/her (A.14). General practice seems to be that the audit appointment is a matter of formality. Little information is provided on the audit firm and it is assumed that most audits are undertaken by the ‘Big 4’ and their brands and reputation are sufficient. Information should be provided to the shareholders and include information on the audit firm, the lead audit partner, the second review process of the audit firm and the manner in which the audit firm ensures the independence of all audit team members. Shareholders should fulfil this important role.

Few companies offered comprehensive information to support the appointment of the auditor (A.15). In many Vietnamese companies, shareholders authorize the board to select the auditor from an approved slate of possible auditors. This is a practice to be discouraged. A key factor in the value of an audit opinion is that it is provided by a competent, independent third party. In good practices, information is usually included to support the ‘independence’ of the suggested auditor. In Vietnam, the focus was on the brand name, prestige of the audit firm, its capacity to deliver an audit on time and cost of the audit (A.16). Less emphasis is on auditor ‘independence’.

52 International Finance Corporation Vietnam Scorecard Project - 2011 Report

A.5 Rights of Shareholders - AGM effectiveness and processes (A.17- A.21) The AGM is the highest governing body of the company. It is through the AGM that shareholders hold the BOD and SB accountable for their leadership of the company. At the AGM, they express their will with respect to important company matters such as the approval of the annual reports and financial statements, the election and dismissal of directors, payment of dividends, company reorganization, major corporate transactions and the appointment of the company auditor. As elsewhere, in Vietnam the AGM is a key vehicle for board and SB accountability to shareholders through the provision of board and SB performance reports as required by the CG Regulations and Model Charter. Even though these reports are mandatory and specific information is required by the CG Regulations, evidence suggested the provided reports were not comprehensive (A.17 and A.18) and the information provided was not sufficiently detailed. Chart 30: AGM effectiveness and processes

120

100

Not observed 60 Partially observed

40 Observed

0 A.17 A.18 A.19 A.20 A.21

A.17 Is a full report provided to the AGM on the BOD’s performance?

A.18 Is a full report provided to the AGM on the SB’s performance?

A.19 Did the AGM notices include explicit information on accessible systems for proxy voting and voting in absentia?

A.20 Did AGM meeting minutes and the company website disclose individual resolutions, with voting results for each agenda item?

A.21 Are there additional items included in the AGM minutes not included on the original meeting notice?

In general, it was good to see evidence that AGM notices had explicit information on voting policies and practices, including provisions for voting by proxy. This encouraged fuller shareholder participation (A.19). However, there was little evidence of mechanisms for voting in absentia through postal voting or electronic voting if a shareholder did not wish to provide a proxy for his/her vote.

The reviewers noted the improved transparency of AGM resolutions and voting against that evident in 2009 (A.20). In good practices, resolutions are put to the AGM one-by-one, not bundled together. In- dividual resolutions and individual voting results are posted on the company website as soon as pos-

International Finance Corporation 53 Vietnam Scorecard Project - 2011 Report

sible after the AGM and recorded in the AGM minutes. In 2009, this question achieved an ‘observed’ rating in less than 20% of the surveyed companies. In 2010, it was observed in nearly 50% of cases.

Finally, when comparing the AGM agenda as circulated with the AGM minutes or resolutions, generally the minutes reflected the activities that transpired at the AGM with no additional items added (A.21). However the quality of AGM minutes, where available, could improve as they lacked useful details, particularly in recording the individual attendance of directors and SB directors at the AGM. Minutes should be carefully looked after and made available, as they are an important legal record of the AGM and its decisions. Indeed, under the Law on Enterprises, Article 106, AGM minutes must be completed and approved before the closing of the meeting and should be sent to all shareholders within 15 days of the closing of the meeting. b. OECD Principle III - Equitable Treatment of Shareholders

In good CG practice and according to the OECD Principles all shareholders, including minority and foreign shareholders, should be equitably treated by the company and the board and be able to participate in the AGM and key company activities. This particular treatment is often established in law or by way of a voluntary company shareholder agreement that binds the parties. For the credibility of capital markets, all investors should be protected from abuse, including the misuse or misappropria- tion of company assets and from self-interested activities controlling major shareholders.

Furthermore, all shareholders should have the opportunity to seek redress for any violation of their rights. It is important that shareholders have effective access to redress for grievances and be able to initiate legal and administrative proceedings against the board and management. This access should be at a reasonable cost and without excessive delay. Legal and administrative proceedings are not the subject of this review as they are not within a company’s control.

Table 14: Evidence of Equitable Treatment of Shareholders – comparison

Measure Score % 2009 Score % 2010

Possible maximum score for 20.0 20.0 this area Maximum achieved 17.2 15.6 Minimum achieved 5.0 7.8 Mean 13.0 12.2

Overall, the companies surveyed complied reasonably well in this area with an average level of compliance of 61% against 65.1% in the report based on 2009 data. Many of the requirements for good practices are plain, in the Law on Enterprises, in the Model Charter and adopted by listed companies. However, it is also evident that many companies have simply adopted the Model Charter in its entirety without considering how the company may adapt the generic charter to being a specific charter, drafted for the special circumstances of the company and the needs of its shareholders. Such a practice does not show a real commitment to CG, but rather a ‘tick box’ approach.

When assessing the Equitable Treatment of Shareholders, the two charts below highlight questions pointing to better CG performance and areas where improvements can be targeted.

The chart below indicates each question related to the Equitable Treatment of Shareholders, on which the observation of company data delivered relatively good results with scores of more than 70%.

54 International Finance Corporation Vietnam Scorecard Project - 2011 Report

From the information publicly available and disclosed, the following could be considered points of strength in Vietnamese companies.

Evidence shows that policies and processes were in place to protect shareholders, in that shareholders in each class of shares have the same rights, shareholders could nominate directors to the board and directors were regularly re-elected. Meanwhile, there was no widespread evidence of structures that could violate minority shareholders’ rights and they have a right to approve fundamental changes to the company. Widespread non-compliance with requirements concerning RPT was not evident.

Chart 31: Equitable Treatment of Shareholders – areas of better performance

B.09 80 18 2

B.01 82 15 3

B.06 88 8 4

B.07 88 10 2

B.08 91 9 0

B.16 100 0

B.04 100 0

0% 20% 40% 60% 80% 100%

ObservedPartially observedNot observed

However, caution must be shown in respect to the Equitable Treatment of Shareholders and the real protection of minority shareholders. Information on conflicts of interest, insider dealing, RPTs, the use of pyramid structures and cross shareholdings is opaque and often by its very nature hidden from view. Furthermore, there is little evidence of regulatory enforcement in these areas. This may be due to the lack of activity by regulators.

The chart below indicates each question related to the Equitable Treatment of Shareholders. Obser- vations of company data delivered relatively poor results with scores of 40% or lower. From the information publicly available and disclosed, the following could be considered points of weakness in Vietnamese companies.

International Finance Corporation 55 Vietnam Scorecard Project - 2011 Report

Chart 32: Equitable Treatment of Shareholders – areas of poorer performance

B.05 2 98

B.14 3 97

B.18 4 21 75

B.11 1 72 27

0% 20% 40% 60% 80% 100%

ObservedPartially observedNot observed

There are a number of areas that could be targeted for improvement in companies. Greater encouragement and facilitation of cross border voting should occur so all shareholders, including those in other jurisdictions, can participate in company affairs and keep the BOD accountable. RPT policies should be more effective so transactions, in which a conflict of interest is evident, are approved by the board or shareholders depending on the size of the transaction and that the thresholds for such approvals are low. A quality investor relations structure and personnel would assist the Equitable Treatment of Shareholders.

Question by question analysis

B.1 Equitable Treatment of Shareholders – Share rights and voting rights

In any class of shares, it is good practice for all shares to carry the same rights and after shareholders have invested in the company, they should have a say in any variation of those rights. Information about the rights attached to all classes of shares should be readily available and the concept of ‘one share, one vote’ is supported in many jurisdictions.

Chart 33: Equal shareholder rights and voting rights

120

100

Not observed 60 Partially observed

40 Observed

0 B.01 B.02

B.01 Does each share in the same class of shares have the same rights? B.02 Does the company have a ‘one share, one vote’ policy?

56 International Finance Corporation Vietnam Scorecard Project - 2011 Report

In general, under the Law on Enterprises and the Model Charter, the rights attached to a class of shares should be known and publicly available and a vote of shareholders holding at least 75% of all voting rights of issued shares at the AGM is required to change shareholder rights. There is some confusion in the minds of companies concerning this threshold. Some companies use a 65% threshold, derived from the Model Charter as used in Article 20, Paragraph 1 which is incorrect. The 75% threshold should be applied when amending the rights attached to each class of shares. Approximately 80% of all companies surveyed were transparent and even-handed regarding the Rights of Sharehold- ers. However, less than 60% of companies had an explicit ‘one share, one vote’ policy where there is an expressed commitment to only one class of shares with each share carrying one vote. Often firms do have a ‘one share, one vote’ policy, but it is not stated in company literature. Increased transparency on this issue is recommended.

B.2 Practical application of shareholder rights, ensuring equitable treatment

It is important to note that practical involvement of minority shareholders in key company activities, such as influencing the composition of the board, being able to vote on major company decisions and to vote at the AGM, even if the shareholder is a foreign shareholder, demonstrates that, in reality, there is much less commitment in Vietnamese companies to the Equitable Treatment of Shareholders (see Chart 29 below). Chart 34: Practical application of shareholder rights

120

100

Not observed 60 Partially observed

40 Observed

0 B.03 B.04 B.05

B.03 Can minority shareholders impact the composition of the board? B.04 Are directors required to be re-nominated and re-elected at regular intervals? B.05 Is cross border voting facilitated by the company?

Indeed, in less than 50% of the firms surveyed company documentation clearly showed that shareholders could impact on the composition of the board through the use of cumulative voting or the right to nominate board members (B.03), even if the directors were regularly re-nominated and re-elected at regular intervals (B.04). The lack of provision for foreign shareholders to participate in company decisions was revealing, as cross border voting was not facilitated in 99% of cases (B.05). Evidence of policies for cross border voting and information in English on how foreign investors could lodge votes were rarely evident. Electronic voting procedures can facilitate cross border participation, but this is not a feature of AGM practices in Vietnam. To its credit, one company with foreign sharehold-

International Finance Corporation 57 Vietnam Scorecard Project - 2011 Report

ers indicated that it would hold its AGM in a variety of places to accommodate shareholders. B.3 Company structures and shareholders’ right to redress Many publicly listed companies may have a controlling shareholder, such as a family or a state shareholding. In this situation, though it may also benefit the company, a controlling shareholder may have the potential to abuse minority shareholders, particularly if the directors’ duty of loyalty to the company and to all shareholders is not clearly defined and understood. Therefore, the company structure should be clear and shareholders should have effective means of redress available to protect themselves (see chart below).

Chart 35: Company structure and shareholders’ right to redress

120

100

Not observed 60 Partially observed

40 Observed

0 B.06 B.07 B.08

B.06 Is the company group structure clearly and transparently described?

B.07 Is there evidence of structures/mechanisms that have the potential to violate minority shareholder rights?

B.08 Are there mechanisms that provide effective redress for complaints of shareholders?

Though it took time to discern and was difficult to identify company group structures, generally this was possible on a superficial level in approximately 90% of the listed companies surveyed (B.06). Evidence of structures or mechanisms that would have the potential to violate minority shareholder rights, such as cross shareholdings and pyramid structures (B.07) were not easy to discern as the level of disclosure of shareholdings and share trading was not good. There are known family groups and groups that have close relationships which are complex. Nevertheless, from the available information it was difficult to confirm the true nature of the relationships. Although Annual Reports show organi- zational charts, the structure of business corporations and other information was not provided in full. It was difficult to get information on ultimate beneficial ownership and ownership control may often be affected through interlocking networks of public and private company subsidiaries.

In Vietnam, there was evidence that the Law on Enterprises and Model Charter offered certain protections for minority shareholders to ensure equitable treatment, such as the existence of pre-emptive rights when a company wished to increase its capital. Also, most companies have policies and processes to deal with shareholder complaints (B.08). In several countries where court systems and processes are slow and cumbersome, arbitration is an alternative for shareholder redress. Arbitration is not a widely used for redressing shareholders in Vietnam and may be worth consideration for CG disputes.

58 International Finance Corporation Vietnam Scorecard Project - 2011 Report

B.4 Shareholders at the AGM One of the best protections for minority shareholders is the right to approve any fundamental changes to the company. In good practices the company charter will include a policy for shareholder participation and for shareholder approval of fundamental changes either at the AGM or an Extraordinary General Meeting (EGM). In Vietnam, these requirements are clearly stated in the Model Charter and confirmed in practice in 80% of companies surveyed (as evident in theAGM documents) (B.09).

Chart 36: Shareholders and the AGM

120

100

Not observed 60 Partially observed

40 Observed

0 B.09 B.10 B.11

B.09 Do shareholders have the right to approve fundamental company changes?

B.10 How many days before the AGM were the meeting notices sent out?

B.11 Can a small shareholder place an item on the AGM agenda?

Where there is discretion to ensure full shareholder participation in the AGM, a notice period of 20-30 days is considered good practice. Shorter notice periods were evident in the surveyed companies with about 25% of companies giving less than 15 days notice of the AGM (B.10).

Furthermore, it was good practice for a company to have policies and procedures in place that allow small shareholders to put an item on the AGM agenda (B.11), given threshold requirements stipulated in the company charter. In the survey group the policies were in place, but the thresholds for this shareholder right were quite high and generally required a shareholding of between 5% and 10% or even more in some cases. These threshold levels would tend to negate the practical usefulness of the prescription. A company committed to good CG can voluntarily lower these thresholds in the interests, and with the permission, of shareholders. Indeed, the reviewers observed inconsistencies between thresholds set in individual company’s Articles of Association and other relevant company policies on this issue.

