Quản trị doanh nghiệp ở việt nam và tại các doanh nghiệp nhà nước sau cổ phần hóa

Therefore, a literature review on corporate governance and an examination of corporate governance practices in Vietnam, especially in post-equitized SOEs are necessary for improving and

vietnam national university, HANOI

school of business

Do Lan Huong

Corporate governance in Vietnam and in state owned

enterprises after equitization

Major: Business Administration

Code: 60 34 05

Master of business administration thesis

Supervisor: Dr Can Van Luc

Hanoi – 2010

Many thanks also go to my colleagues who helped me a lot in collecting data

to finish the thesis

Especially, I would like to send my sincere thanks to my helpful supervisor

Dr Can Van Luc, for his advice and support during the time I write the thesis

Corporate governance has been a prominent issue in developed market economies for some considerable time However, in an emerging and transition economy like Vietnam, it is still unfamiliar and underdeveloped Legal framework for corporate governance in Vietnam is only in the early stage of development Awareness of market participants on corporate governance is still limited In the meantime, the business environment and the capital market are changing very fast and becoming more and more complicated, especially after the world financial crisis in 2007-09 The recent break up of Vinashin and the alarming inefficiency in management and operation of state owned enterprises have also attracted attention to corporate governance and made it become one of the current hottest issues

In this context, this thesis provides a literature review of corporate governance and an up-to-date evaluation of corporate governance practices in Vietnam Besides, as the success of Vietnam‟s SOE reform through equitization is significant for the country‟s future economic growth and the improvement in corporate governance is one of the major factors for improving efficiency in equitized state-owned enterprises (SOEs), an examination of the changes in corporate governance of SOEs after equitization

is also conducted To conclude, the thesis provides recommendations to building a sound and strong corporate governance system in Vietnam

TÓM TẮT

QUẢN TRỊ DOANH NGHIỆP Ở VIỆT NAM

VÀ TẠI CÁC DOANH NGHIỆP NHÀ NƯỚC SAU CỔ PHẦN HÓA

Đỗ Lan Hương Khoa Quản trị kinh doanh Giáo viên hướng dẫn: TS Cấn Văn Lực Tháng 09 năm 2010, 71 trang

Ở các nước phát triển, quản trị doanh nghiệp đã ra đời từ lâu và rất được quan tâm Tuy nhiên, ở các nền kinh tế mới nổi và đang trong giai đoạn chuyển đổi như Việt Nam, quản trị doanh nghiệp vẫn còn là một khái niệm mới mẻ và chưa được phát triển Khung pháp lý cho quản trị doanh nghiệp đã được xây dựng nhưng vẫn còn ở giai đoạn ban đầu Nhận thức về quản trị doanh nghiệp của các bên tham gia thị trường còn nhiều hạn chế Trong khi

đó, môi trường kinh doanh cũng như thị trường vốn đang thay đổi hết sức nhanh chóng và ngày càng trở nên phức tạp đặc biệt sau cuộc khủng hoảng tài chính toàn cầu năm 2007-09 Bên cạnh đó, vụ việc Vinashin mới đây cũng như sự thiếu hiệu quả đáng báo động trong quản lý ở các doanh nghiệp Nhà Nước cũng làm dấy lên sự chú ý của mọi người tới quản trị doanh nghiệp và khiến nó trở thành một trong những vấn đề nóng bỏng nhất hiện nay

Trên tinh thần đó, luận văn đề cập đến hệ thống cơ sở lý luận về quản trị doanh nghiệp và bức tranh cập nhật nhất về thực trạng quản trị doanh nghiệp ở Việt Nam Bên cạnh đó, do sự thành công trong công cuộc đổi mới doanh nghiệp nhà nước (DNNN) thông qua quá trình cổ phần hóa có ý nghĩa rất quan trọng tới sự phát triển kinh tế trong tương lai của Việt Nam, nên luận văn cũng sẽ trao đổi về quản trị DNNN sau cổ phần hóa Trong phần cuối, luận văn đưa ra một số kiến nghị nhằm góp phần xây dựng và nâng cao hiệu quả công tác quản trị doanh nghiệp tại Việt Nam

