Back in mid-2000s, the idea of a stock market to raise capital in Vietnam was new and exciting. The National Assembly approved the securities law and the government set out issuing regulations for companies seeking to list. While a stock exchange had existed in Ho Chi Minh City since 2000, the securities law wasn’t issued until 2006, a year after the Hanoi Stock Exchange opened its doors. The development of the regulatory framework for the stock market in Vietnam was slow, and it wasn’t until 2012 that guidance for corporate governance of publicly listed companies separate from the law on enterprises was issued.
I was in Phnom Penh, Cambodia, working for Bun & Associates prior to the opening of the Cambodian bourse. I remember a slew of regulations, back and forth meetings, and debates and public consultations prior to the opening of the stock exchange. There was a great deal of concern that all of the necessary laws be put on the books prior to listing companies for investment. Perhaps the difference comes from the overreaching influence of NGOs in Cambodia and the oversight of too many western executives with their ideas of colonial legal fiat, but in Vietnam things were different. There was no rush to ensure that all the companies listed met certain requirements, nor was there a rush, really, to lure foreign investment into the market. Vietnam sought, first, to leverage domestic capital and only after it stuck its toe in the water of what had traditionally been a bastion of capitalism did it begin to standardize the market and prepare it for foreign investors.
While the first law was issued in 2006, in the mid-90s the Government set up the State Securities Commission to oversee the development and work of the stock exchange. The SSC has a decent history of the development of the stock market in Vietnam–with lots of references to regulations–on their website here. In 2006 the law was passed by the National Assembly and amended in 2010. It wasn’t until 2012 that the first decree on the corporate governance of publicly listed companies was issued.
Prior to the 2012 decree, companies listing on the stock market were only subject to the corporate governance requirements of regular enterprises. This meant that they had to have a board of management, a general meeting of shareholders, a managing director but little else. With the advent of the corporate governance regulations, this changed. The inspection committee was introduced and stricter reporting requirements were instigated. Finally, listed companies would have to meet a strict set of standards for governing and reporting to their shareholders and the SSC on their performance and activities. The 2012 decree was updated in 2017 by Decree 71/ND-CP/2017, which remains in force.
However, last year the National Assembly passed a new securities law. There are new regulations for listing and, to date, a few changes to the corporate governance philosophies guiding those regulations. While a new corporate governance decree has yet to be issued, it is anticipated that such will be passed before the new law comes into effect on 1 January 2021. For reference, in Vietnamese, to an interview on the work yet to be done, see an article here. With luck, the four decrees will be promulgated in time to take effect at the same date as the securities law.
The point, though, and that without looking at these anticipated decrees, is that the National Assembly has made some minor changes in its approach to corporate governance in the securities law that may result in major changes in the corporate governance requirements for publicly listed companies in Vietnam.
First amongst these changes is an additional imposition on the board of management. Where before, corporate governance was intended to simply enhance the operations of the board and the inspection committee, now, corporate governance in Vietnam is intended to additionally “enhance the responsibilities of the board of management to the company and its shareholders.” For the first time, the National Assembly has delineated the relationship between the board of management and the shareholders, that the board of management is not simply there to operate the company but to answer to the ownership of the company. This distinction follows a trend in Vietnamese legislative progress that eschews the West’s tendency to support management over ownership and may open the doors to further protections for shareholders, especially minority shareholders, participating in indirect investment in a company.
A second major change in the philosophy of corporate governance for publicly listed companies in Vietnam is an expansion of the definition of those with an interest in the company. Where in Decree 71, corporate governance ensured the interests of shareholders and related persons, the new law requires that it “Respect and protect the lawful rights and interests of the parties in company administration.” This appears to open the door to a responsibility to additional stakeholders beyond simply shareholders such as employees and suppliers and all those who might be involved in the “administration” of the company. This could even extend to civic officials.
A third change is in the specificity of transparency requirements. In Decree 71, corporate governance was intended to ensure the publicity and transparency of all corporate activities. Now, the new law states that corporate governance is to “Punctually, adequately, accurately and transparently disclose information about the company’s operation; ensure equal accessibility of information to all shareholders.” Again we see an increase of concern for the rights of shareholders. With the additional criteria for disclosure requirements, too, we see the expansion of the concerns of additional stakeholders. These are trends which are subversively in compliance with Western requests while creating a corporate responsibility far more reactive to community and environment than Western corporations.
Finally, a new tenet of corporate governance philosophy has been added. The corporate governance laws are now to, in addition to their previous roles–and the changes discussed above–“ensure the roles of investors, the securities market and intermediate organizations in assisting the company administration.” All the corporate governance, therefore, is to be in the furtherance of company administration, to ensure that investors and regulators are involved in the proper ways to ensure that companies run smoothly for the benefit of all stakeholders.
While not hard and fast law, these changes to the corporate governance philosophy governing publicly listed companies demonstrate a continuing trend in Vietnam’s regulatory policy. Where countries like the United States give management a large amount of discretion and ownership little control over their actions, Vietnam is creating a management structure beholden to ownership and allowing ownership (as in the case of derivative suits which I discussed here) the ability to discipline management when they act contrary to the interests of the company. Vietnam is taking legislative steps to protect shareholders in ways that the West deems dangerous, and should cheer the hearts of minority investors seeking to indirectly invest in companies in Vietnam.