B.5 Definition of insiders and conflicts of interest and related party transactions

Directors should act in good faith in the best interests of the company and its shareholders. In doing so, they have a duty to be loyal to the company as required by the Law on Enterprises. They should avoid conflicts of personal interest with their duty to the company and should not make personal profits from their relationship with the company or from information available as a consequence of

International Finance Corporation 59 Vietnam Scorecard Project - 2011 Report

their relationship with the company, without disclosing the transaction. Insider trading and abusive self-dealing should be prohibited. Directors should assume their responsibilities in an even-handed manner with respect to all shareholders.

These issues were reviewed in the questions below.

Chart 37: Conflict of interest, insider trading and related party transactions

120

100

Not observed 60 Partially observed

40 Observed

0 B.12 B.13 B.14 B.15 B.16 B.17

B.12 Are there company policies in place that effectively prohibit the misuse of information by directors, management and staff?

B.13 Were there any known cases of insider trading involving the company directors, management or staff in the past year?

B.14 Are there effective company policies for the company to approve relevant RPTs?

B.15 For large company transactions, does company policy require the provision of information to explain RPTs and require shareholder approval of RPTs above a certain threshold?

B.16 Were there cases of non-compliance with requirements relating to related party transactions in the past year?

B.17 How does the board deal with declarations of conflict of interest?

Most companies surveyed had high-level policies in place to deal with the misuse of company information (B.12). Such policies should deal with defining ‘insiders’ and include policies on information use, protection and disclosure, confidentiality policies, share trading policies and a company code of conduct. However, most company efforts seemed incomprehensive and lacked a clear definition of an ‘insider’. These shortcomings were evident in the surveys with 2009 and 2010 data. Few companies have adopted a code of conduct (a clear statement from the entity providing parameters for how it expects all BOD members and employees to conduct themselves in relation to ethics, integrity, fair dealing and measured risk-taking). Increased clarity regarding policies and procedures around the misuse of information and share trading by ‘insiders’ could improve this area.

Trading on inside information is countered by the use of share trading policies and ‘black out’ periods to prevent insider trading. The use of ‘black out’ periods is not well understood. Despite this and according to SSC and SX filings, there were several known cases of insider trading involving company directors, management or staff in the reviewed year (B.13). Enforcement in this area is challenging

60 International Finance Corporation Vietnam Scorecard Project - 2011 Report

due to difficulties in monitoring and obtaining proof. However, enforcement mechanisms may also not be clearly defined. The SSC is building its resources and skills to identify insider trading and expects to increase enforcement in this area.

Good and effective company policies to deal with RPTs as they arise requires RPTs be clearly defined, and policies and mechanisms are needed to control RPTs and approve them where necessary. Policies should include early disclosure requirements to the BOD and/or to the shareholders and preclusion from voting or any involvement in matters in which they hold a direct or indirect interest.

This is particularly important in Asia, where family-controlled and state-controlled companies are prevalent. In good CG practice, controlling shareholders may undertake contractual agreements with the company to promote the firm’s interests, but respect in full the rights of minority shareholders and creditors. Furthermore, it is good practice for independent BOD members to scrutinize RPTs to ensure they are at arm’s length and on commercial terms and valuations. Increasingly, it is expected these independent directors approve RPTs that come before the BOD.

In the 100 companies surveyed, policies for dealing with RPTs and related parties were in place. How- ever, the approaches lacked rigour in that many lacked a clear definition of ‘related parties’ and the thresholds for board approval (less than 50% of total assets) and the AGM (50% of the total assets or above) were high relative to global practices (B.14). These thresholds are prescribed by the Law on Enterprises, Article 120. A company has the option to set a lower threshold than 50%. At variance with the Law on Enterprises, the Model Charter (Article 34) refers to RPT approval at thresholds below 20% of total assets requiring board approval and above 20% of total assets requiring shareholder approval. Most companies have adopted the Model Charter thresholds and this is consistent with some global practices. Global practices vary and mostly use a two-pronged approach requiring disclosure and shareholder approval. Shareholder approval thresholds, for example, in China are 30%29 and in Singapore shareholder approval is required for transactions greater than 5% of net tangible assets.

When seeking shareholder approval, the company should provide full and relevant information to effectively approve RPTs. Of the companies surveyed, the information/explanations provided were poor or incomplete (B.15). Policies were considered to be poor and explanations inadequate. Howev- er, in 100% of companies there was no evidence of non-compliance with RPTs in the surveyed period (B.16). A degree of caution should meet this finding as the lack of evidence may be because of weak oversight and enforcement mechanisms, not because companies have good CG practices in place.

Good board policies and procedures have laid out the manner and content of conflict of interest declarations in a Code of Ethics or Code of Conduct for the board. They include the process for a conflict of interest declaration and the disclosure obligations required of the board to shareholders at the AGM and in the AR. These disclosures were observed in 2% of companies surveyed and only partially observed, uncompleted or considered not of good quality in 93% of cases (B.17).

B.6 Investor relations and information provision

Many steps to ensure the Equitable Treatment of Shareholders and to enable and protect minority shareholders rely on Disclosure and Transparency (see also Section D – Disclosure and Transparency). In this respect, effective investor relations policies, programs and information flows to shareholders are most important. Comprehensive investor relations structures, policies and procedures were observed in 4% of companies or partially observed in 21% of the companies reviewed (See chart below – B.18). Indeed, most companies did not nominate a person to facilitate communication with shareholders.

29 Source is the OECD guidance, Guide on Fighting Abusive Related Party Transactions in Asia, September 2009, Paris. International Finance Corporation 61 Vietnam Scorecard Project - 2011 Report

Chart 38: Investor relations and information provision

120

100

80 Not observed 60 Partially observed

40 Observed

0 B.18

B.18 Does the company have an effective investor relations/information policy and program? c. OECD Principle IV - Role of Stakeholders By definition, stakeholders with a stake in the company have the possibility of gaining benefits or experiencing losses/harm as a result of company operations. Stakeholder engagement can help companies better understand stakeholders’ interests and concerns so the company and BOD can make informed decisions about balancing the interests of all the groups to which they have obligations. The OECD Principle IV indicates that the CG of a company should recognize the rights of stakeholders in the creation of wealth.

Indeed, in recently international issued CG codes, such as the King III Code in South Africa and in revisions to company laws, directors are being required to consider the interests of company employees, business relations with suppliers, customers and others and the impact of company operations on the community and environment.

Overall, the companies surveyed in Vietnam have not moved to global practice levels in this area with a level of compliance of 29.4%. The incidence of ‘red’ and ‘yellow’ in the chart below indicates this.

Table 15: Evidence of Role of Stakeholders in Corporate Governance - comparison

Measure Score % 2009 Score % 2010 Possible maximum score for 5.0 5.0 this area Maximum achieved 3.4 3.4 Minimum achieved 0.3 0.0 Mean 1.5 1.5

Stakeholders’ consideration will encompass employees, suppliers, consumers and customers, creditors, the environment and community at large.

62 International Finance Corporation Vietnam Scorecard Project - 2011 Report

Chart 39: Role of Stakeholders in Corporate Governance

120

100

80 Not observed 60 Partially observed

40 Observed

0 C.01 C.02 C.03 C.04 C.05 C.06 C.07 C.08

C.01 Does the company recognize company obligations (in law and agreements) to key stakeholders and engage them?

C.02 Does the company provide a range of performance enhancing employee benefits to align company and employee interests?

C.03 Have mechanisms been introduced that facilitate communication to board members of illegal and unethical company practices?

C.04 Do company policies/information recognize the safety and welfare of employees?

C.05 Do company policies/information mention the environment?

C.06 Are stakeholders able to directly communicate on company performance with the BOD, BOM and SB?

C.07 Is there some company recognition of its obligations to the broader community?

C.08 Is there a clear framework for the enforcement of creditors’ rights?

The practices of companies in Vietnam regarding stakeholders varied considerably and good levels of observance were noted in just 11% of companies reviewed, mostly in relation to recognizing company obligations to law, such as in labor, business, commercial or insolvency law, or by agreement or contractual relations (C.01). In general, stakeholder recognition of company information was negligible and superficial. Consideration of stakeholders was partially observed in relation to creditors (C.08), where full information was required to be available to banks and creditors under Article 25 of the CG Regulations – a regulated area. This information should be both timely and comprehensive. Where stakeholder relations were more voluntary in nature, adoption was less observable. For example, 98% of companies reviewed did not have in place mechanisms to facilitate stakeholders’ communications to the board on illegal or unethical matters. These may violate stakeholder rights and may also be to the detriment of the company’s reputation (C.03). To its credit, one company made clear reference to BOD communications on illegal and unethical matters in its AA. There was also little evidence of stakeholders’ capacity to communicate with management, the board or the SB on company performance (C.06). Only 19% of companies had in place mechanisms and policies for these communications. In most cases, no contact facility was evident, such as contact

International Finance Corporation 63 Vietnam Scorecard Project - 2011 Report

names and phone numbers/email addresses. Interestingly, entities that provided a company contact mechanism tended to be smaller, rather than larger organizations. The value of employees in supporting the sustainable performance of the company was usually recognized through the existence of performance enhancing employee benefits that align employee interests with those of the company. In 39% of companies these were observable or partially observed. However, in most companies’ pension plans, profit sharing plans, employee share options, employee education programs and/or other benefits were not evident (C.02). Companies did not seem to be overly considerate to the health and safety of their employees as 78% of companies had no observable information and policies to indicate this was important (C.04). Employees are a mainstay of a sustainable business and companies increasingly are expected to ensure proper employment payment and conditions. In current good practices, consideration of the environment and community in which a company operates is increasing. In Vietnam, consideration of the environment was not evident in available documents in 70% of the companies surveyed (C.05). However, there was greater recognition of the community in which a company operates as in 71% of cases community or philanthropic activities were mentioned and observed or partially observed in company communications (C.07). Article 25 of the CG Regulations requires that companies pay attention to these matters and these results show a small improvement over 2009’s results. The Role of Stakeholders is expected to grow in importance in global CG best practices as companies understand they must adhere to a triple ‘bottom line’. To attract investors in the future, they must be economically viable, socially responsible and environmentally sound. d. OECD Principle V - Disclosure and Transparency “A strong disclosure regime that promotes transparency is a pivotal feature of market-based monitoring of companies and is central to the shareholders’ ability to exercise their ownership rights on an informed basis”. “Disclosure also helps improve public understanding of the structure and activities of enterprises, corporate policies and performance”30. Disclosure is not expected to be unreasonably costly or to endanger a competitive position of the company. However, full, accurate and timely disclosure of all material matters and matters affecting the share price and investor decisions is expected by Articles 27, 28 and 29 of the CG Regulations. Information is required on the business and its performance, its operations and its CG.

A new Circular on Disclosure of Information on the Securities Market (Circular 09/2010/TT-BTC) was issued and became applicable from January 15, 2010. Article 4.3 requires that a company must disclose on its website particular documents, such as AGM documents, Articles of Association, Cor- porate Governance Guidance, Annual Report, financial statements and other necessary information.

The AGM (already considered in Part a in this section of this report), the Annual Report and the company website are key points of communication with investors, current and future, and collectively should convey all material and relevant information to investors and other stakeholders.

30 OECD, Principles of Corporate Governance, OECD, 2004, Paris. 64 International Finance Corporation Vietnam Scorecard Project - 2011 Report

Table 16: Evidence of Disclosure and Transparency - comparison

Measure Score % 2009 Score % 2010 Possible maximum score for this area 30.0 30.0 Maximum achieved 18.8 18.4 Minimum achieved 4.7 7.3 Mean 11.8 13.0

Disclosure and Transparency and the Responsibilities of the Board were identified as the two single most important areas of focus for Vietnamese companies and each category was given a possible maximum score of 30%. With an overall level of compliance with global good practices of 43.2% in 2010 related to Disclosure and Transparency, Vietnamese companies’ practices should improve. Overall Disclosure and Transparency in Vietnam needs to be more detailed and comprehensive. However, it is recognized that this is an improvement on the average level of 39.4% in 2009.

The chart below indicates each question related to Disclosure and Transparency, on which the observation of company data delivered relatively good results with scores of more than 70%. From the information publicly available and disclosed, the following could be considered points of strength in Vietnamese companies.

Most companies provide quarterly and semi-annual financial reports and that these financial statements are usually certified by the CEO and CFO. Furthermore, the financial statements are annually audited by an authorized auditor and the external auditor’s opinion is publicly disclosed. Most companies demonstrated a range of available and used communication tools and companies had processes to ensure continuous and ad hoc disclosure of important matters. Chart 40: Disclosure and Transparency – areas of better performance

D.02 62 20 18 D.31 50 48 2 D.29 67 31 2 D.20 84 016 D.05 82 612 D.27 82 14 4 D.28 90 8 2 D.23 100 0 D.04 100 0

0% 20% 40% 60% 80% 100%

ObservedPartially observedNot observed

The chart below indicates each question related to Disclosure and Transparency. Observations of company data delivered relatively poor results with scores of 40% or below. From the information publicly available and disclosed, the following could be considered points of weakness in Vietnamese companies.

International Finance Corporation 65 Vietnam Scorecard Project - 2011 Report

Chart 41: Disclosure and Transparency – areas of poorer performance 31

D.26 0 100 D.22 0 100 D.15 0 100 D.14 0 100 D.16 01 99 D.25 1 81 18 D.24 20 98 D.18 05 95 D.03 4 4 92 D.11 211 78 D.13 810 82 D.32 7719 4 D.21 913 78

0% 20% 40% 60% 80% 100% ObservedPartially observedNot observed

The chart shown above, by the number of questions included and the degree of red, indicates that despite the good efforts mentioned earlier and as indicated in the publicly reported information, boards were poor at keeping a close eye on the detailed work of the auditor, including reviewing the external auditor when he/she undertook non-audit services which may have impaired his/her independent approach to the audit. Indeed the ‘independence’ of the auditor and reasons for it did not seem well understood and were not often referred to in company documents. Furthermore, if a change of auditor occurred in the past two years, the reasons for the change have not been recorded or made publicly available. The oversight of the external auditor seems more of a formality that is superficially reported on. Also, there was generally no CG report included in the Annual Reports largely because it was not mandated. In Vietnam and as a general rule, if a CG action is not mandated, it is not applied.