TABLE OF CONTENTS

ACKNOWLEDGEMENT i

ABSTRACT ii

TÓM TẮT iii

TABLE OF CONTENTS iv

LIST OF ABBREVIATIONS vi

LIST OF TABLES vii

CHAPTER 1: INTRODUCTION 8

1.1 Background 8

1.2 Rationale of the Thesis 9

1.3 Purpose of the Thesis 9

1.4 Key Research Area 10

1.5 Methodology 10

1.6 Contribution of the Thesis 10

1.7 Outline 11

CHAPTER 2: LITERATURE REVIEW 12

2.1 Definitions of Corporate Governance 12

2.1.2 What is Corporate Governance? 12

2.1.2 Objectives of Corporate Governance 12

2.1.2 Codes of Corporate Governance 13

2.2 Models of Corporate Governance 14

2.2.1 Shareholder Model 14

2.2.1 Stakeholder Model 15

2.3 Corporate Governance System 17

2.4 Corporate Governance Mechanisms 19

2.4.1 Internal Mechanisms 20

2.4.2 External Mechanisms 25

2.5 Corporate Governance in Transition Economies 28

2.6 Chapter Summary 31

CHAPTER 3: CORPORATE GOVERNANCE IN VIETNAM 32

3.1 Introduction 32

3.2 Legal framework and law enforcement 33

3.2.1 Development of a legal framework for corporate governance in Vietnam 33

3.2.2 Current corporate governance framework in Vietnam 34

3.3 Rights of Shareholders 39

3.3.1 Basic shareholder rights 39

3.3.2 Right to participate in or to be informed of decisions on key corporate changes 42

3.3.3 Rights to participate and vote in general shareholders‟ meeting 43

3.3.4 Markets for corporate control 44

3.4 Equitable Treatment of Shareholders 45

3.4.1 Equal treatment to all shareholders 45

3.4.2 Minority shareholder protection 46

3.4.3 Insider trading and abusive self-dealing 48

3.4.4 Related party transactions 48

3.5 The Role of Stakeholders in Corporate Governance 49

3.6.1 Information disclosure 50

3.6.2 Quality of accounting standards 52

3.6.3 Annual audit 53

3.6.4 External Audit 55

3.6.5 Channels for disseminating information 56

3.7 Board of Directors 57

3.8 Board of Supervisors 62

3.9 Remaining corporate governance issues in Vietnam 63

3.10 Chapter Summary 64

CHAPTER 4: CHANGES IN CORPORATE GOVERNANCE OF STATE OWNED ENTERPRISES AFTER EQUITIZATION 66

4.1 Introduction 66

4.2 Methodology and Data collection 67

4.3 Ownership structure after equitization 68

4.4 Board of Directors Composition 69

4.5 The Board of Supervisors 70

4.6 Manager orGeneral manager (CEO) 72

4.7 Other committees 73

4.8 Executive Compensation 73

4.9 Case Study 73

4.9.1 Vinamilk 74

4.9.2 PVFCCo 77

4.9.3 Performance and stock price comparison 80

4.10 Chapter Summary 81

CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS 82

REFERENCES 85

LIST OF ABBREVIATIONS

BOD: Board of Directors

GSM: General Shareholders Meeting

SOE: State owned enterprises

SSC: State Securities Commission

HOSE: Ho Chi Minh Stock Exchange

HASTC: Ha Noi Stock Trading Center

HNX: Ha Noi Stock Exchange

OECD: Organization for Economic Cooperation and Development

CFA: Chartered Financial Analysts

LLC: Limited Liability Company

JSC: Joint Stock Company

LIST OF TABLES

Table 4.1: Ownership structure of SOEs after equitization

Table 4.2: Composition of Board of Directors

Table 4.3: Distribution of chairperson of the BOD by different groups of shareholders

Table 4.4: Composition of the Board of Supervisors

Table 4.5: Chairperson of the Board of Supervisors by different groups of shareholders

Table 4.6: Distribution of managers of surveyed firms by different groups of shareholders

Table 4.7: Vinamilk Ownership structure in 2009

Table 4.8: PVFCCo Ownership structure in 2009

CHAPTER 1: INTRODUCTION

1.1 Background

Vietnam‟s stock market has only been established and developed for the last ten years However, it has grown very fast and now plays a more and more important role to the country‟s economic development Total market capitalization

to GDP increased considerably from 3% in 2005 to 38% in 2009 Number of companies listed in 2 stock exchanges (Ho Chi Minh Stock Exchange and Ha Noi Stock Exchange) has also increased dramatically to 457 companies by the end of

2009 Among which, equitized state-owned enterprises (SOEs) dominate with more than half of the listed companies and holding key industries including power, oil, chemicals, steel…etc

Like many other emerging markets, Vietnam‟s stock market is facing many agency problems, which are the subject of corporate governance Investor protection is inadequate, related party transactions are pervasive, compliance with accounting standards is weak and disclosure of quality information is limited These could be major reasons that foreign investors hesitate to invest in Vietnam and hinder the development of the capital market

In Vietnam, corporate governance is still underdeveloped Awareness of market participants on corporate governance is limited The framework for corporate governance is only in the early stages of development with laws and regulations being established Therefore, a literature review on corporate governance and an examination of corporate governance practices in Vietnam, especially in post-equitized SOEs are necessary for improving and developing a sound corporate governance culture and framework in Vietnam The enhancement

of corporate governance would help reduce emerging market vulnerability to financial crisis, reinforce property rights, reduce transaction costs and the cost of

capital, and which would significantly support capital market development (World Bank Corporate Governance Country Assessment, 2006)

1.2 Rationale of the Thesis

Corporate governance has been a prominent issue in developed market economies for some considerable time However, in an emerging and transition economy like Vietnam, it is still unfamiliar and underdeveloped Legal framework for corporate governance in Vietnam is only in the early stage of development Awareness of market participants on corporate governance is still limited In the meantime, the business environment and the capital market are changing very fast and become more and more complicated, especially after the world financial crisis

in 2007-09 The recent break up of Vinashin and the alarming inefficiency in management and operation of state owned enterprises have also attracted attention

to corporate governance and make it become one of the current hottest issues An up-to-date study on corporate governance in Vietnam and in State owned enterprises after equitization is therefore very necessary for developing a sound and healthy corporate governance system in Vietnam

1.3 Purpose of the Thesis

This thesis aims to provide a literature review of corporate governance and

an up-to-date evaluation of corporate governance practices in Vietnam Besides, as the success of Vietnam‟s SOE reform through equitization is significant for the country‟s future economic growth and the improvement in corporate governance is one of the major factors for improving efficiency in equitized SOEs, an examination of the changes in corporate governance of SOEs after equitization is also conducted Finally, the thesis is expected to contribute to the limited literature

on corporate governance in Vietnam

1.4 Key Research Area

This thesis looks at corporate governance practices in Vietnam and focus on listed companies In addition, an empirical analysis on changes of corporate governance in equitized state-owned enterprises is also conducted

1.5 Methodology

This thesis provides a review of Vietnamese corporate governance that is to-date and as complete as possible by assessing corporate governance in 6 areas which are stated in the Organization for Economic Cooperation and Development (OECD) Corporate Governance Principles: (i) corporate governance framework; (ii) rights of shareholders; (iii) equitable treatment of shareholders; (iv) role of stakeholders in corporate governance; (v) disclosure and transparency; and (vi) responsibility of the Board

up-Besides, as the success of Vietnam‟s SOE reform through equitization is significant for the country future economic growth, an empirical analysis is also conducted to illustrate the changes in corporate governance of SOEs after equitization The analysis is mostly based on published and readily available data

In addition, to get deeper views on this area, analysis of corporate governance in 2 typical SOEs has also been made

1.6 Contribution of the Thesis

For a country which is still in the early period of building corporate governance system like Vietnam, the thesis has considerable contributions First, it provides a literature review on corporate governance and helps improve understanding on this issue Second, it provides an up-to-date evaluation on Vietnam‟s corporate governance practices and contributes to a limited number of studies on this area in Vietnam Third, an empirical analysis and case study conducted on changes of corporate governance in SOEs after equitization also help understand the current corporate governance practices in these typical firms

Fourth, recommendations given at the end of the thesis are expected to contribute to building a sound corporate governance system in Vietnam

1.7 Outline

The thesis is divided into five chapters with an introduction in Chapter 1 and literature review in Chapter 2 Chapter 3 analyzes corporate governance practices in Vietnam, and followed by an investigation of changes in corporate governance in SOEs after equitization The thesis concludes with conclusions and several recommendations in Chapter 5

CHAPTER 2: LITERATURE REVIEW

2.1 Definitions of Corporate Governance

2.1.2 What is Corporate Governance?

The Organization for Economic Co-Operation and Development (“OECD”) defines corporate governance as “a set of relationships between a company‟s management, its board, its shareholders and other stakeholders Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined” (OECD Principles of Corporate Governance, 2004)