Disclosures are more perfunctory in nature and are not detailed or expansive. For example, there is little reporting on board remuneration, the company’s prime executives with an outline of their responsibilities, the engagement and attendance of individual directors and on the foreseeable risks facing the company. Indeed, information on directors and their board experience and skills is superficial at best. Disclosure and Transparency in Vietnamese companies needs to improve.

31 Transparency regarding the appointment and any changes of the auditor are important and in good practices, if a change of auditor is noted as it was in 18% of the review group, then the reasons for the change should be disclosed. In the survey group, 82% of companies did not change auditor and so any rationale for change is not expected. However in 18 companies, the auditor was changed in the last two years and only 1/18 disclosed reasons for the change (D.25). 66 International Finance Corporation Vietnam Scorecard Project - 2011 Report

Question by question analysis

D.1 Annual Report – Financial information

Chart 42: Annual Report – Financial information

120

100

80 Not observed 60 Partially observed

40 Observed

0 D.01 D.02 D.03 D.04 D.05 D.06

D.01 Is there evidence that the concept of ‘material information’ is well understood by the company? D.02 Does the Annual Report give a full and clear picture of the financial performance of the company? D.03 Are the financial reports disclosed in a timely manner? D.04 Did the company provide quarterly and semi-annual reports in the past year? D.05 Do the CEO and chief accountant certify the annual financial statements, audited and unaudited? D.06 Does the company use internationally accepted accounting standards?

Audited financial statements and full financial information is the most widely used source of information on companies and therefore important. The results on the related questions show a somewhat ‘patchy’ picture, but a picture that is brighter than 2009. In 62% of companies, the Annual Report gave a clear and comprehensive picture of the financial performance of the company, including full financial statements. However, in many cases of companies reviewed, the full financial statements were not attached to, or included in, the Annual Report. Many companies only provided summary financial statements (D.02). This is not acceptable as financial information is one of the key information pieces for investors.

It was interesting to note that in some cases the Annual Reports submitted to stock exchanges were different from the versions found on the company websites. In general, when a difference occurs, the report submitted to stock exchanges was found to be less comprehensive. This may be indicative of the ‘rush to comply’ in the timeframe set by the SSC. However, if this was the case, it would perhaps indicate that companies’ financial reporting functions need to improve. There is evidence that the accounting and auditing profession and practices in Vietnam need improvement and until that occurs, little will change in the quality of reported financial information.

Quarterly and half-yearly reports were provided in 100% of the companies (D.04) and in 82% of cases, the CEO and chief accountant certified the annual financial statements (D.05). Both these areas are an improvement on 2009’s results. However, in the market there was evidence that some

International Finance Corporation 67 Vietnam Scorecard Project - 2011 Report

financial reports may not be reliable. The stringent review of financial information by an independent and qualified auditor, applying ISA is recommended.

The concept of materiality in financial information and of providing all ‘material’ information to investors and stakeholders seems to be applied at a superficial level. Rarely was materiality comprehensively defined and referred to in Annual Reports, financial statements or in the company disclosure policy (D.01). The reviewers noted that where there was wording relating to the ‘materiality’ concept in Annual Reports, it was nearly exactly that contained in Article 27 of the CG Regulations, perhaps indicating a more formulaic and narrow consideration of ‘materiality’. Furthermore, it is a concern that full and complete financial reports, annual or ad hoc, are not filed within the time requirements. In 92% of cases, financial reporting was not considered timely (D.03), yet rarely did the reviewers observe regulator’s penalties applied for tardiness. Stricter enforcement of information disclosure requirements is recommended, as this was also a problematic area in the previous survey.

In line with the Law on Accounting, Vietnam Accounting Standards (VAS) were applied by all but two of the companies reviewed. These two companies applied IFRS. However, VAS did not cover all IFRS areas internationally accepted and understood (D.06), such as those standards issued by the IASB. Full application of internationally accepted and understood accounting standards builds confidence in market and company information. This permits an investor to compare Vietnamese companies with those in other jurisdictions applying IFRS.

D.2 Annual Report – Information on company objectives and share ownership structure

It is good practice that the Annual Report, as the key communication vehicle to reach shareholders and the public, also contains non-financial information on the business, its operations, CG, key risks and risk appetite and on the ownership structure of the enterprise. In this area, disclosure requirements in the CG Regulations are clear.

The Annual Reports reviewed indicated they could provide clearer information, especially with regards to disclosure of directors and management shareholdings, directors’ experience, skills, independence and remuneration.

Chart 43: Annual Report – Information on company objectives and share ownership

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Not observed 60 Partially observed

Observed 40

0 D.07 D.08 D.09 D.10 D.11

D.07 Does the Annual Report include a full and clear picture of company operations, its competitive position and other non-financial matters?

68 International Finance Corporation Vietnam Scorecard Project - 2011 Report

D.08 Are details of current largest shareholdings provided?

D.09 Are directors’ (BOD and SB) shareholdings disclosed?

D.10 Are senior management’s shareholdings disclosed?

D.11 Are the company shares broadly held?

Whilst non-financial information related to the business and its operations could be observed in the Annual Report, in 63% of cases the information was not comprehensive and only partially observable. In good practices, non-financial information was included in the Annual Report as was a review of the company’s mission and vision, its key business objectives, business risks and uncertainties, plus the company policy on business ethics (D.07).

It is important that investors are well aware of the material risks facing the company. It is also important for them to understand the company’s share ownership structure and the extent to which directors and management are major shareholders. The information allows for the identification of potential conflicts of interest, RPTs and insider trading. Information on these matters could be improved. De- tails of the largest shareholdings should be readily available in the Annual Report and on the company website and be current and comprehensive. In only 6% of surveyed companies was full, quality information observable (D.08). In many cases, the information was superficial regarding shareholdings and company website information was not current.

Shareholdings of directors and senior management, including recent and individualized data, were not disclosed in 28% and 53% of companies reviewed, respectively (D.09 and D.10). Furthermore, the degree to which shares were widely held and evidence of a dispersed shareholding structure in each company was not readily observable in 78% of surveyed companies (D.11). These findings are consistent with a general reluctance for full disclosure, particularly on shareholdings and changes in shareholdings of persons classified as ‘insiders’.

The majority of listed companies in Vietnam are closely held as they are predominantly owned/run by either the state or families. The trading in shares and shareholdings of ‘insiders’ is very important information to investors, including minority shareholders, for their investment decisions and should be current and readily available. It is harder, though not impossible, for ‘insiders’ to take advantage of minority shareholders if shareholdings are widely dispersed. Thus, the level of dispersion of shareholdings is important information.

D.3 Annual Report – Disclosure on directors

Consistent with earlier findings related to Disclosure and Transparency, information concerning directors included in the Annual Report was not adequate or in line with good practices. The firms reviewed conveyed little information about company directors. Indeed in this area, there was very little change from the position noted in 2009. Companies, generally, did not provide the Annual Report with AGM notices and did not direct shareholders to the location of the Annual Report in ‘soft copy’.

International Finance Corporation 69 Vietnam Scorecard Project - 2011 Report

Chart 44: Annual Report – Disclosures on directors (BOD and SB)

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80 Not observed 60 Partially observed

40 Observed

0 D.12 D.13 D.14 D.15

D.12 In the Annual Report, is board member experience disclosed? D.13 In the Annual Report, are non-executive directors specifically identified? D.14 Does the Annual Report specifically identify ‘independent’ directors? D.15 Does the Annual Report disclose BOD/SB meeting attendance of individual directors?

Information on individual director’s skills, education, background, board committee appointments and other board appointments was evident in 34% of surveyed firms, but not evident or sufficiently comprehensive in the rest (D.12). Furthermore, individualized board (BOD and SB) attendance records were not disclosed in 100% of companies surveyed (D.15). Such records may provide valuable information about each director’s skills for his/her role and commitment to the company and performance.

From information provided in the Annual Report, most companies did not specifically identify and distinguish executive directors from non-executive directors in 82% of cases (D.13). Information on this matter was particularly opaque and companies tended to only disclose senior management roles such the CEO and vice president.

Vietnamese law and regulations require that approximately ‘one-third of directors be independent and non-executive’ and distinguish only two categories of directors – ‘executive’ and ‘non-executive and independent’ directors. Article 2, Clause d of the CG Regulations defines ‘independence’ when refer- ring to BOD or SB by distinguishing them from key executive director roles. This definition assumes that all ‘non-executive’ directors are ‘independent’, which is not necessarily so.

‘Independence’ in best practices is viewed differently. Independence requires a director to be capable of unfettered, objective judgement and be free from close relations with management or a controlling/ major shareholder. Although definitions of ‘independence’ vary across jurisdictions, most definitions refer to not being related to management by birth or marriage, not being related to a major shareholder, not being an employee or a relative of an employee of the company or its affiliate companies currently or in the recent past (five years) and not being a representative of companies having significant dealings with the company. Hong Kong, India, the Philippines and Singapore apply these concepts to ‘independence’.

70 International Finance Corporation Vietnam Scorecard Project - 2011 Report

Therefore, in Vietnam it was unsurprising that Annual Reports did not give an explanation for ‘independence’ and did not correctly identify independent directors in 100% of all companies surveyed (D.14). Approximately one-quarter of the companies identified directors as independent, which reviewers’ investigations proved to be untrue. Clarification of ‘independence’ of directors as opposed to ‘non-executive’ directors is recommended.

D.4 Annual Report – Remuneration disclosures

During the recent global financial crisis, considerable attention was given to the transparency of remuneration and how companies linked remuneration with the long-term sustainable company performance. Unjustified and excessive remuneration packages were criticised.

As a matter of current good practice in CG, the remuneration policies of the company and for non- executive and executive directors and key senior management should be disclosed in detail and the AGM should debate the merits of the remuneration policies. Also, remuneration policies are expected to be related to the long-term sustainable performance of the company and bear some relativity between the remuneration of directors and senior management and the broader employee population. In some countries, actual remuneration of non-executive directors and executive directors is disclosed collectively and sometimes individually.

The chart below indicates that transparency in this area is weak in Vietnamese listed companies. The Law on Enterprises explicitly specifies that the board has the power to determine the remuneration of the general director and some other executive bodies.

Chart 45: Annual Report – Remuneration disclosures

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80 Not observed 60 Partially observed

40 Observed

0 D.16 D.17 D.18

D.16 Is the basis (level and mix) of board remuneration disclosed in the AR? D.17 Does the latest Annual Report identify the company’s main executives and their responsibilities?

D.18 Does the latest Annual Report disclose the remuneration of key executives?

In 100% of Annual Reports reviewed, the level and mix of board remuneration and links to performance, attendance at board meetings and to extra board duties on committees was not evident (D.16). Details were sparse. Companies only disclosed total remuneration for the BOD, SB and senior management, most often expressed in terms of % of earnings after-tax or as a specific total amount. Re- muneration policies were not evident and did not relate remuneration to company performance. In

International Finance Corporation 71 Vietnam Scorecard Project - 2011 Report

95% of the companies surveyed the remuneration of key executives was also not disclosed and the remaining companies only disclosed brief details (D.18). Shareholders have become increasingly sensitive to large bonuses, stock and option grants. Maximum transparency in this area is recommended to ensure alignment of shareholders’ goals with those of directors and management. Little has changed in the top 100 listed companies from 2009 to 2010 in this respect.

To gain a clear picture of remuneration as a reward for responsibility and performance, investors need to know the identity of the main executives and their specific responsibilities. Some 72% of companies surveyed provided some, but not comprehensive information in their Annual Reports (D.17). Comprehensive information on roles and responsibilities was evident in only 4% of companies.

D.5 Annual Report – Other key disclosures

Chart 46: Annual Report – Other key disclosures

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80 Not observed 60 Partially observed

40 Observed

0 D.19 D.20 D.21 D.22

D.19 Does the company have a policy requiring disclosure of RPTs?

D.20 Are statements requesting directors to report their transactions in company shares evident?

D.21 Does the Annual Report explain foreseeable business risks?

D.22 Does the Annual Report include a separate, quality CG report?

In the section related to the Equitable Treatment of Shareholders, this report considered the management of RPTs (B.14) and the shareholders’ role in approval of some transactions and company non- compliance with related party requirements (B.16). Disclosure in this area is important. A company policy should be in place and address the following disclosures:

• The policy of what transactions need to be reported to the board for board approval, often by independent directors or non-interested parties, and which ones require shareholder approval • The parties involved and their relationship • Clarity on the asset being transferred • The basis for pricing the asset and compensation involved • Information on RPTs should show the name of the related party and relationship with the

72 International Finance Corporation Vietnam Scorecard Project - 2011 Report

counter-party, including reference to any conflict of interest, the transaction amount, reasons why the asset is being transferred and its timing.

In Vietnam, disclosure requirements are articulated in several documents, including the Law on Se- curities, Circular 9 and in accounting standard VAS 26 on related party disclosures. It is a complex area and it is recommended that each company should develop a related party policy embedded in that company’s CG code and policies that are consistent with international accounting standard IAS 24 Related Party Transactions.

Because of the complexity of requirements, it was not surprising that 95% of companies’ surveyed had a policy for related party transactions and disclosures, but those policies were incomprehensive or were flawed (D.19). Indeed, one issue identified was that there were often high thresholds set at 20% of total assets for disclosure of transactions. Thus, little disclosure was evident as few transactions were required to be reported either to the board or to the market. In order to better control RPTs, companies may voluntarily set a lower threshold for reporting and approval than required by regulations.

Disclosure within two days of board members trading in company shares is best practice and is an important signal to investors concerning what insiders may think of the company. Many companies may simply not disclose their trading to regulators. Some 16% of companies showed evidence of regulatory requests for directors to report transactions in company shares (D.20).

In only 22% of reviewed Annual Reports were disclosures on material foreseeable business risks observed or partially observed. Risks were identified and explained (D.21). Users find this information useful in assessing the strategies and challenges that may face the company. The reviewers noted that in the majority of cases, a risk management system and risk reporting were not evident in company disclosures. The recent financial crisis has shown that boards generally may not pay sufficient attention to risk oversight and to board responsibility of setting risk appetite.

To be assured of quality CG practices and board commitment to CG, a CG report is often included in the Annual Report. Many countries mandate a Corporate Governance Report be included in the Annual Report. Good practices would show evidence of a company CG code and how it was implemented in the company, CG structures (including committees and their terms of reference) and policies in company documentation, names of directors, their types of roles and full remuneration, commentary on board procedures, code of conduct and any non-mandatory CG rules the company has implemented. All would be reported in the CG Report within the Annual Report. In 100% of the companies reviewed, a CG report was not evident as it was not a required disclosure, or was of a poor quality (D.22), or was not included in the Annual Report.

D.6 Disclosures related to the external audit and audit activities

An external audit conducted by a competent, qualified and independent external auditor is a major part of the company’s control framework and gives assurance and credibility to the financial information and financial statements issued by the company. All companies in the survey group had their financial statements audited by an authorized external auditor as required by the Model Charter and Circular 9 (D.23). In 82% of cases, the auditors’ opinion was publicly disclosed in line with good practices (D.27). Furthermore, there was no evidence of accounting or audit qualifications, or queries related to financial statements in the past two years in 90% of cases reviewed (D.28). In 10 cases, the SSC was seen to be active in questioning a company on the differences between unaudited financial statements and audited financial statements.

International Finance Corporation 73 Vietnam Scorecard Project - 2011 Report

Chart 47: Disclosures related to the external audit and audit activities

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80 Not observed 60 Partially observed

40 Observed

0 D.23 D.24 D.25 D.26 D.27 D.28

D.23 Does the company have an annual external audit undertaken by an authorized auditor?

D.24 Do AGM and/or company documents refer to the ‘independence’ of the external auditor?

D.25 If a change of auditor is noted in the past two years, were the reasons for the change disclosed?

D.26 Is there a policy that reviews the external auditor when undertaking non-audit services?

D.27 Is the external auditor’s opinion publicly disclosed?

D.28 Have there been any accounting/audit changes, qualifications or queries related to the financial statements in the past two years?

A key element of an audit’s value is that the auditor is independent of the company and management. However, in 98% of reviewed cases no company made reference to the ‘indepedence’ of the auditor and no reference to the issue of an ‘independent’ opinion on the financial statements was evident (D.24). However, two companies clearly stated the importance of the independent auditor and recorded the company’s commitment to ensure the continuance of this independent relationship.

Transparency regarding the appointment and any changes in auditor are important. In good practices if a change of auditor is noted, as it was in 18% of the review group, then the reasons for the change should be disclosed. In the survey group, 82% of companies did not change auditor, so any rationale for change was not expected. However in 18 companies, the auditor was changed in the last two years and only 1/18 disclosed reasons for the change (D.25).

Indeed in 2002, the Technical Committee of IOSCO, the international securities regulatory organization, issued guidance on the independence of auditors of financial statements to affirm that auditors should be independent in fact and appearance. As part of an emphasis on independence, IOSCO recommended that companies have a policy to deal transparently with auditors undertaking non-audit services and the company review and approve the non-audit services to see independence is not impaired. IOSCO was concerned about the closeness of the relationship of the auditor to the company and the capacity of the auditor to challenge the company if required. For example, an indicator that the auditor’s independence may be impaired would be if the ‘non-audit’ services were of a much higher fee value to the audit firm than the audit fee and/or where the firm built infrastructure and profit bases on closer relationships with the company in say the tax or corporate finance areas. Other threats

74 International Finance Corporation Vietnam Scorecard Project - 2011 Report

to auditor independence may be a long tenure as auditor on which the firm has built staff and resources. Reviewing these issues is normally part of the activities of an Audit Committee of the BOD. All companies surveyed did not disclose a policy (D.26) identifying and supporting the independence of the external auditor and of the Audit Committee or the SB overseeing the relationship. An external auditor is assumed to be independent, which may not be the case.

D.7 Channels for disseminating information

The OECD Principles and annotations declare “the channels for dissemination of information can be as important as the content of the information itself. The Internet and other information technologies also provide the opportunity for improving information dissemination. With respect to continuous or current disclosure, good practice is to call for ‘immediate’ disclosure of material developments”32.

Chart 48: Channels for disseminating information

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Not observed 60 Partially observed

40 Observed

0 D.29 D.30 D.31 D.32

D.29 Does the company provide a variety of communication methods?

D.30 Is the information on the company website comprehensive and accessible?

D.31 Does the company have a policy and process to ensure continuous ad hoc disclosure of important matters?

D.32 Does the company provide easy public access to and contact details for the Investor Relations person or unit?

Most companies (67%) provided a variety of communication and information dissemination mechanisms, and a company website, the Annual Report, briefings to analysts and press releases were all noted and current information was available (D.29). Some companies did not provide briefings to analysts. This may be a function of company size and current activities. However, the quality and accessibility of the information provided was less evident (D.30). In only 30% of cases was the information provided comprehensive, including an Annual Report, information in Vietnamese and English, company organization and strategy information and a CG report. Some materials were not easily downloadable or electronically usable. Indeed, the reviewers’ experiences were that many websites did not make information easily accessible.

32 OECD, Principles of Corporate Governance, OECD 2004, Paris. International Finance Corporation 75 Vietnam Scorecard Project - 2011 Report

Timeliness of disclosures is an issue. Despite 60% of companies having policies in place to ensure continuous ad hoc disclosure of important matters (D.31), the reviewers observed many companies were late in making relevant disclosures to the SSC and stock exchanges. Companies can also improve the provision of and access to a separate company investor relations unit and nominated person responsible for disclosure. Only 7% of companies reviewed provided such a service (D.32). One company provided a clear investor relations policy and also issued a quarterly investor relations e- newsletter. e. OECD Principle VI - Responsibilities of the Board (including Supervisory Board)

“The CG framework should ensure the strategic guidance of the company, the effective monitoring of management by the board and the board’s accountability to the company and the shareholders”33. Board structures and procedures will vary from country to country, depending on the legal and regulatory requirements and structures.

In Vietnam, companies have a two-tier board with a BOD and a SB. Under the CG Regulations and in summary, the BOD is required to be accountable to the shareholders for the strategy and performance of the company, including the annual financial and business plan and guiding and controlling management, and to ensure CG policies and processes are in place so the BOD can fulfil its tasks in accordance with all applicable laws and regulations. It has the duty to ensure an adherence to the company charter, act in the best interests of the company, to treat all shareholders fairly and equitably and protect shareholders’ rights. It is responsible for ensuring smooth running of the BOD, its meetings and its business, for the appointment and dismissal of key management, for BOD, SB and management evaluation of performance, remuneration and discipline and to report to shareholders at least at the AGM.

Again briefly, the SB is accountable to shareholders for the financial oversight of the company and to ensure company compliance with all applicable laws and regulations. It is also responsible for internal control oversight and must report to the shareholders at the AGM on how it fulfils these roles and relationships with the BOD and management. With this SB remit, many companies in Vietnam, consequently, do not have an Audit Committee at the BOD level.

The Scorecard looked selectively at key areas of board responsibility, including the CG environment in which the board operates, the role of the chairman and leadership of the board, board composition, the board role in company oversight and key board activities, company control and the activities of the SB.

Disclosure and Transparency and the Responsibilities of the Board were identified as the two most important areas in achieving quality CG in Vietnam and as such have been weighted the heaviest with each category having a possible maximum score of 30%.

33 OECD, Principles of Corporate Governance, OECD 2004, Paris. 76 International Finance Corporation Vietnam Scorecard Project - 2011 Report

Table 17: Evidence of Responsibilities of the Board and Supervisory Board – comparison

Measure Score % 2009 Score % 2010 Possible maximum score for this area 30.0 30.0 Maximum achieved 16.0 16.5 Minimum achieved 3.4 5.3 Mean 10.6 10.8

Aggregately, the performance of board and SB responsibilities reached a level of compliance of 36.1% of the surveyed firms, thus leaving room for improvement in this vital category. This was a marginal improvement on the level of compliance with 35.3% in last year’s review. Indeed it is an observation from the this year’s review that, with regard to the responsibilities of the BOD, SB and individual directors, minimal efforts are the general rule.

The chart below indicates each question related to the Responsibilities of BOD. Observations of company data delivered good results with scores of more than 70%. From the information publicly disclosed and available, the following could be considered points of strength in Vietnamese companies.

The board and its responsibilities, approaches and activities are the single most influential factor on CG. The BOD should know its roles and responsibilities and these should be clearly explained to all shareholders. Much of the following was evident in company information. There was reasonable disclosure of company rules and policies related to BOD responsibilities for materials transactions, of the chairman’s role at BOD meetings and recognition of the distinctive roles non-executive BOD members play. There was also evidence that the BOD understood its role regarding management oversight, financial oversight and its responsibility for company strategy and business plans.

Chart 49: Responsibilities of the Board – areas of better performance

E.28 77 023

E.07 83 611

E.19 81 217

E.20 93 0 7

E.03 91 7 2

E.04 98 11

0% 20% 40% 60% 80% 100% ObservedPartially observedNot observed

However, the chart below indicates each question related to the Responsibilities of the Board and SB on which observations of company data resulted in relatively poor scores of 40% or below. Areas of particular weakness concerned BOD and SB oversight of the company and its executives, including an annual assessment of the CEO, annual BOD and SB evaluation, reviews of internal controls, risk management policies and processes along with oversight of the external auditor. From the information publicly available and disclosed these issues could be considered points of weakness in Vietnam- ese companies.

International Finance Corporation 77 Vietnam Scorecard Project - 2011 Report

Chart 50: Responsibilities of the Board – areas of poorer performance

E.22 0 100

E.12 0 100

E.11 0 100

E.06 0 100

E.24 99 99 E.10

E.30 12 97

E.27 1 4 95

E.02 1 5 94

E.08 4 1 95

E.25 3 4 93

E.21 5 0 95

E.18 0 18 82

E.13 88 84

E.26 17 3 80

E.31 25 1 74

0% 20% 40% 60% 80% 100% ObservedPartially observedNot observed

The large number of questions and the degree of red in the chart indicates many questions related to the best practices in board responsibilities were either not well understood or not well applied in Viet- namese listed companies. BOD members are limited to a total of six BOD seats, yet information did not disclose the number of BOD seats actually held. Regarding election of directors, the directors did not seem to be informed of company activities and of induction process issues. Meanwhile, it was not evident that BODs and SBs evaluated themselves and their activities annually. One key BOD role is to evaluate the CEO annually, but there was little evidence of this occurring.

Understanding the concept of ‘independent’ directors and their board role to counter balance controlling shareholders was not well understood. Independence in best practice terms requires that a certain percentage of directors, usually one-third or more, be ‘independent’34, that is the director has the capacity for clear, objective judgement at all times. To be independent, a director should not be a major or controlling shareholder of the company or be a close relation of such a person, should not have been employed by the company during the past five years, not be associated with the company or its advisors, or its related parties or be a supplier to the company and not be an external auditor of the company during the past five years. There are more indicators of non-independence, but this is a sample. Being a non-executive director does not necessarily mean a director is independent.

The board’s role in overseeing the external audit, the internal audit and in overseeing the effectiveness of internal controls was again not evident. This may well be because it was viewed as a role of the SB. However, there was little evidence that the SB did in fact perform these roles rigorously. Reporting on these activities was scant and superficial.

For CG to improve in Vietnamese companies, the roles of the BOD and the SB should be clear, dis- tinct, effective and well co-ordinated.

34 A full explanation of ‘independence’ as it relates to directors can be found in the Corporate Governance Manual, second edi- tion, IFC, pages 126-129. 78 International Finance Corporation Vietnam Scorecard Project - 2011 Report

Question by question analysis

E.1 Board and corporate governance environment

Chart 51: Board and corporate governance environment

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0 E.01 E.02 E.03

E.01 Has the company promulgated good CG guidelines?

E.02 Does the company have clear company values and direction led by the BOD?

E.03 Does company CG guidance disclose the material transactions that must be approved by the board?

Companies in Vietnam are aware of the requirements for good CG. All of the companies reviewed have in place company specific CG guidelines. However, in only 19% of companies were these guidelines comprehensive and incorporated into a clear statement of BOD and SB values and responsibilities with recognition of the need for co-ordination between the board of management, the SB and the BOD for quality company oversight and performance evaluation (E.01). In some cases the company CG guidelines were simply a copy of the Model Charter or a company’s Articles of Association, which indicated an unthinking and uncaring approach. In this area, there was little change from 2009.

The BOD is the body accountable for setting the ‘tone at the top’ for the company and in doing so, good practices should establish a clear, written vision for the company and a Code of Ethics or Code of Conduct by which the company will do its business. All those operating within the company should know and abide by these values. In 94% of companies reviewed this ‘tone’ was not evident or inadequate. In fact, only 1% of the companies accomplished this well (E.02) and a written Code of Ethics was not evident in most cases. Company leadership from the BOD could be more values- based and overtly encouraged by the BOD.

However, better company practices were observed in relation clarity of the BOD in approving material company transactions. Statements of the powers reserved to the BOD and evidence of limits beyond which management could not approve transactions were clear in 91% of companies reviewed (E.03).