In the definition stated by Charter Financial Analyst Institute (CFA Institute), corporate governance is defined as the system of principles, policies, procedures and clearly defined responsibilities and accountabilities, used by stakeholders to eliminate or minimize conflicts of interests

2.1.2 Objectives of Corporate Governance

The objectives of a corporate governance system are (i) to eliminate conflicts of interests among stakeholders, particularly between managers and shareholders, and (ii) to ensure that the assets of the company are used efficiently and productively and in the best interests of the investors and other stakeholders (CFA Institute)

Good corporate governance enhances the quality of listed companies, forms

a scientific constraint and incentive mechanism that motivates managers to maximize returns on investment, and effectively protect the interests of investors Furthermore, it creates fairness, transparency and accountability in company business activities In short, good corporate governance is an actuator for good company performance as it effectively reduces risks and decision mistakes Good

corporate governance is also a firm foundation for healthy securities markets in the long run It reduces speculation and violations of market rules, and thereby helps ensure stability in the financial markets This heightens public confidence in firms

as well as playing an important role in attracting foreign investment (OECD Principles of Corporate Governance, 2004)

2.1.2 Codes of Corporate Governance

In many economies, codes of corporate governance and best practices have been promoted by various agencies including stock regulators, corporations, institutional investors, or associations (institutes) of directors and managers with the support of governments and international organizations As a rule, compliance with these governance recommendations is not mandated by law, although the codes linked to stock exchange listing requirements may have an enforcement effect

For instance, companies quoted on the London and Toronto Stock Exchanges formally need not follow the recommendations of their respective national codes However, they must disclose whether they follow the recommendations in those documents and, where not, they should provide explanations concerning divergent practices Such disclosure requirements exert a significant pressure on listed companies for compliance

Nevertheless, among the codes of corporate governance worldwide, the OECD Principles of Corporate Governance are considered as comprehensive and well-accepted, and deemed to contribute to the development of corporate governance globally The latest revised version of OECD Principles of Corporate Governance was released in 2004 The Principles are intended to assist the OECD and non‐OECD countries „to evaluate and improve the legal, institutional and regulatory framework for corporate governance‟, and „to provide guidance and suggestions for stock exchanges, investors, corporations, and other parties that have

a role‟ in the corporate governance process (OECD Principles of Corporate

Governance, 2004) The Principles cover broad areas of corporate governance including the following key issues:

(i) ensuring the basis for an effective corporate governance framework;

(ii) the rights of shareholders and key ownership functions;

(iii) the equitable treatment of shareholders;

(iv) the role of stakeholders in corporate governance;

(v) disclosure and transparency; and

(vi) the responsibilities of the board

Although the OECD Principles focus on corporate governance matters of publicly traded companies on the basis of the separation of ownership and control,

to some extent they are also useful for the improvement of corporate governance in unlisted companies, including privately held and state-owned enterprises More importantly, a key reason why the Principles have been widely accepted is that they are based on common elements of corporate governance, embracing different corporate governance models found in the OECD and non-OECD economies

2.2 Models of Corporate Governance

2.2.1 Shareholder Model

The identification of the separation of ownership and control as a source of conflicting interests between owners and managers can be traced back to Berle and Mean (1932) and Jensen and Meckling (1976) developed the theory in an agency context, where the agent (manager) acts on behalf of the principal (owner), but differing objectives of the owners and managers, incomplete information on the managers‟ behavior, and incomplete contracts give rise to the principal-agent problem Particularly, incomplete contracts as a source of agency problems have

been discussed by many authors, such as Coase (1937), Fama and Jensen (1983) and Hart (1995)

Much conventional corporate governance thinking is focused on arrangements to solve this agency problem and ensure the firm is operated in the interests of the owners (shareholders and creditors) In line with this thinking, Shleifer and Vishny (1997) and Bech et al (2002) define corporate governance as

“dealing with the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment” This definition is too narrow and there has been a great deal of critique relating to this „conventional‟ view of corporate governance Firstly, this perspective overlooks the diversity of the stakeholders within the principal-agent relationship and thus ignores the game around an enterprise, which is performed by multiple stakeholders with varying degrees of conflicting interests among themselves Secondly, this perspective focuses too narrowly on the bilateral contract between owners and managers, and ignores the interdependencies and interactions among stakeholders

Opponents of the shareholder model stress that the interests of all of the stakeholders‟ interests must be accounted for If the emphasis is solely on shareholder value maximization, there are externalities that are imposed on other stakeholders of the corporation This critique is the foundation of the corporate governance stakeholder model advocated by many theorists

2.2.1 Stakeholder Model

Stakeholders in a corporation include, but are not limited to, suppliers, employees, customers, governmental bodies, political groups, trade associations, trade unions, communities, associated corporations, prospective employees, prospective customers and the general public Various stakeholder models and definitions are advocated by scholars Allen (2005) suggests that corporate governance concerns arrangements to ensure that firms are operated in a way that society‟s resources are used efficiently, and that competition and reputation should

also be included as mechanisms to deal with in addition to the conventional ones Allen‟s model however, is too simple to be used for analyzing complex realities, especially when the role of different stakeholders is to be considered

Tirole (2001) advocates that corporate governance consists of institutions that induce or force management to internalize the welfare of stakeholders Based

on this approach, a stakeholder model is designed in which there is a broader mission of management, and management in turn is sharing control with stakeholders The former suggests that management should aim at maximizing the sum of stakeholders‟ benefits, and incentive systems should then be designed with the purpose of achieving this aim In this model, control is shared between stakeholders in the form of generalized code terminations This model is more elaborately designed, but it is based on the assumption of optimal contracting among stakeholders This assumption is however considered unrealistic as there are

a range of institutional setting restrictions on the contracts among stakeholders, for example, government intervention is an important factor that is prevalent in many emerging economies

Berglof and von Thadden (1999) define corporate governance as the “set of mechanisms that translate signals from product and input markets into firm behavior.” Based on this approach, the authors are proposing a broader corporate governance paradigm Firstly, the model consists of multilateral negotiations and influence-seeking among stakeholders, shareholders and other groups – both inside and outside the firm Secondly, the model includes different institutions providing mechanisms, and influencing the transmission of signals In addition to the legal and financial systems, the model also includes facets such as the product, input and labor markets In the case of intense competition in the product and input markets, firms‟ investment decisions are under pressure from consumers and suppliers as well as shareholders, and managers must focus on running the firm effectively in order to remain competitive Thus, the competitive situation of the firm is of

particular significance for consumers and suppliers, as increased competition leads

to stronger protection of their interests

Employees make up another group which can monitor managers‟ decision making, and the labor market Finally, stakeholders and institutions are also influenced by national and local government This model also accounts for the political system and the role of government having influence on the transmission of signals, either directly or indirectly through the external framework it provides