E.2 Role of the chairman and board leadership

Much is expected of the modern day chairman of the board. He should provide leadership for the board and ensure board and individual director effectiveness, establish structures, policies, proce-

International Finance Corporation 79 Vietnam Scorecard Project - 2011 Report

dures and schedules for company oversight and for efficient board work, organize and lead the board agenda and meetings, ensuring participation by all directors and quality decision-making. He will have a close working relationship with the chairmen of BOD committees, the CEO and senior management. The chairman will drive board evaluations and development and counsel individual directors. He will participate in the selection and induction of non-executive directors and keep good relations with shareowners, investors and key stakeholders.

To fulfil these roles, the chairman should have sufficient and appropriate powers vested in him, have the highest integrity and enjoy the trust of other directors and shareholders.

Chart 52: Role of the chairman and board leadership

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0 E.04 E.05 E.06

E.04 Is the chairman’s role at board meetings clearly described in the company CG guidance?

E.05 Is the chairman a non-executive director?

E.06 Is the chairman ‘independent’ of the company?

The chairman’s role seemed to be clearly and comprehensively described in company CG guidance (E.04). In 35% of cases, the chairman was not an executive of the company (E.05). This separation between chairman and management, especially in the CEO role, is considered good practice and better enables the preservation of the balance of power between the two most important roles in the company – the chairman and CEO. However, the concept of the chairman being independent of the company was not well understood. In 65% of the companies reviewed, the chairman was also an executive of the company and in approximately one-third of the companies reviewed, the chairman was also the CEO. This makes the evaluation of the CEO, somewhat, superfluous.

The independence of the chairman was not evident (E.06) in any of the companies surveyed. Vari- ously he also was an executive, held more than 5% of shares in the company, was a major shareholder, founded the company, worked for entities (banks, funds, and securities companies) that have close relationships with the company, or worked or works for large/strategic customers or partners of the company. In many of these cases, regular conflicts of interest are likely to arise and these then make it difficult for the chairman to ensure that the best interests of the company and all shareholders are protected and/or are seen to be protected.

The concept of independence, as described in OECD Principle VI and according to IFC’s definition of

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independence, would ensure that the chairman (or other directors) does not have a material relationship with the company other than his directorship, is not a major shareholder or representative of a major shareholder and holds no shareholding above 5% of the issued shares. Furthermore, he would have no close relations in company management and has had no current or former employment with the company in the last five years.

Vietnamese law does not require or distinguish between a non-executive director/chairman and independent ones. However, in many jurisdictions the independence of a number of board members and/ or the chairman is considered good practice.

E.3 Board balance - skills, competences and training

In order to lead the company, to exercise objective independent judgment on corporate affairs and to monitor managerial performance, board ‘balance’ is recommended. The goal is to have the BOD possess a balance of skills, knowledge, experience and personal qualities in BOD members. It is also recommended in international practices to have a BOD with a balance of executive and non-executive directors, some of whom should be independent of the company, but all of whom have the time to devote to board duties.

The Model Charter and CG Regulations in Vietnam only distinguish between executive and non- executive directors (including independent directors). The CG Regulations require one-third of directors to be non-executive, but are silent concerning the requisite number of independent directors.

Chart 53: Board balance – skills, competences and training

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0 E.07 E.08 E.09 E.10 E.11 E.12 E.13

E.07 How many BOD members are non-executive? E.08 What percentage of the BOD is ‘independent’? E.09 Is there evidence of the BOD being a ‘balanced board’? E.10 Does company information and director information clearly state/disclose the number of board seats each director holds? E.11 Does the company have a board induction policy and program for new appointments to the BOD and SB? E.12 Do the BOD and SB undertake an annual self-assessment/evaluation?

E.13 Did BOD and SB members and CEO participate in CG training and report this?

International Finance Corporation 81 Vietnam Scorecard Project - 2011 Report

Some 83% of the companies reviewed had at least one-third of board members who were non-executives (E.07). A minority of companies violated this one-third requirement. However, only 4% of board members were clearly identified as being ‘independent’ (E.08). Many board members were also senior managers, major shareholders or representatives of the parent company or a major shareholder. The key to a quality board is to ensure there are independent objective judgements considered at BOD meetings and in decision-making. In 58% of the survey group, a range of skills and styles in BOD members was evident. BOD members demonstrated business knowledge, accounting and finance skills, industry experience and a balance of executive and non-executive directors (E.09). In a further 23% of the companies reviewed BOD diversity was noted, but information was not adequately detailed.

All BOD members should have sufficient time to devote to their duties and commitments. However, the number of board seats any one director holds at one time was unclear. The CG Regulations allow for each BOD member to hold a total of six or less board seats in different companies. Company information and individual director information did not clearly state the number of board seats each director held. No companies disclosed comprehensive information on the board seats each director held (E.10).

To ensure the competence of BOD and SB members from the initial appointment, it is good practice to provide an induction program to all new BOD members. In 100% of companies reviewed, such induction policies and programs were not evident (E.11). The programs may be in place, but no clear public information was available to confirm this. As a director is liable for decisions taken at the first board meeting he/she attends, induction is essential so he/she may know the business, the management, his/her other board members and the current financial position of the company.

To continue to be effective in an environment of constant change to CG, other laws and regulations, the BOD should ensure the development and maintenance of directors’ knowledge and skills. Peri- odic evaluation of BOD and SB performances is required under the CG Regulations. However, few companies mentioned the self-evaluation of their BOD or SB in their reports. In general, evidence of such evaluations was scarce. In 100% of cases, no evaluation of the BOD and SB was evident or even partially observable (E.12). Training programs based on periodic evaluations of the BOD, SB and directors, are fundamental to board development. The CG Regulations require BOD and SB members attend basic CG training courses. Attendance at training courses was not evident in most companies reviewed (E.13). This may also be due to poor disclosure practices. However, BOD and SB members’ commitment to CG quality and development would be enhanced by evaluation, training and transparency on these matters.

E.4 Board effectiveness – information, meetings and records

To be effective, the BOD and SB should have a working plan that includes regular topics that will require discussions and decisions, leaving room for ad hoc matters that will arise and a schedule of meetings. Proper meeting notice and delivery of board papers to directors at least five days in advance is required (seven days is better) so directors can properly prepare themselves for the meetings. Meeting minutes and/or verbatim reports are important documents that should be kept and be available to all BOD and SB members, respectively. They are important legal records that may be used to demonstrate the BOD and SB have discharged their duty of care to the company and its shareholders.

82 International Finance Corporation Vietnam Scorecard Project - 2011 Report

Chart 54: Board effectiveness – information, meetings and records

120

100

Not observed 60 Partially observed

40 Observed

0 E.14 E.15 E.16 E.17

E.14 How often did the BOD meet in the past year?

E.15 How often did the SB meet in the past year?

E.16 Are there mechanisms in place to ensure board members receive adequate notification of board meetings for all BOD/SB meetings?

E.17 Do the BOD and SB keep meeting minutes and resolution records of each meeting?

While most companies’ BODs met at least once each quarter as required in the Model Charter, in general individual attendance at these meetings was evident and recorded in only 19% of cases (E.14). The SB is required by the CG Regulations to meet at least twice per year. This seems to have occurred (E.15), but individual attendance at these meetings was not evident to the public. Indeed, information on SB meetings was poor. Transparency regarding board meetings and individual director attendance at meetings enables investors to evaluate directors’ commitments to the company and of each director’s willingness to undertake his/her role.

Most companies applied the Model Charter and accordingly board documents were distributed at least five days in advance of the meeting (E.16). However, seven days is better practice. Such noti- fications, together with the use of an annual board calendar and the professional skills of a company secretary enhance the effectiveness of board meetings.

However, the transparency of policies and processes for SB meetings and SB meeting records tended to be superficial (E.16 and E.17). SB records tended to focus on the CG of management and of the company at the expense of the SB’s CG itself. Information on SB operations was sketchy and it seemed the SB’s role was not fully considered by the company in its public information. Given its important role in board and company financial oversight, this is a concern. If the SB is not active in its oversight functions, a BOD may establish an Audit Committee of the BOD to undertake these functions.

E.5 Board effectiveness – company strategy, risk and oversight

According to the OECD Principles of Corporate Governance, the board should fulfil certain key functions including, “reviewing and guiding corporate strategy, major plans of action, risk policy, annual

International Finance Corporation 83 Vietnam Scorecard Project - 2011 Report

budgets and business plans, setting performance objectives, monitoring implementation and corporate performance”35 and overseeing management. Often board committees are established to assist in some of these key board functions. Board committees have the benefit of allowing some board members to focus on a particular set of issues and to build their expertise in dealing with these related issues. They also allow the handling of a greater number of issues in specific areas than may oth- erwise be managed by the BOD. In good practice too, the most prevalent BOD committees (Audit, Remuneration and Nomination and CG Committees) are led by, and have a majority of, independent directors. Indeed in Asia, 94% of listed companies have an Audit Committee, 75% a Remuneration Committee and 56% a Nomination Committee36.

Chart 55: Board effectiveness – company strategy, risk and oversight

120

100

Not observed 60 Partially observed

40 Observed

0 E.18 E.19 E.20 E.21 E.22

E.18 Has the BOD established BOD committees (Audit Committee, Remuneration Committee and Human Resources Committee) or a designated BOD person?

E.19 Is there evidence the BOD receives regular management reports on company activities and its financial position?

E.20 Is there evidence the BOD is responsible for the strategy and business plans of the company?

E.21 Is the BOD responsible for and oversees the risk management system of the company?

E.22 Do the BOD/SB assess the CEO and key executives annually?

As the business environments of companies become more complex with increased demands on boards, board committees are often established to assist the boards, particularly in areas requiring expertise. However, committees are not mandatory and all responsibility for committee activities rests with boards. In Vietnam, the Corporate Governance Regulations and the Model Charter suggest that a board sets up committees to facilitate its activities. Article 15 of the CG Regulations states that if committees are not established, then an individual director should be nominated to be accountable for specific activities. Information on these nominated persons was inadequate or not observed in 82% of companies reviewed as only minimal information was available and provided on board committee structures and activities (E.18). At a minimum it is recommended an audit and CG and nomination committees be established.

35 OECD, Principles of Corporate Governance, OECD, 2004, Paris. 36 Gavin Grant, Beyond the Numbers: Corporate Governance in Australia and Asia, Deutsche Bank, London 2007, accessible at www.db.com. 84 International Finance Corporation Vietnam Scorecard Project - 2011 Report

In other board activities there was rather more information available. In 81% of cases, there was evidence that the board received regular management reports and reports on company financial posi- tions (E.19). However, very little information was evident to confirm board use of, or discussions on matters arising from, these reports. Conversely, there was strong evidence that boards approved and oversaw company strategy and business plans. Quality information was available in 93% of companies reviewed (E.20). The board is also responsible for oversight of the risk management system to control and mitigate risks of not having achieved company strategy. Risk is one of the most important areas that will influence investor decisions. Furthermore, this has recently been a key focus for improvement of banks and financial institutions around the world. In our Scorecard review, it was evident that Vietnamese banks and financial institutions provided information on their risk management systems. However, in 95% of companies reviewed, there was little evidence of detailed BOD consideration of risk management systems and that risk reports were considered by the board (E.21). In general, BOD reports did not mention risk or only provided a superficial discussion of the system. The references to risk management indicated that it may be only limited to a management function related to internal controls. The BOD is responsible for the oversight of the company and is ultimately responsible for the enterprise’s decision-making. It is most important that it ‘sets the tone’ for the entity. In good practices and in relation to risk, the BOD will set the risk appetite and key metrics for risk which will be interpreted throughout the company and will regularly receive reports on risk management for consideration. The internal auditor will report directly to the BOD or to the Audit Committee. The relationship between the Audit Committee and the SB will be important in overseeing risk. Finally, an important role of the board or the SB is to ensure the company has effective leadership. The annual evaluation of the performance of the CEO and senior key management personnel and their effectiveness is important. The CEO and senior management should be assessed on achievements against set parameters of company strategy and objectives, the internal culture of the company, the management of capital, financial resources and their leadership of staff. The key is to ensure the long- term sustainable performance of the company. A performance review of the CEO is difficult, if not impossible, when the CEO is also the chairman, and especially as CEO, the chairman is also responsible for the performance of senior management. In 100% of the companies reviewed, the information on CEO and key executive evaluations was insufficient or unavailable (E.22). E.6 Board role in company control “The board is expected to monitor and manage potential conflicts of interest of management, board members and shareholders, including misuse of corporate assets and abuse in RPTs. It is an important function of the board to oversee the internal control systems covering financial reporting. These functions are sometimes assigned to the internal auditor which should maintain direct access to the board”37. It is a key responsibility of the BOD to oversee risk and its management.

37 OECD, Principles of Corporate Governance, OECD, 2004, Paris. International Finance Corporation 85 Vietnam Scorecard Project - 2011 Report

Chart 56: Board role in company control

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Not observed 60 Partially observed

40 Observed

0 E.23 E.24 E.25 E.26

E.23 Was there any evidence of non-compliance of the company during the last year?

E.24 Do company documents cover/explain internal control structures, policies and practices?

E.25 Does the internal audit function provide an independent evaluation of the internal control process and risk management of the company annually?

E.26 Does the company report on the activities of internal audit in its Annual Report and/or SB Report?

In 58% of the companies reviewed, there was evidence of non-compliance during the last year. Evi- dence from the SSC and stock exchanges indicated that many firms that did not submit reports on time, or that firms received inquiries regarding their financial statements or that directors were re- quested to provide details of share transactions (E.23).