However, stakeholder model also faces several objections The first is that giving control rights to non-investors may discourage financing in the first place The second is that it may create inefficiencies in decision making On many decisions, investors and natural stakeholders have conflicting interests They may not converge to mutually agreeable policies The third is managerial accountability The concern is that the management‟s invocation of multiple and hard-to-measure missions may become an excuse for self-serving behavior, making managers less accountable

2.3 Corporate Governance System

National corporate governance systems can be distinguished in terms of the degree of ownership concentration, and the control and identity of the controlling shareholders A widely dispersed ownership structure is a feature of outsider systems (e.g., the US and UK), while concentrated ownership is characteristic of insider systems (e.g., Germany and Japan) Outsider systems are characterized by having independent boards, dispersed ownership, transparent information disclosures, well-developed stock markets, well developed legal systems, and a competitive market for corporate control Insider systems are characterized by concentrated ownership structure, widespread cross-shareholding, limited information disclosures, and reliance on family finance or banking systems (Shleifer and Vishny 1997) The insider system emphasizes the function of banks and legal persons, which have great influence over the firm‟s long-term development As

majority shareholders, banks and corporations play a tremendous financial role and thereby directly impact corporate governance In the insider system, it is minority shareholders that are in the weaker position The various corporate governance systems that exist globally have emerged in an ad-hoc manner (Sison 2000; Shleifer and Vishny 1997) Firms and economies have been shaped simply by following conventions, or by the environment, worldview and culture, legislative and political frameworks in which they operate Over time they have evolved into today‟s corporate governance systems, although it is certain they continue to evolve Besides the political and legal influence, systems have been influenced by “culture, democratic representation and accountability, the distribution of power, and the protection of property rights and equality” (Sison 2000, p181) Other influencing factors include the level of media freedom and the intensity of competition amongst firms (Zingales 2000) The essential point however, is that the national corporate governance system typically evolves in an ad-hoc manner, without being designed specifically to achieve maximum efficiency, economic benefit, or shareholder protection or wealth

The assertion of the dominating political process applies to the insider systems of Germany and Japan During the period of rapid economic development

of the late 19th century, these countries forged their systems of powerful banks with healthy State support (Gerschenkron 1962) Furthermore, German banks discouraged initiatives such as disclosure rules, insider trading prohibitions and increased minority shareholder protection These initiatives ensured that minority shareholders never became dominant enough to protect their rights, and that the banks maintained a powerful position These legal systems thus developed to accommodate the banks as the predominant economic power

The evolution of national corporate governance systems thus sheds some light on the issues involved in the process The arguments show clearly that there are many kinds of influences behind the search for the optimum corporate

governance system These influences have also had a number of policy implications, particularly for emerging and transitional economies

2.4 Corporate Governance Mechanisms

Corporate governance mechanisms consist of a combination of economic and legal institutions that ensure the flow of external financing to the firm, aligns the interests of owners (investors) with managers and other stakeholders, and guarantees a return to investors

Corporate governance mechanisms are defined and categorized by different authors in different ways Shleifer and Vishny (1997) identify five categories of mechanisms which include (i) incentive contracts, (ii) reputation considerations by managers and investor‟s optimism, (iii) legal protection, (iv) large investors and (v) specific governance arrangements, such as the debt/equity choice, leveraged buy-outs (LBO‟s), co-operatives and state ownership

Maher and Anderson (1999), on the other hand, recognize three broader mechanisms, including (i) executive compensation plans, monitoring by boards etc., (ii) legal protection of shareholder rights, prohibition of insider dealing etc., and (iii) indirect control over managers through capital markets, managerial labour markets, and markets for corporate control (e.g takeovers)

Liu (2005) identifies two typical governance mechanisms that address the conflicts of interest between shareholders and managers, and between majority and minority shareholders The first is an internal mechanism consisting of ownership structure, board of directors, executive compensation, and information disclosure and transparency The second is an external mechanism consisting of a market for corporate control, product market competition, good legal infrastructure and rigorous law enforcement Given its comprehensiveness and applicability, this categorization will hereafter be used as the framework to present and discuss corporate governance mechanisms

2.4.1 Internal Mechanisms

a Ownership structure

The agency problem originates from the separation of ownership and control, which creates information asymmetry and agency costs (Fanna and Jensen 1983) Managerial behavior does not necessarily serve the best interests of shareholders (Shleifer and Vishny 1997), and management decisions can reflect the manager‟s personal interests rather than the shareholders interests

A highly concentrated ownership may be a sign of poor investor protection

In this case, controlling shareholders have strong incentives to monitor management and thereby maximize profits, but minority shareholders are not protected from expropriation by the controlling shareholders and management, but now also between the controlling shareholder and minority shareholders A well designed ownership structure therefore is one of the most important governance mechanisms

in terms of value maximization

In emerging and transition countries with weak legal protection, controlling shareholders are able to expropriate the firm‟s assets at the expense of minority shareholders This phenomenon is often referred to as „tunnelling‟ Johnson et al (2000) use the term “tunnelling” to describe the transfer of assets and profits out of the company for the benefit of its controlling shareholders Controlling shareholders are easily able to transfer company‟s resources for their own benefit through self-dealing transactions Such transactions include “outright theft or fraud, which are illegal everywhere though often go undetected or unpunished, but also asset sales, contracts such as transfer pricing advantageous to the controlling shareholder, excessive executive compensation, loan guarantees, expropriation of corporate opportunities, and so on.” (Johnson et al 2000)

b The Board of Directors

The Board of Directors is a crucial internal mechanism of the overall corporate governance system It is the critical link between owners and

management, and sets the rules of governance Solutions to corporate governance problems can be initiated by boards Although shareholders are the ultimate owners

of a company, they do not have the virtual power to control either the daily operations or the long-term policies The Board of Directors are instead the key players in terms of decision-making Boards are sanctioned by the shareholders, and are responsible for providing strategic guidance, effective supervision of management and ensuring the maximization of shareholders‟ interests

 Board Structure

Outsider systems (e.g the UK and US) have a one-tier board structure while insider systems (e.g Continental European/Japan) use a two-tier model In the two-tier structure, there are three governing bodies, the supervisory board, the management board, and the general shareholder meeting The difference between the one-tier and two-tier structures is the absence of the supervisory board in the one-tier structure In the two-tier structure, the supervisory board has the duty of supervising both management and the board of directors One advantage of the two-tier structure is that the supervisory board has independence from executive directors However, it is often so far removed from the company business operations that it lacks important information necessary to carry out its function The advantage of one-tier structure is that the board is composed of independent directors to provide objectivity, and executive directors that are familiar with the company business The disadvantage of the one-tier structure, however, is that it is easier for the board to be manipulated internally or „captured‟

There is no definitive answer to the question of which board structure is superior Different board structures are implemented to suit different economic and market systems The present trend throughout the world, however, is moving in favor on the one-tier structure (OECD Principles of Corporate Governance, 2004)

 Board Composition

The composition of the board is an important aspect that helps guarantee the effectiveness of board operations A modern board consists of individual executive directors (such as the finance or the marketing directors) who deal with a particular function within the company The board will also consist of non-executive and independent directors

The U.S National Association of Corporate Directors (1996, pp 9-10) defines an independent director as one who (a) has not been employed by the company in an executive capacity within the last five years, (b) is not affiliated with

a company, that is an adviser or consultant to the company, (c) is not affiliated with

a significant customer of or supplier to the company, (d) has no personal services contracts with the company or with a member of the company‟s senior management, (e) is not affiliated with a not-for-profit entity that receives significant contributions from the company, (f) has not had any business relationships with the company other than service as a director within last five years, (g) is not employed

by a public company for which an executive officer of the company serves as a director, (h) has not had any of the relationships described above with any affiliate

of the company, and (i) is not a member of the immediate family of any person described above

Existing evidence suggests that independent directors are able to help protect the interests of shareholders in specific circumstances when there is an agency problem (Byrd and Hickman 1992; Lee et al., 1992) Furthermore, independent directors monitor management more efficiently than executive directors

Large public companies usually set up special sub-committees under the board For instance, a compensation committee composed of entirely independent directors determines the remuneration level of senior management Kesner (1988) finds that the most important board decisions result from such sub-committees Vance (1983) further argues that the audit, executive, compensation, and

nomination committees have a great influence over company activities Particularly the audit committee, consisting of independent directors, is generally expected to be

an effective monitoring body (Klein 1998) Davidson et al (1998) find that while overall board composition appears to be unrelated to company performance, the structure of the finance and accounting committees appear to be considerably more influential

 Other Board Considerations

The size of the board, along with the frequency of board meetings appear to

be related to company performance The evidence on the optimum size of the board, however, is inconclusive Yermack (1996) and Eisenberg et al (1998) argue that smaller boards may be more functional and could provide better financial reporting supervision, whereas larger boards may possess a greater depth of knowledge and experience A board that meets more often should be able to devote more time to company issues Vafeas (1999) find that frequent board meetings can improve a firm‟s financial performance

In summary, effective board performance helps ensure that company objectives are realized, resources are allocated efficiently, and the interests of shareholders are reflected in management decisions

c Executive Compensation

Providing executives with a highly contingent, long term incentive-related contract is another way to influence behavior and align management interests with those of shareholders Incentive contracts are comprised of various elements, including salary and bonuses, share ownership, stock options, and (in the case of poor performance) the threat of dismissal (Jensen and Meckling 1976; Fama 1980) The optimal incentive contract is determined by how well it influences management‟s performance, e.g., the degree of risk aversion and effectiveness of decision-making (Mirrlees 1976)

Research shows that there is a positive relationship between remuneration and performance, and thus rejects the extreme hypothesis of complete separation of ownership and control (Murphy 1985) The sensitivity of pay to performance is broadly similar in the US, Germany and Japan

It is important to note that excessive executive compensation is a form of expropriation from shareholders Further and more serious problems may arise from high incentive contracts Stock option plans, as a main form of incentive contract for executives, has become increasingly controversial The main argument in favor

of stock option plans is that they provide good incentives for managers to act in the best interests of the shareholders The argument against them however, is that they can create opportunities for self-dealing by management, especially if the board of directors is an inefficient monitor (Shleifer and Vishny 1997) Compensation policy

is a very important tool in creating a successful company, and stock ownership is the most powerful link between executive value and shareholder value Thus, Jensen and Murphy (1990) argue the problem is not how much remuneration executives receive, but rather in what form it is received

d Information Disclosure and Transparency

Information disclosure is “releasing the company‟s financial and financial information completely, accurately, timely, and openly to shareholders and stakeholders for the purpose of enhancing their participation and protecting their interests” (OECD Principles of Corporate Governance, 2004)

non-This is a part of good governance and a key factor in emerging and transition economies Reliable and timely information disclosure affects decision-makers outside the company shareholders, investors and potential investors, and stakeholders, who decide where to place their capital Providing adequate financial reporting is one of the primary responsibilities of management Auditors should be accountable for their audit reports Management may deliver information through

annual reports, quarterly reports, financial analysts, corporate websites, press conferences, news releases or analyst meetings (Chen and Jian 2006)

Healy and Palepu (2001) argue that the reasons for a company to volunteer information are three-fold; to reduce the cost of capital, increase the liquidity of their shares and to increase their following by financial analysts In particular, reducing the cost of capital and operating costs, and minimizing risks are very important factors Timely and comprehensive information disclosure can help ease investors‟ concerns over a possible risk of default The quality and amount of information firms disclose affects the capital market, thus affect the firms cost of capital When asymmetric information exists between investors and management, moral hazard and adverse selection problems can arise Management has first-hand access to company information, where investors do not Speculative managers may therefore focus more on their own personal interests Improving the quality of information disclosure could eliminate such asymmetry and reduce the cost of capital (Verrecchia 2001)

Controlling shareholders that control more seats on the board have less incentive to disclose information at board level, and likewise may also make use of their information advantage to manipulate disclosure to investors in their own interests, thus lowering the quality of information delivered (Shleifer and Vishny 1997)

2.4.2 External Mechanisms

a The Market for Corporate Control

The market for corporate control is defined as the market in which managers compete for the control rights over company resources It is often referred to the

„takeover‟ or „divestiture‟ market A takeover can enhance shareholder value through mergers and acquisitions, tender offers, proxy contests, hostile takeovers, and often a combination of these are involved (Jensen and Ruback 1983)