Company documents rarely disclosed information about internal control structures, policies and practices in publicly available documents (E.24). This was so in 99% of cases reviewed. In a similar way, companies did not provide adequate information on the internal audit function, its independent evaluation of the internal control processes and risk management (E.25). Such a paucity of information on internal controls and risk management would indicate that they were not adequately attended to by either the BOD or SB. Given the evidence and lessons from the financial crisis of the problems that can arise if risk appetite and risk management is not properly attended to, it is recommended that Vietnamese companies quickly improve their approaches to risk management and reporting to shareholders on risk oversight.

Information tended to be limited to the internal audit function. In only 3% of companies surveyed, was an adequate internal audit function report available (E.26). In only three companies was there a detailed description of internal audit activities in the Annual Report. All three were banks, perhaps reflecting the more strict regulations on banks. In theory, under the Law on Enterprises the SB should have the ultimate inspection role to ensure proper controls are established in the company. If this is insufficient, as seems to be the case in Vietnam, it would be good practice for the BOD to establish an Audit Committee to undertake this oversight.

E.7 Supervisory Board oversight

In Vietnam’s CG framework, the SB plays an important role. It is responsible for the supervision of

86 International Finance Corporation Vietnam Scorecard Project - 2011 Report

the BOD and management, for inspection and evaluation of financial reports. Also, the Model Char- ter obliges the SB to manage the relationship with the external auditor. All these duties in other CG structures fall to the Audit Committee of the board.

Chart 57: Supervisory Board oversight

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Not observed 60 Partially observed

40 Observed

0 E.27 E.28 E.29 E.30 E.31

E.27 Is there evidence of SB oversight of the external auditor? E.28 Is there evidence of the SB’s review and approval of the Annual Report and financial statements? E.29 Does the SB report include discussion of the SB supervision of the company’s operational and financial conditions and performances of BOD, BOM and executive officers? E.30 Does the SB report include reference to the SB’s performance, issues discussed and decisions taken? E.31 Does the SB report on its evaluation of the coordination between the SB, BOD, BOM and shareholders?

The SB’s role and relations with the external auditor are important. However, in 95% of the companies reviewed, practical evidence of SB discussions concerning the auditor’s appointment and the scope, progress and issues arising from the audit were not mentioned (E.27). In this respect, SBs are falling short of their roles and BOD-established Audit Committees are recommended. Far more obvious was evidence of the work SBs undertook with respect to reviewing and approving financial statements (E.28). However, SB reports to AGMs were generally not adequate. The requirements of the SB report to the AGM are clearly articulated in Article 8 of the CG Regulations. A SB report should include information on the SB’s findings and activities concerning operational and financial performances, a report on the BOD, management and executive officers. A good or adequate report was evident in 64% of companies reviewed (E.29). However, the SB report should include reference to the SB’s own performance and its oversight of the BOD and management, including issues discussed and decisions noted. Greater rigour in the SB’s oversight and inspection role and reporting of those activities was necessary (E.30). The SB is expected to evaluate the co-ordination between the SB, BOD and management and the shareholders. In general, evaluations were evident, but no further explanations were given (E.31). Evidence to support evaluations would represent better practice and improve the information value of disclosures.

International Finance Corporation 87 Vietnam Scorecard Project - 2011 Report

F. Conclusions and Recommendations

“The journey of a thousand miles begins with a single step… and even the longest journey must begin where you stand.” Lao Tzu

CG awareness, understanding and application in the 100 largest listed companies in Vietnam is at a rudimentary stage. However, this provides an opportunity for setting in place good CG standards and ensuring the effectiveness and adherence to those standards. CG practices across Asia are more developed with economies having commenced the CG journey earlier than Vietnam.

Yet even as we have been undertaking this research, there have been considerable changes to CG best practices as a consequence of the global financial crisis. There have been demands for shareholders to play a more active role in the affairs of companies, particularly institutional investors, resulting in the issue of a Stewardship Code in the United Kingdom, which has been taken up by many large investor groups. There have been measures introduced in many markets to improve board effectiveness and accountability, to constrain board remuneration in developed economies and to ensure board accountability for risk oversight and oversight of internal controls, internal and external audits.

These changes signify the challenges ahead for Vietnamese companies if they are to aspire to and reach global best practices in CG. Vietnamese companies face a dynamic CG scene that is continu- ing to evolve. Perhaps a CG Road Map, akin to the Malaysian Corporate Governance Blueprint, is required.

It is clear that some advances have been made in CG practices in Vietnam between the Baseline Re- view and Report last year and this review. The large number of companies with weak CG has reduced. However, it is clear that CG continues to be practised more as a compliance exercise with companies appearing to address CG from a minimalist perspective. This approach will hold Vietnamese companies back from reaching best CG practices as more effort than the minimum required by law and regulations is needed.

BOD committees should assist the BOD in fulfilling its demanding role. An Audit Committee would support the better management of the audit and the risk and control environment. Furthermore, a CG and Nomination Committee would enhance the BOD nomination processes. Both committees would improve BOD governance and focus and bring Vietnam more in line with its Asian neighbors. Some 94% of companies in Asia have established an Audit Committee and 56% have established a Nomina- tion Committee38.

Financial information is basic and most important for investors’ decisions. Financial information, however, was observed as often being incomplete, late and unreliable. Companies and regulators should insist on fully complete financial statements and interim information that is timely and reliable. To accomplish this, development of the accounting and audit profession, plus accounting and auditing standards in line with international best practices is an important matter.

In general, the responsibilities of the BOD and SB do not adequately consider internal controls, risk oversight and management. If company strategies are to be achieved, serious BOD and SB consideration and oversight of the risk and control environments is recommended.

Companies have yet to receive the message that sound CG is good for business and it can positively

38 Source: Gavin Grant, Beyond the Numbers: Corporate Governance in Asia and Australia, Deutsche Bank, 2007, London as quoted in the GCGF Board Leadership resources 88 International Finance Corporation Vietnam Scorecard Project - 2011 Report affect the profitability and market performance of Vietnamese companies.

Contributing to better CG, as evidenced in this report, would be the prevalence of non-executive directors and female directors. Board diversity needs to be seen as a positive and efficient tool to gain wider and broader insights into the company and its long-term strategies for value creation. In this area, companies could voluntarily define ‘independence’ as it may apply to directors and seek out those who may qualify as independent directors for boards.

In undertaking some study of the areas that provide the strongest influence on CG and directors, boards would be wise to focus on improving three key areas:

• The Responsibilities of the Board and board practices

• Disclosure and Transparency

• The Equitable Treatment of Shareholders, particularly minority shareholders.

In Vietnam, considerable attention should also be paid to the effectiveness of the SB in its oversight activities. In the review, it was apparent that the SB did not function as fully and competently as an Audit Committee of the BOD. This may be for many reasons, not least, the time a SB needs to undertake all the duties of an Audit Committee. It is recommended that an Audit Committee of the BOD be established, that the BOD learns to understand its role and that the Audit Committee competently and effectively fulfils that role.

It was also evident that the government and regulators are committed to improving CG practices in Vietnam. The state, as a major shareholder, is in a powerful position to be a ‘champion’ of good CG and it could demand best practices in CG from its directors and boards. Furthermore, regulators and government bodies can provide resources to ensure CG development, monitoring and enforcement. In particular, the regulatory agencies need to demonstrate commitment to monitoring and enforcement of the application of the laws and regulations and apply skilled resources to these activities. Enforcement measures need to be sufficiently strong to act as a deterrent.

Given that CG development has been ‘top down’ and led by the regulators to date, there is still a role for them to play as leaders in these developments. Regulators could also assist the move to better CG by providing further best practice guidance to companies, such as on board nomination practices, director remuneration policies and disclosures on the handling of RPTs. They should also report on developments and improvements in global CG practices.

There were several observations in this study which indicated quality enforcement was less than op- timal. ARs were not filed or filed late without penalty, AGMs were not held within the appropriate timeframe and incurred no penalty, financial statements were not timely and not filed in accordance with requirements again without penalty. It is difficult to apply sanctions for these offences, yet it is the very stringency of regulations and strict adherence to them that attracts investors. Regulators should step up their monitoring and enforcement activities and ensure adequate resources, human and technological, are available for these roles. Better CG will showcase the attractiveness of Vietnamese markets and companies to foreign and local investors.

Shareholders have not been fully exercising their rights as established in law and regulations and they should be encouraged by the regulators and the companies to do so. Greater participation in the AGM should be encouraged. Also, shareholders should understand they have a right to quality information from the company and board, while demanding transparency and fuller, clearer and more timely

International Finance Corporation 89 Vietnam Scorecard Project - 2011 Report

disclosures. A right is only effective if it is exercised and as the recent financial crisis has shown, shareholders have been found wanting in this respect.

It is also evident from the review that the wider community and the ‘gatekeepers’ for CG could play a stronger role in achieving better CG. The media, auditors, credit rating agencies, securities firms, firm advisors, lenders and others should be encouraged to take a critical look at the CG of companies and build CG practices into their relationships with a company, creating a demand for better CG.

Recommendations

It is difficult to single out a few priorities for action as there are many opportunities arising from the Scorecard findings. Some are short-term and other recommendations are longer in timeframe. However, the recommendations in the areas below are considered important and ripe for attention in Vietnam.

Regulator Led Development

1. Regulators should ensure they have relevant power and authorities offer global best practice guidance in CG matters and that they provide relevant guidance for companies on implementation of CG practices. For example, best practice guidance would be useful on the role of Audit Committees, on board nomination practices, on RPT policies and on how to adapt the Model Charter to individual companies.

2. Regulators should build skills and capacity in their staff and other resources for monitoring CG and for active and visible enforcement of rules and regulations relating to CG. Of particular importance is the visible enforcement of Disclosure and Transparency requirements and the provision to the market of accurate and reliable financial information.

3. Regular training of the SSC and SX staff on global CG developments and their application is advisable. Other issues to address are to ensure full authority and investigative powers, competitive salary levels for regulatory staff and budgetary independence of regulators.

4. The concept and value of ‘independence’ of directors and the value of independence of auditors is not well understood. Regulators should define ‘independent’ directors, distinguish them from non-executive directors, promote the role and benefits of independent directors and require a percentage of boards to be independent, usually one-third of the BOD. Furthermore, regulators should require auditors’ attestations of auditing independence and promote the role of auditors as independent reviewers of financial statements.

5. With stakeholder input, regulators should develop, widely publicise and endorse a Corporate Governance Road Map which makes it clear to all parties the determination of the government and the regulators to improve CG in Vietnam. Early application of CG best practices in listed companies, in which the state is a major shareholder, should provide the CG development leadership that Vietnam needs.

6. Given Vietnam’s specific circumstances and a reluctance to undertake any action in the field of CG unless mandated, regulators should require CG training of all directors at the time of listing. Furthermore, regular training of all listed company directors should be mandatory and reported in the AR. The regulator may also demand regular board and SB evaluations and that these also be reported on.

90 International Finance Corporation Vietnam Scorecard Project - 2011 Report

Institution Strengthening

8. The accounting and audit professional standards and practices need improvement to provide relevant, reliable and timely information on all material company financial matters to investors. A move to converge accounting and auditing standards to international standards would improve standards. In particular, accounting and financial reporting practices and practitioners in companies need to be strengthened. Auditors should attend the AGM and respond to shareholders’ questions on financial statements. Guidance could be provided on issues particular to the Vietnamese market and to year-end issues.

9. A focal point for CG development in Vietnam is needed. The early development of a Center of Corporate Governance, promoting CG best practices, keeping all interested parties abreast of global CG developments and interpolating these into Vietnam would be the role of such a center. However, a prime focus for such a center would be CG training for directors.

10. It is recommended that awareness regarding the value of good CG is promoted with ministers and senior government department leaders so they become ‘champions’ of good CG. In state-owned entities, there is a need for clear board authority and accountability and clarity on the role of the government as shareholder. Application of the OECD Corporate Governance Guidelines for State-Owned Entities is recommended for state-owned entities.

11. Shareholder engagement with companies should be encouraged and companies should facilitate this participation.

Private Sector Developments

12. This review showed that companies should focus on implementing best CG practices in three important areas:

• The Responsibilities of the Board

• Disclosure and Transparency

• The Equitable Treatment of Shareholders and their inclusion in company affairs.

13. Companies should ensure that either the SB undertakes all the activities of an Audit Committee and/or BODs should voluntarily establish Audit Committees as sub-committees of the BOD. Furthermore, the BOD would benefit from the establishment of a CG and Nomination Com- mittee to ensure quality board appointments, appointed in a transparent manner and to ensure BOD succession planning.

14. It is vital that directors understand the full gamut of their responsibilities. They should be more engaged in ensuring the oversight and reporting of company risks and particularly ensuring the establishment of a framework, policies and processes for an appropriate control environment.

15. The development and provision of quality CG training to directors and senior management is necessary. To overcome a natural reluctance in undertaking training, it is recommended that annual training of directors be reported in the AR and a minimal level of training be mandated.

International Finance Corporation 91 Vietnam Scorecard Project - 2011 Report

Training programs, materials and case studies pertinent to Vietnam and demonstrating global best practices should continue to be developed.

16. Private sector parties, such as banks, other lenders and institutional investors should promote awareness of the benefits of good corporate governance and where possible incorporate demands of companies for good CG implementation. The media may also be encouraged to assist in raising awareness of CG’s importance to company performance and profitability.

17. Companies should understand the distinction between good CG and compliance with the law and demonstrate their commitment to the former. CG best practice is far more than compliance. Companies, if they wish to distinguish themselves from the broader set of listed firms, should be encouraged to provide better and fuller information to shareholders and to the market, improve their AGM policies and practices so fuller participation of shareholders at the AGM is facilitated and provide the AGM with information in a more timely manner. Better Disclosure and Transparency from companies are required.

18. Companies should develop good shareholder relations and encourage shareholder participation in company affairs.

92 International Finance Corporation Vietnam Scorecard Project - 2011 Report

G. Appendices a. List of companies surveyed Market cap of the whole sample (100 firms) represented 83% of the combined HNX and HOSE market capitalization at January 1, 2010.