Mergers are negotiated directly with the management and approved by the board of directors of the target company, before being voted on by target shareholders Mergers or tender offers occur when the bidding firm offers to purchase shares of the target firm at a price higher than the official market value Proxy contests occur when an insurgent group, often led by dissatisfied former managers or large shareholders, attempts to gain enough backing to appoint a majority of board members (Jensen and Ruback 1983) A hostile takeover is a form

of takeover which runs against the wishes of the target firm‟s management and board In a typical hostile takeover, a bidder makes a tender offer to the dispersed shareholders of the target firm, and thus can be viewed as a particular mechanism for ownership concentration (Shleifer and Vishny 1997)

A takeover can increase the combined value of the target and acquiring firm, usually evidenced through the stock price appreciation of the target firm (around 20-30% depending on the type of transaction) after the attempted takeover announcement (Jensen and Ruback 1983) Takeover targets are in many cases poorly performing companies (Mørck et al 1989) If the takeover is successful, inefficient managers are usually removed (Martin and McConnell 1991) Jensen (1986) argues that takeovers solve the free cash-flow problem, as they usually lead

to the distribution of the firm‟s profits to investors over time The market for corporate control is widely regarded in outsider countries as a critical external corporate governance mechanism; one in which managerial discretion is effectively controlled The market for corporate control is therefore often quite dynamic, and its functions are effectively displayed

b Product Market Competition

Product market competition is an important external mechanism in as it affects management incentives, and thereby the efficiency of the firm Even in a weak governance environment, strong product market competition can act to align managers‟ goals to the aim of efficient productivity (Allen and Gale 2000)

Competition encourages management to operate more efficiently and reduce costs

in order to avoid bankruptcy

However, evidence on the influence of product market competition on performance appears inconclusive Strong product market competition may in turn create other problems Shleifer (2004) argues that competitive pressure can lead to a variety of unethical practices, e.g., child labor, corruption, excessive executive pay, and earnings manipulation

c Legal Infrastructure and Law Enforcement

A strong corporate governance system must be supported by a functioning legal infrastructure, and law enforcement The most important legal rights of shareholders are voting on the major issues facing the firm, and the appointment of directors (Manne 1965; Easterbrook and Fischel 1983) The legal environment of a country has a significant effect on the size of the capital market

well-La Porta et al (1997) conclude that a good legal environment protects investors against expropriation by managers, and increases their willingness to invest in equities In this way, the scope of capital markets becomes broader and more valuable

The legal environment, measured by both the character of laws on the books and the quality of law enforcement, plays an important role in preventing the expropriation of minority shareholders by controlling shareholders La Porta et al (1998) find that countries with poor legal protection of minority shareholders have more concentrated ownership structures and smaller capital markets Measured by the efficiency of the judicial system, the rule of law, corruption, the risk of expropriation and the possibility of contract repudiation by the government, law enforcement is found to be better in richer countries than poorer countries

Improving the legal infrastructure and enforcement is the most obvious strategy to reduce the agency conflict between controlling shareholders and

minority shareholders It is clear that legal infrastructure and law enforcement are fundamental elements of corporate governance Legal protection of investors and concentration of ownership are also complementary approaches to the improvement

of corporate governance

The US, UK, Germany, and Japan have some of the best corporate governance systems in the world The advanced market economies of these countries have solved their governance problems better than many other countries; however, this in no way implies that these systems are perfect solutions and governance mechanisms cannot be improved In less developed countries, corporate governance systems are practically non-existent (Shleifer and Vishny 1997) In emerging and transition economies, corporate governance mechanisms must be developed and implemented in order to improve the overall quality of corporate governance

2.5 Corporate Governance in Transition Economies

Corporate governance has been a prominent issue in developed market economies for some considerable time In emerging and transition economies, it is still unfamiliar and underdeveloped However, since the Asian financial crisis of 1997-98 and the recent world financial crisis of 2007-09, it has become a much more important issue

The main area of focus for much corporate governance literature has traditionally centred on the conflicting interests of weak, dispersed shareholders and self-interested management However, La Porta et al (1999) and Barca and Becht (1999) have shown that widely held firms are only common in countries with high levels of investor protection such as the UK and US, and are not the norm globally Furthermore, the assumption made by most corporate finance theory that firms operate under a functioning civil or common-law justice system is not the case in many transitional economies (Berglöf and von Thadden 1999) Many of the findings for developed countries should therefore not be considered absolute in

relation to emerging or transition economies In transition economies there are challenges, priorities and solutions which are different from those in developed economies, and this is an important consideration for transition countries seeking to implement alternative governance models

Important common features of transitional economies are a large dominating sector of former SOE‟s that requires restructuring, and a need for new enterprises in underdeveloped parts of the economy, especially the service sector (Berglöf and von Thadden 1999) In addition, transition economies commonly inherit a dysfunctional legal system, with many other basic institutions such as capital markets typically having to be built up from scratch (Berglöf and von Thadden 1999) The limited power and scope of both private and public enforcement can prevent investors from bringing lawsuits and there is often great uncertainty over their rights (Berglöf and Claessens 2004) Improving investor protection is likely to

be crucial for most transition economies (La Porta et al 1998; Berglöf and Claessens 2004)

In order to mitigate the effects of weak investor protection, transition economies tend to have relatively high levels of ownership concentration (La Porta

et al 1999; Berglöf and Claessens 2004) Higher levels of ownership concentration and poor investor protection both impair the liquidity of equity markets Equity markets not only provide financing to firms, but also provide owners with a market for „divestiture‟ and the ability to diversify systematic risks A lack of liquidity also effectively nullifies the market for corporate control, which is a fundamental problem in many transitional economies Firms wishing to raise capital through issuing equity may also face problems in transition countries due to poor minority investor protection, even if those countries are developing rapidly (Singh 1995) Profitable investment opportunities that are foregone from lack of equity financing may in turn lead to large social costs (Claessens et al 1999)

In terms of financing during the transition process, when legal and financial systems and institutions are all underdeveloped, substitutes for standard corporate governance mechanisms and financing channels play a more prominent role The concerns managers have for their reputation and the prospect of access to capital markets help promote proper firm conduct (Shleifer and Vishny 1997), until the necessary and formal investor protections have been established and institutional frameworks are in place (Gomes 2000) During the economic development of the transition process, investors depend more on the reputational concerns of managers for their protection, whereas in the longer run legal protection takes over as the dominant form of investor protection Financing is also able to be obtained in environments with only weak investor protection because of investor over-optimism, where investors are excited about companies and finance them without much thought about getting their money back, instead simply counting on short-run share appreciation (Shleifer and Vishny 1997) In short, the reputational concerns of managers and investor over-optimism offer some explanation as to how firms can acquire external financing in environments that offer only limited investor protection