Ex- No. Code Name of Company Industry change 1 ACB HNX Asia Commercial Bank Financials 2 AGR HOSE AgriBank Securities Joint Stock Corporation Financials 3 ANV HOSE Nam Viet Corporation Consumer Goods 4 BCC HNX Bim Son Cement Joint Stock Company Industrials Binh Chanh Construction Investment Shareholding 5 BCI HOSE Financials Company 6 BMI HOSE BaoMinh Insurance Corporation Financials 7 BMP HOSE Binh Minh Plastics Joint Stock Company Industrials 8 BT6 HOSE Beton 6 Corporation Industrials 9 BTP HOSE Ba Ria Thermal Power Joint Stock Company Utilities 10 BTS HNX But Son Cement Joint Stock Company Industrials 11 BVH HOSE BaoViet Holdings Financials 12 BVS HNX BaoViet Securities Joint Stock Company Financials Ho Chi Minh City Infrastructure Investment Joint 13 CII HOSE Industrials Stock Company 14 CSM HOSE The Southern Rubber Industry Joint Stock Company Consumer Goods Vietnam Joint Stock Commercial Bank For Industrial 15 CTG HOSE Financials And Trade Vietnam Bank For Industry And Trade Securities Joint 16 CTS HNX Financials Stock Company 17 DHG HOSE DHG Pharmaceutical Joint Stock Company Healthcare Development Investment Construction Joint Stock 18 DIG HOSE Financials Corporation Domesco Medical Import-Export Joint Stock Corpora- 19 DMC HOSE Healthcare tion 20 DPM HOSE PetroVietnam Fertilizer and Chemical Corporation Basic Materials 21 DPR HOSE Dong Phu Rubber Joint Stock Company Basic Materials 22 DRC HOSE Danang Rubber Joint Stock Company Consumer Goods Dinh Vu Port Investment And Development Joint 23 DVP HOSE Financials Stock Co 24 EIB HOSE Vietnam Export-Import Commercial Joint Stock Bank Financials 25 FPT HOSE FPT Corporation Technology 26 GMD HOSE Gemadept Corporation Industrials 27 HAG HOSE HAGL Joint Stock Company Financials 28 HCM HOSE Ho Chi Minh City Securities Corporation Financials 29 HLG HOSE Hoang Long Group Consumer Goods 30 HOM HNX Hoang Mai Cement Joint Stock Company Industrials 31 HPC HNX Haiphong Securities Joint Stock Company Financials

International Finance Corporation 93 Vietnam Scorecard Project - 2011 Report

32 HPG HOSE Hoa Phat Group Joint Stock Company Industrials 33 HSG HOSE HOASEN Group Basic Materials 34 HT1 HOSE Ha Tien 1 Cement Joint Stock Company Industrials 35 HVG HOSE Hung Vuong Corporation Consumer Goods 36 IMP HOSE Imexpharm Pharmaceutical Joint Stock Company Healthcare 37 ITA HOSE Tan Tao Investment Industry Corporation Financials Investment and Trading Of Real Estate Joint Stock 38 ITC HOSE Financials Company KinhBac City Development Share Holding Corpora- 39 KBC HOSE Financials tion 40 KDC HOSE Kinh Do Corporation Consumer Goods 41 KLS HNX Kim Long Securities Corporation Financials 42 LCG HOSE Licogi 16 Joint Stock Company Industrials 43 LSS HOSE Lam Son Sugar Joint Stock Corporation Consumer Goods 44 MPC HOSE Minh Phu Seafood Joint Stock Company Consumer Goods 45 MSN HOSE Masan Group Corp Consumer Goods 46 NBB HOSE NBB Investment Corporation Financials 47 NTL HOSE Tu Liem Urban Development Joint Stock Company Financials 48 NTP HNX Tien Phong Plastics Joint Stock Company Industrials 49 PAC HOSE Dry Cell and Storage Battery Joint Stock Company Consumer Goods 50 PET HOSE PetroVietnam General Services Js Corporation Industrials PetroVietnam Low Pressure Gas Distribution Joint 51 PGD HOSE Oil & Gas Stock Company 52 PHR HOSE Phuoc Hoa Rubber Joint Stock Company Basic Materials 53 PLC HNX Petrolimex Petrochemical Joint Stock Company Oil & Gas 54 PNJ HOSE Phu Nhuan Jewelry Joint Stock Company Basic Materials 55 PPC HOSE Pha Lai Thermal Power Joint Stock Company Utilities PetroVietnam Drilling and Well Services Joint Stock 56 PVD HOSE Oil & Gas Co 57 PVF HOSE PetroVietnam Finance Joint Stock Corporation Financials 58 PVI HNX PetroVietnam Insurance Joint Stock Company Financials 59 PVS HNX PetroVietnam Technical Services Corporation Oil & Gas 60 PVT HOSE PetroVietnam Transportation Corporation Industrials 61 PVX HNX PetroVietnam Construction Joint Stock Corporation Industrials 62 REE HOSE Refrigeration Electrical Engineering Corporation Industrials Consumer Ser- 63 RIC HOSE Royal International Corporation vices 64 SAM HOSE SACOM Development And Investment Corporation Technology 65 SBT HOSE French Société De Bourbon Tay Ninh Consumer Goods 66 SD9 HNX Song Da No 9 Joint Stock Company Industrials Saigon Telecommunication And Technologies Corpo- 67 SGT HOSE Technology ration 68 SHB HNX Saigon-Hanoi Commercial Joint Stock Bank Financials 69 SHS HNX Saigon-Hanoi Securities Joint Stock Company Financials Song Da Urban & Industrial Zone Investment and 70 SJS HOSE Financials Development Joint Stock Company

94 International Finance Corporation Vietnam Scorecard Project - 2011 Report

71 SRC HOSE Sao Vang Rubber Joint Stock Company Consumer Goods 72 SSI HOSE Saigon Securities Inc. Financials 73 STB HOSE Saigon Thuong Tin Commercial Joint Stock Bank Financials Consumer Ser- 74 SVC HOSE Saigon General Service Corporation vices 75 SZL HOSE Sonadezi Long Thanh Joint Stock Company Financials 76 TBC HOSE Thac Ba Hydropower Joint Stock Company Utilities Tan Cang Logistics And Stevedoring Joint Stock 77 TCL HOSE Industrials Company Thanh Cong Textile Garment Investment Trading Joint 78 TCM HOSE Consumer Goods Stock Company 79 TDH HOSE Thu Duc Housing Development Corporation Financials 80 TIX HOSE Tan Binh Import-Export Joint Stock Corporation Financials 81 TMP HOSE Thac Mo Hydro Power Joint Stock Company Utilities 82 TRC HOSE Tay Ninh Rubber Joint Stock Company Basic Materials Joint Stock Commercial Bank For Foreign Trade Of 83 VCB HOSE Financials Vietnam Vietnam Construction and Import-Export Joint Stock 84 VCG HNX Industrials Corporation Vinaconex Advanced Compound Stone Joint Stock 85 VCS HNX Industrials Company 86 VHC HOSE Vinh Hoan Corporation Consumer Goods 87 VIC HOSE VINCOM Joint Stock Company Financials 88 VIP HOSE Vietnam Petroleum Transport Joint Stock Company Industrials 89 VIS HOSE Vietnam-Italy Steel Joint Stock Company Basic Materials 90 VIX HNX VINCOM Securities Joint Stock Company Financials 91 VNM HOSE Vietnam Dairy Products Joint Stock Company Consumer Goods 92 VNR HNX Vietnam National Reinsurance Corporation Financials Consumer Ser- 93 VNS HOSE Vietnam Sun Corporation vices 94 VPH HOSE Van Phat Hung Corporation Financials Consumer Ser- 95 VPL HOSE Vinpearlland Joint Stock Company vices 96 VSC HOSE Vietnam Container Shipping Joint Stock Company Industrials Vinh Son-Song Hinh Hydropower Joint Stock 97 VSH HOSE Utilities Company 98 VSP HNX Viet Hai Shipping And Real Properties Corporation Industrials Vietnam Sea Transport and Chartering Joint Stock 99 VST HOSE Industrials Company 100 VTO HOSE Vietnam Tanker Joint Stock Company Industrials

International Finance Corporation 95 Vietnam Scorecard Project - 2011 Report b. List of companies surveyed in both 2009 and 2010

No. Code Exchange Name of company 1 ACB HNX Asia Commercial Bank 2 ANV HOSE Nam Viet Corporation 3 BCC HNX Bim Son Cement Joint Stock Company 4 BMI HOSE BaoMinh Insurance Corporation 5 BMP HOSE Binh Minh Plastics Joint-stock Company 6 BT6 HOSE Beton 6 Corporation 7 BTS HNX But Son Cement Joint Stock Company 8 BVS HNX Bao Viet Securities Joint Stock Company 9 CII HOSE Ho Chi Minh City Infrastructure Investment Joint Stock Company 10 DHG HOSE DHG Pharmaceutical Joint – Stock Company 11 DMC HOSE Domesco Medical Import - Export Joint Stock Corporation 12 DPM HOSE Petrovietnam Fertilizer and Chemical Corporation 13 DPR HOSE Dong Phu Rubber Joint Stock Company 14 DRC HOSE Da Nang Rubber Joint Stock Company 15 FPT HOSE FPT Corporation 16 GMD HOSE Gemadept Corporation 17 HAG HOSE HAGL Joint Stock Company 18 HPC HNX Haiphong Securities Joint Stock Company 19 HPG HOSE Hoa Phat Group Joint Stock Company 20 HSG HOSE HOASEN Group 21 HT1 HOSE Ha Tien 1 Cement Joint Stock Company 22 IMP HOSE Imexpharm Pharmaceutical Joint Stock Company 23 ITA HOSE Tan Tao Investment Industry Corporation 24 KBC HOSE KinhBac City Developement Share Holding Corporation 25 KDC HOSE Kinh Do Corporation 26 KLS HNX Kim Long Securities Corporation 27 LCG HOSE Licogi 16 Joint Stock Company 28 LSS HOSE Lam Son Sugar Joint Stock Corporation 29 MPC HOSE Minh Phu Seafood Joint Stock Company 30 NTL HOSE Tu Liem Urban Development Joint Stock Company 31 NTP HNX Tien Phong Plastics Joint Stock Company 32 PAC HOSE Dry Cell and Storage Battery Joint Stock Company 33 PET HOSE Petrovietnam General Services Js Corporation 34 PLC HNX Petrolimex Petrochemical Joint Stock Company 35 PPC HOSE Pha Lai Thermal Power Joint Stock Company 36 PVD HOSE PetroVietNam Drilling and Well Services Joint Stock Company 37 PVF HOSE PetroVietnam Finance Joint Stock Corporation 38 PVI HNX Petrovietnam Insurance Joint Stock Company 39 PVS HNX Petrovietnam Technical Services Corporation 40 PVT HOSE Petrovietnam Transportation Corporation 41 REE HOSE Refrigeration Electrical Engineering Corporation 42 RIC HOSE Royal International Corporation

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43 SAM HOSE SACOM Development And Investment Corporation 44 SBT HOSE French Société De Bourbon Tay Ninh 45 SD9 HNX Song Da No 9 Joint Stock Company Sai Gon Telecommunication And Technologies 46 SGT HOSE Corporation Song Da Urban & Industrial Zone Investment and Development Joint 47 SJS HOSE Stock Company 48 SSI HOSE SaiGon Securities Inc. 49 STB HOSE SaiGon Thuong Tin Commercial Joint Stock Bank 50 SZL HOSE Sonadezi Long Thanh Joint Stock Company 51 TDH HOSE Thu Duc Housing Development Corporation 52 TRC HOSE Tay Ninh Rubber Joint Stock Company 53 VCG HNX Vietnam Construction and Import - Export Joint Stock Corporation 54 VCS HNX Vinaconex Advanced Compound Stone Joint stock Company 55 VHC HOSE Vinh Hoan Corporation 56 VIC HOSE VINCOM Joint Stock Company 57 VIP HOSE Viet Nam Petroleum Transport Joint Stock Company 58 VIS HOSE Vietnam - Italy Steel JSC 59 VNM HOSE Vietnam Dairy Products Joint Stock Company 60 VNR HNX Vietnam National Reinsurance Corporation 61 VNS HOSE Vietnam Sun Corporation 62 VPL HOSE Vinpearlland Joint Stock Company 63 VSC HOSE Viet Nam Container Shipping Joint Stock Company Vinh Son - Song Hinh Hydropower Joint Stock 64 VSH HOSE Company 65 VSP HNX Viet Hai Shipping And Real Properties Corporation 66 VTO HOSE Vietnam Tanker Joint Stock Company

International Finance Corporation 97 Vietnam Scorecard Project - 2011 Report c. Industry grouping