2.6 Chapter Summary

Corporate governance is a set of mechanisms, both institutional and market based, that deal with the conflict of interests between shareholders and management, and between majority and minority shareholders In the chapter, the 2 major models of corporate governance: shareholder model and stakeholder model have been introduced and discussed Besides, both internal and external governance mechanisms have also been reviewed including ownership structure, board of directors, executive compensation, information disclosure, the market for corporate control, product market competition and legal infrastructure and enforcement All these mechanisms were found not to be independent of each other but they are closely interlinked making the structures fluctuating and difficult to analyse

The interaction between corporate governance and the political and legal systems must be considered in relation to the problems faced by transitional countries, such as weak capital markets and the need to restructure SOE‟s This new expanded framework provides a better foundation to analyse and understand the policy decisions of transitional economies in relation to corporate governance

CHAPTER 3: CORPORATE GOVERNANCE IN VIETNAM

3.1 Introduction

Vietnam‟s capital market began to develop a few years ago, when the country moved toward a more market-oriented economy The first stock exchange, the Ho Chi Minh City Securities Exchange (HOSE), was established in July 2000 The second one, the Hanoi Securities Trading Center (HASTC) started trading securities 5 years later in 2005 From only tens of securities listed at the beginning,

up to now there are over 500 companies traded in the HOSE and HASTC (has recently been renamed as Hanoi Stock Exchange - HNX) As of the end of 2009, total market capitalization of HOSE and HNX was approximately VND 620,000 billion (US$32.6 billion), or approximately 38 percent of 2009 GDP

However, like other emerging markets, Vietnam‟s stock market is facing all aspects of agency problems which are the subject of corporate governance They are the moral hazard conflicts where managers lack managerial efforts or the over investment problem where managers act on their own benefits Increasing firm size and diversification is also a reality in Vietnam where managers strengthen their individual positions at the cost of shareholders

The framework for corporate governance in Vietnam is only in the early stages of development with law and regulations being established Awareness of market participants on corporate governance is limited

So far, only few surveys and studies on Vietnamese corporate governance have been published Among those the “Country Corporate Governance Assessment

on Vietnam in 2006” of the World Bank is the one that described most completely corporate governance practices in Vietnam and provided a benchmark for Vietnam‟s observance of corporate governance practices against the OECD Principles of Corporate Governance However, since then the World Bank has not made another report whereas corporate governance in Vietnam is evolving rapidly

with the fast expansion of the stock market This chapter aims to provide an overview of Vietnamese corporate governance that is up-to-date and as complete as possible by assessing corporate governance in 6 areas which are stated in the OECD Corporate Governance Principles, including (i) corporate governance framework; (ii) rights of shareholders; (iii) equitable treatment of shareholders; (iv) role of stakeholders in corporate governance; (v) disclosure and transparency; (vi) responsibility of the Board

3.2 Legal framework and law enforcement

3.2.1 Development of a legal framework for corporate governance in Vietnam

After the launch of the economic reform (Doi Moi) in 1986, a variety of laws

were promulgated, namely the Law on Foreign Direct Investment in Vietnam 1987, the Company Law 1990, the Private Enterprise Law 1990, the Law on Encouragement of Domestic Investment 1994, the State Owned Enterprises Law

1996 and the Law on Cooperatives 1996 These provided domestic and foreign investors with the right to operate a business under various forms such as limited liability companies, shareholding companies, proprietors, private enterprises, partnerships, cooperatives, and joint venture companies

In 1999, the Enterprises Law 1999 was enacted to replace the Company Law

1990 and the Private Enterprise Law 1990 Relying on the previous company statutes and increasingly borrowing corporate legal rules from Western jurisdictions, especially Anglo-American law, the Enterprises Law 1999 provided for the formation of various types of business associations Besides, the two company types provided for by the Company Law 1990 (the Limited Liability Company (LLC) and the Joint Stock Company (JSC), the Enterprises Law 1999 provided for two additional business association forms: (i) one organization owned LLCs and (ii) partnerships In contrast to the Company Law 1990, the compulsory governance structure of a multiple shareholder LLC was required to have: (i) a

members‟ council consisting of all company shareholders; (ii) a chairperson of the members‟ council (iii) the managing director; and a board of supervisors (where there are more than 11 shareholders) This Law provided that a JSC must have (i) a shareholders‟ meeting which comprised all shareholders who have voting rights; (ii)

a board of management led by a chairperson; (iii) a CEO (Chief Executive Officer) and (iv) a Board of Supervisors (where there are more than 11 shareholders) In this governance structure, the shareholders‟ meeting is the supreme decision making body of the company and elects the board of management and the board of supervisors

There were, however, certain problems with the corporate governance regime provided by the Enterprises Law 1999, such as inflexible corporate governance structures, unclear functions of the management board and the managing directors and „poor‟ investor protection mechanisms Accordingly, the Enterprises Law 1999 was replaced by the Enterprises Law 2005 after just six years The Enterprises Law 2005 is the most important corporate legislation in Vietnam and it forms the foundation for the Vietnamese corporate governance system

Besides the Enterprises Law 2005, other statutes also provide a few additional rules governing companies, especially for particular business areas such

as banking, auditing, insurance and securities such as Law on Credit Organization

1997 (amended in 2004 and recently revised in June 2010 which will be effective from January 1st 2011), Law in Insurance Business 2000, the Law on Accounting

2003, the Securities Law 2006 and Model Charter 2007

3.2.2 Current corporate governance framework in Vietnam

a Corporate legal framework

The Enterprises Law 2005 which was effective on July 1st 2006 is the most important corporate legislation in Vietnam and it forms the foundation for the Vietnamese corporate governance system It governs all corporations, regardless of

the structure of their ownership (business enterprises, state-owned enterprises, foreign-owned enterprises, limited liability companies, or joint stock companies) For a transitional period of 2 years, until June 30th 2008, Foreign Invested Enterprises which are formally governed under the Law on Foreign Investment (FDI Law) may choose to continue to operate under the legal regime granted by their investment license, or shall have to re-register with the Business Register to transform into a partnership, an LLC or a JSC , as governed under the Enterprises Law 2005 The transitional period for SOEs formally governed under the Law on State-owned Enterprises 2003 is 4 years (until July 2010) Thereafter, SOEs will have to conform to the provisions of the Enterprises Law 2005