No. Ticket Industry No. Ticket Industry 20 DPM Basic Materials 17 DHG Healthcare 21 DPR Basic Materials 19 DMC Healthcare 33 HSG Basic Materials 36 IMP Healthcare 52 PHR Basic Materials 25 FPT Technology 54 PNJ Basic Materials 64 SAM Technology 82 TRC Basic Materials 67 SGT Technology 89 VIS Basic Materials 9 BTP Utilities 3 ANV Consumer Goods 55 PPC Utilities 14 CSM Consumer Goods 76 TBC Utilities 22 DRC Consumer Goods 81 TMP Utilities 29 HLG Consumer Goods 97 VSH Utilities 35 HVG Consumer Goods 51 PGD Oil & Gas 40 KDC Consumer Goods 53 PLC Oil & Gas 43 LSS Consumer Goods 56 PVD Oil & Gas 44 MPC Consumer Goods 59 PVS Oil & Gas 45 MSN Consumer Goods 1 ACB Financials 49 PAC Consumer Goods 2 AGR Financials 65 SBT Consumer Goods 5 BCI Financials 71 SRC Consumer Goods 6 BMI Financials 78 TCM Consumer Goods 11 BVH Financials 86 VHC Consumer Goods 12 BVS Financials 91 VNM Consumer Goods 15 CTG Financials 63 RIC Consumer Services 16 CTS Financials 74 SVC Consumer Services 18 DIG Financials 93 VNS Consumer Services 23 DVP Financials 95 VPL Consumer Services 24 EIB Financials 4 BCC Industrials 27 HAG Financials 7 BMP Industrials 28 HCM Financials 8 BT6 Industrials 31 HPC Financials 10 BTS Industrials 37 ITA Financials 13 CII Industrials 38 ITC Financials 26 GMD Industrials 39 KBC Financials 30 HOM Industrials 41 KLS Financials 32 HPG Industrials 46 NBB Financials 34 HT1 Industrials 47 NTL Financials 42 LCG Industrials 57 PVF Financials 48 NTO Industrials 58 PVI Financials 50 PET Industrials 68 SHB Financials 60 PVT Industrials 69 SHS Financials 61 PVX Industrials 70 SJS Financials 62 REE Industrials 72 SSI Financials 66 SD9 Industrials 73 STB Financials

98 International Finance Corporation Vietnam Scorecard Project - 2011 Report

77 TCL Industrials 75 SZL Financials 84 VCG Industrials 79 TDH Financials 85 VCS Industrials 80 TIX Financials 88 VIP Industrials 83 VCB Financials 96 VSC Industrials 87 VIC Financials 98 VSP Industrials 90 VIX Financials 99 VST Industrials 92 VNR Financials 100 VTO Industrials 94 VPH Financials

These industry sectors were classified according to the Industry Classification Benchmark Universe (ICB Universe) released in January, 2008. The ICB Universe allows the classification of firms into four industry levels. In this study, the first level is used for the 100 firms. The first industry level includes 10 industry sectors: (1) oil and gas, (2) basic materials, (3) industrials, (4) consumer goods, (5) healthcare, (6) consumer services, (7) telecommunications, (8) utilities, (9) financials and (10) technology. It is the broadest level of classification.

A company is classified into an industry based on the functions and activities disclosed in the company’s prospectus. The classification is then cross-checked with the classifications used on www. vietstock.vn and www.vdsc.com websites.

International Finance Corporation 99 Vietnam Scorecard Project - 2011 Report d. List of documents assessed

No. Document 1 Worksheet 2 Articles of Association 3 CG guidance 4 Annual report 5 Audited Financial Statements 6 AGM Notices 2010 7 AGM minutes 2010 8 AGM resolutions 2010 9 BOD Report 10 SB Report 11 CG Report 12 Board resolutions 13 EGM (announcement, resolutions, minutes) 14 Violations (insider trading violations, non-compliance cases, F/S extension) 15 Prospectus 16 AGM Notices 2009 17 Company website 18 Others e. Research Rating Team Ms. Anne Molyneux – Project Advisor Dr. Nguyen Thu Hien - Project Team Leader Mr. Tran Duy Thanh - Project Supervisor Ms. Pham Ngoc Tram Anh - Coordinator Ms. Hua Thanh Tu Ms. Nguyen Thi Minh Hue Ms. Nguyen Viet Quynh Nga Ms. Nguyen Huu Kim Khanh Ms. Mai Le Phuong Thao Mr. Nguyen Thanh Dung Mr. Vo Khac Tiep Ms. Vo Bach Ngoc Hoang Thi Mr. Le Minh Loc

100 International Finance Corporation Vietnam Scorecard Project - 2011 Report f. Scorecard Questionnaires

A Rights of shareholders (Scorecard weighting - 15%) OECD Principle II: The corporate governance framework should protect and facilitate the exercise of shareholder’s rights. A.1 Are the voting Rights of Shareholders clear and unequivocal? A.2 Does the company offer ownership rights, more than basic rights (voting rights, right to freely transfer shares and right to timely information)? A.3 Do shareholders have the right to nominate and remove members of the BOD and the SB? A.4 Are the dividend and dividend payment policies transparent? A.5 Do shareholders have the right to approve major corporate transactions (mergers, acquisitions, divestments and/or takeovers)? A.6 Was the AGM held within four months of the end of the fiscal year? A.7 Are there adequate company systems for shareholder attendance at AGM?

A.8 Are the AGM shareholder meeting notices effective? A.9 Are the policies and processes for shareholders to ask questions at the AGM clear and is time provided for on the agenda? A.10 Does AGM information of the past year record opportunities for shareholders to ask questions? A.11 Was the attendance of the chairman/head of SB/other board members/CEO at the last AGM evident? A.12 Are AGM policies and processes in the past two years (notices and information) sufficient for shareholders to evaluate individual board nominations? A.13 Do shareholders effectively vote (receive information on, make their views known and vote) on board and key executive remuneration annually?

A.14 Did the external auditor attend the AGM and the express his/her views on audit issues?

A.15 Did the shareholders effectively approve the appointment of the external auditor? A.16 Did information provided to shareholders for the appointment of the external auditor include mention of auditor independence? A.17 Is a full report provided to the AGM on the BOD’s performance? A.18 Is a full report provided to the AGM on the SB’s performance? A.19 Did the AGM notices include explicit information on accessible systems for proxy voting and voting in absentia? A.20 Did AGM meeting minutes and the company website disclose individual resolutions, with voting results for each agenda item? A.21 Are there additional items included in the AGM minutes not included on the original meeting notice?

International Finance Corporation 101 Vietnam Scorecard Project - 2011 Report

B Equitable treatment of shareholders (Scorecard weighting - 20%) OECD Principle III – The corporate governance framework should ensure the equitable treatment of all shareholders, including minority and foreign shareholders. All shareholders should have the opportunity to obtain effective redress for violation of their rights. B.1 Does each share in the same class of shares have the same rights? B.2 Does the company have a ‘one share, one vote’ policy? B.3 Can minority shareholders impact the composition of the board? B.4 Are directors required to be re-nominated and re-elected at regular intervals? B.5 Is cross border voting facilitated by the company? B.6 Is the company group structure clearly and transparently described?

B.7 Is there evidence of structures/mechanisms that have the potential to violate minority shareholder rights? B.8 Are there mechanisms that provide effective redress for complaints of shareholders? B.9 Do shareholders have the right to approve fundamental company changes? B.10 How many days before the AGM were the meeting notices sent out? B.11 Can a small shareholder place an item on the AGM agenda? B.12 Are there company policies in place that effectively prohibit the misuse of information by directors, management and staff?

B.13 Were there any known cases of insider trading involving the company directors, management or staff in the past year?

B.14 Are there effective company policies for the company to approve relevant RPTs? B.15 For large company transactions, does company policy require the provision of information to explain RPTs and require shareholder approval of RPTs above a certain threshold?

B.16 Were there cases of non-compliance with requirements relating to related party transactions in the past year? B.17 How does the board deal with declarations of conflict of interest? B.18 Does the company have an effective investor relations/information policy and program?

C Role of stakeholders (Scorecard weighting – 5%) OECD Principle IV - Recognize the rights of stakeholders established in law or mutual agreements and foster co-operation with stakeholders.

C.1 Does the company recognize company obligations (in law and agreements) to key stakeholders and engage them?

C.2 Does the company provide a range of performance enhancing employee benefits to align company and employee interests?

102 International Finance Corporation Vietnam Scorecard Project - 2011 Report

C.3 Have mechanisms been introduced that facilitate communication to board members of illegal and unethical company practices?

C.4 Do company policies/information recognize the safety and welfare of employees? C.5 Do company policies/information mention the environment? C.6 Are stakeholders able to directly communicate on company performance with the BOD, BOM and SB?

C.7 Is there some company recognition of its obligations to the broader community? C.8 Is there a clear framework for the enforcement of creditors’ rights?

D Disclosure and transparency – (Scorecard weighting – 30%) OECD Principle V – The corporate governance framework should ensure that timely and accurate disclosure is made on all material matters regarding the corporation, including the financial situation, performance, ownership and governance of the company. D.1 Is there evidence that the concept of ‘material information’ is well understood by the company? D.2 Does the Annual Report give a full and clear picture of the financial performance of the company? D.3 Are the financial reports disclosed in a timely manner? D.4 Did the company provide quarterly and semi-annual reports in the past year? D.5 Do the CEO and Chief Accountant certify the annual financial statements audited and unaudited D.6 Does the company use internationally accepted accounting standards? D.7 Does the Annual Report include a full and clear picture of company operations, its competitive position and other non-financial matters? D.8 Are details of current largest shareholdings provided? D.9 Are directors’ (BOD and SB) shareholdings disclosed? D.10 Are senior management’s shareholdings disclosed? D.11 Are the company shares broadly held? D.12 In the Annual Report is board member experience disclosed? D.13 In the Annual Report, are non-executive directors specifically identified? D.14 Does the Annual Report specifically identify ‘independent’ directors? D.15 Does the Annual Report disclose BOD/SB meeting attendance of individual directors? D.16 Is the basis (level and mix) of board remuneration disclosed in the Annual Report? D.17 Does the latest Annual Report identify the company’s main executives and their responsibilities? D.18 Does the latest Annual Report disclose the remuneration of key executives? D.19 Does the company have a policy requiring disclosure of related-party transactions? D.20 Are statements requesting directors to report their transactions in company shares evident? D.21 Does the Annual Report explain foreseeable business risks? D.22 Does the Annual Report include a separate, quality corporate governance report? D.23 Does the company have an annual external audit undertaken by an authorised auditor? D.24 Do AGM and/or company documents refer to the ‘independence’ of the external auditor?

International Finance Corporation 103 Vietnam Scorecard Project - 2011 Report

D.25 If a change of auditor is noted in the past two years, were the reasons for the change disclosed? D.26 Is there a policy that prevents the external auditor undertaking non-audit services? D.27 Is the external auditor’s opinion publicly disclosed? D.28 Have there been any accounting/audit qualifications or queries related to the financial statements in the past two years? D.29 Does the company provide a variety of communication methods? D.30 Is the information on the company website comprehensive and accessible? D.31 Does the company have a policy and process to ensure continuous ad hoc disclosure of important matters? D.32 Does the company provide easy public access to and contact details for the Investor Rela- tions person or unit?

E Responsibilities of the board (Scorecard weighting – 30%) OECD Principle VI Responsibilities of the Board – The corporate governance framework should ensure the strategic guidance of the company, the effective monitoring of management by the board, and the board’s accountability to the company and the shareholders. E.1 Has the company promulgated good CG guidelines? E.2 Does the company have clear company values and direction led by the BOD? E.3 Does company CG guidance disclose the material transactions that must be approved by the board? E.4 Is the chairman’s role at board meetings clearly described in the company CG guidance? E.5 Is the chairman a non-executive director? E.6 Is the chairman ‘independent’ of the company? E.7 How many BOD members are non-executive? E.8 What percentage of the BOD is ‘independent’? E.9 Is there evidence of the BOD being a ‘balanced board’? E.10 Does company information and director information clearly state/disclose the number of board seats each director holds? E.11 Does the company have a board induction policy and program for new appointments to the BOD and SB? E.12 Do the BOD and SB undertake an annual self-assessment/evaluation? E.13 Did BOD and SB members and CEO participate in CG training and report this? E.14 How often did the BOD meet in the past year? E.15 How often did the SB meet in the past year? E.16 Are there mechanisms in place to ensure board members receive adequate notification of the board meeting for all BOD/SB meetings? E.17 Do the BOD and SB keep meeting minutes and resolution records of each meeting? E.18 Has the BOD established BOD committees (Audit Committee, Remuneration Committee and Human Resource Committee) or a designated BOD person? E.19 Is there evidence the BOD receives regular management reports on the company activities and its financial position? E.20 Is there evidence the BOD is responsible for the strategy and business plans of the company? E.21 Is the BOD is responsible for and oversees the risk management system of the company? E.22 Do the BOD/SB assess the CEO and key executives annually?

104 International Finance Corporation Vietnam Scorecard Project - 2011 Report

E.23 Was there any evidence of non-compliance of the company over the last year? E.24 Do company documents cover/explain internal control structures, policies and practices? E.25 Does the internal audit function provide an independent evaluation of the internal control process and risk management of the company annually? E.26 Does the company report on the activities of internal audit in its Annual Report and/or SB Report? E.27 Is there evidence of the SB oversight of the external auditor? E.28 Is there evidence of the SB’s review and approve the Annual Report and financial statements? E.29 Does the SB report include discussion of the SB supervision of operational and financial conditions of the company, performance of BOD, BOM and executive officers? E.30 Does the SB report include reference to the SB’s performance, issues discussed and decisions taken? E.31 Does the SB report on its evaluation of the coordination between the SB, BOD, BOM and shareholders?

International Finance Corporation 105 Vietnam Scorecard Project - 2011 Report

In 600 bản khổ 21 x 30cm tại Công ty Cổ phần In Bắc Sơn. Đăng ký kế hoạch xuất bản số: 209-2011/ CXB/634-08/NN. Quyết định xuất bản số: 224/QĐ-NN ngày 1/12/2011. In xong và nộp lưu chiểu quý IV/2011.

106 International Finance Corporation Ho Chi Minh City O ce Hanoi O ce 3rd Floor, Somerset Chancellour Court 3rd oor, 63 Ly Thai To St. 21-23 Nguyen Thi Minh Khai St, District 1, Hanoi, Vietnam Hochiminh City, Vietnam Tel: (+84-4) 38247892 Tel: (+84-8) 3823 5266 Fax: (+84 4) 38247898 Fax: (+84-8) 3823 5271

Contact: Juan Carlos Fernandez Zara Contact: Nguyen Nguyet Anh Senior Operations O cer, Associate Operations O cer, Corporate Governance Corporate Governance Vietnam IFC Sustainable Business Advisory, EAP