The Enterprises Law 2005 defines that a LLC is a company that has no more than 50 shareholders A JSC must have at least 3 shareholders Only the JSC is authorized to issue shares to the public and its shares are freely transferable, unless otherwise stipulated by the company charter for preferred shares The transferability

of LLCs shares is subject to a right of first refusal of other company members Partnerships, introduced in the Enterprises Law 1999, are not common

As of the end of 2009, there are approximately over 1,500 SOEs; 5,600 foreign invested enterprises; over 200,000 LLCs, JSCs and sole proprietorships; and 13,500 cooperatives in Vietnam (GSO 2010)

A further feature of Vietnamese listed companies is that they have a disproportionately high concentration of control in the hands of the largest shareholders (mostly the State) A high concentration of control rights is even found in listed companies with a relatively dispersed ownership structures There are 2 primary reasons for this pattern Firstly, a significant proportion of listed companies are subsidiaries that have a parent company or group that remains in control through extensive contractual and management ties after listing Continuing involvement in spun-off listed companies is often evidenced through the parent company‟s active control of the new listed companies‟ boards, and maintaining control is often a prerequisite for the parent listing the subsidiary in the first place Secondly, the rights of minority shareholders remain weak under the present political and legal system in Vietnam, and this is particularly true when the State remains a large shareholder of the former SOEs

c Securities Law Framework

The Decree 144/2003/ND-CP forms the legal basis for the State Securities Commission (SSC), whose role is to issue and enforce regulation governing the issuance and trading of securities by companies listed on the stock exchanges, and

to monitor the activities of securities companies, investment funds, brokers and other institutions involved in the functioning of the securities market The Enterprises Law 2005 and the Law on Accounting 2003 have jurisdiction over listed companies

d Listing rules

In Vietnam, the Securities Law 2006 provides that the Stock Exchange (SE) and Stock Trading Centers (STCs) can issue listing rules once they obtain the approval of the SSC

Under the Securities Law 2006, the major listing requirements in HOSE include:

 Being a JSC with a minimum paid-in capital of VND 80 billion;

 Having generated profits for the last two years with no losses carried forward;

 Having at least 20 percent of its equity held by more than 50 outside investors;

 Having a sound financial position, without any debt more than one year overdue;

 A commitment by the company‟s Board of Directors, Management, and Supervisory Board to continue to hold 100% of their shares in the company for 6 months from the date of listing, and at least 50% for 6 months later, excluding the State shareholdings for which they may be acting as proxy

Listing requirements in Ha Noi Stock Exchange (HNX) are similar to those

in HOSE except a requirement that the listed firms must have the paid-in capital of VND 10 billion

Vietnamese auditing and accounting standards are promulgated by the Ministry of Finance (MOF) The existing standards are still incomplete Further, some of the contemporary accounting and auditing standards of Vietnam do not meet international standards and do not promote „good‟ corporate governance of companies The Vietnam Association of Accountants and the Vietnam Association

of Certified Public Accountants have a trivial role in administering accounting and auditing matters

e Courts and Enforcement

The legal infrastructure and enforcement environment in Vietnam are relatively weak and generally under-developed to ensure transparency; and effective capital markets are lagging well behind the market development Private enforcement of investor rights and public enforcement of contractual disputes are both in an extremely weak position Under the current Vietnamese legal system

concerning securities civil compensation, it is difficult for the investors to sue in court For instance, there are no provisions for civil compensation concerning insider trading and the manipulation of shares prices under the Securities Law

The courts lack jurisprudence expertise in securities market disputes and experienced magistrates Judges are appointed for a term of 5 years They are often perceived to be susceptible to government pressure

f Shareholder rights groups

At present, there is only the Vietnam Association of Financial Investors (VAFI), which was established under the Decision No.74/2003/QD-BNV of the Ministry of Home Affairs dated November 5th 2003, and began operations in January 2004 As of 2009, VAFI had admitted nearly 500 members, of which 63 were organizations with the goal of creating a bridge between businesses, stock companies, investors, and management agencies One of VAFI‟s objectives is to

“protect the rights of investors, helping them to have thorough knowledge of laws and feel secure investing in businesses” After over 6 years in operation, VAFI partly helps contribute a voice to protect shareholder rights and improve corporate governance in Vietnam

g Codes of Corporate Governance in Vietnam

Codes of corporate governance are important sources for corporate governance in many economies ranging from advanced economies to transitional economies Until March 2007, Vietnam lacked this source of corporate governance regulation On 13 March 2007, the MOF issued the Code of Corporate Governance for Listed Companies (hereinafter Code) This Code was developed under the Enterprises Law 2005 and the Securities Law 2006 It intended to adopt „the best international practices on corporate management suitable to the conditions of Vietnam to ensure a stable development of stock market and a transparent economy

in Vietnam‟ This Code is, in fact, a piece of subordinate legislation (with mandatory rules) and is therefore different from a voluntary code of corporate

governance in advanced economies such as the OECD Principles of Corporate Governance, the German Corporate Governance Code, and the Chinese Code of Corporate Governance for Listed Companies

Under the Code, the term „corporate governance‟ refers to the systemic principles which ensure a listed company is managed in a way that respects the rights of shareholders and related persons More specifically, rules of corporate governance should ensure an effective managerial structure; the rights of shareholders; fair and impartial treatment as between shareholders; roles of persons with related interests; transparency during the company‟s activities; that the board

of directors and the board of supervisors lead and manage the company effectively

The main principles of corporate governance applicable to a listed company under the Code include: (i) Rights of shareholders; (ii) General meeting of shareholders; (iii) Board of Directors; (iv) Supervisory Board; (v) Conflicts of interest and related party transactions and (vi) Information disclosure and transparency

3.3 Rights of Shareholders

3.3.1 Basic shareholder rights

Under the Securities Law in 2006, basic shareholder rights include ownership registration, transferability of shares, obtaining company information, participating and voting in GSM, electing or removing board members and sharing profit of the corporation However, in practice, in many companies, some of those basic rights are still violated Investors get difficulties in obtaining company

information or have little power in voting for key issues of the company

a Ownership registration

Under the Enterprises Law 2005, limited liability companies and joint stock companies (wholly or partly owned by private persons, by the State or by foreign investors) are registered at the Department of Planning and Investment in Provincial