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How would you rate Vietnamese firms’ information disclosure and transparency?
Transparency has indeed become ever more a priority for publicly traded companies in Vietnam. Firms are slowly beginning to understand that building the confidence of shareholders and investors can be best achieved with a firm commitment to transparency in reporting and disclosure. It must also be noted that Vietnamese companies still have some ways to go in reaching international best practices .
IFC’s Corporate Governance Scorecard for Vietnam 2011 has shown that Vietnamese companies’ disclosure and level of transparency is still not extensive enough in order to meet global practices. The report reviewed corporate governance practices, including disclosure and transparency practices, among the 100 largest companies listed on the Hanoi and Ho Chi Minh stock exchanges. A compliance rate of 43.2 per cent in 2010 with global good practices on disclosure and transparency (improved from 39.4 per cent in 2009) means that Vietnamese companies’ practices need to continue becoming more detailed and comprehensive.
At the regulatory level, Vietnam has made progress in establishing rules for greater transparency.
Two circulars guiding information disclosure (Circular 09/2010 and Circular 52/2012) have been issued within the last two years, demonstrating the government’s continued effort in promoting transparency. I am glad to see the new circular on information disclosure (Circular 52/2012) which should help raise the level of disclosure in annual reports, including information on shareholding structure, Board of Management and Board of Director performance reports, Board remuneration and corporate governance reports. The next step is for companies to adopt and comply with the new regulations and to possibly go beyond compliance by adopting further transparency principles on a voluntary basis.
What is your view on Vietnamese companies’ road map to transparency?
It is true that, similar to other economies in transition, Vietnam’s business environment has yet to be aligned fully with international best practices. There is, for instance, no complete regulatory framework and guidance on how to prepare annual reports. At the same time, I see a considerable shift in Vietnam over the last few years. As the country modernises and accelerates its integration into the global economy, local companies are starting to realise that following international best practices can significantly improve their transparency and that in turn is beneficial to their firm.
Vietnamese firms are now coming to see adoption of better practices in their annual report as a way to help enhance companies’ ability to attract higher quality of capital at a lower cost. I am confident that the recent changes will continue to increase the quality of Vietnamese companies’ annual reports and enhance their transparency. In this context, it will also be important to develop companies’ accounting and financial reporting capabilities and align them with international best practices.
However, there are still shortcomings in companies’ annual report preparing. Why and what are the measures to address those issues?
The primary responsibility lies with the companies as they need to understand how compliance with good international practices contributes to their competitiveness. The OECD Principles of Corporate Governance are an international corporate governance benchmark for policy-makers and companies which should serve as guidance in Vietnam. The OECD principles support the development of high quality internationally recognised standards, which help to improve transparency and the comparability of financial statements and other financial and non-financial reporting between countries. Vietnam’s regulators should assist the move to greater transparency and higher quality of local companies’ annual reports by providing more detailed legal regulations guiding the reports’ preparation in accordance with the OECD principles.
The state, as a major shareholder in many companies, is in a powerful position to advocate for compliance with international best practices through its representatives on boards of these companies. The OECD principles should also be adopted and incorporated into the listing requirements for Vietnamese companies.
What is IFC’s experience in enhancing the transparency of companies in the world that is applicable to Vietnam?
The last decade has seen a steady rise in public demand for businesses to be transparent about their environmental, social, and governance performance. However, there is still a gap in many markets, when it comes to reporting a company’s environmental, social and governance performance. Many investors, including institutional investors, need this information to make informed investment decisions. The lack of sustainability reports is a significant constraint on their ability to analyse and channel capital to sustainable emerging market companies.
As a member of the World Bank Group and the largest global development institution focused exclusively on the private sector, IFC has been working for several years now to address the information gap, and our partnership with the Global Reporting Initiative is part of that on-going effort. IFC sees sustainability reporting as a timely next step to improve transparency and strengthen trust in the private sector. It is also a management tool that can help companies identify operational efficiency improvements, innovate their products and services and build stronger relationships with stakeholders.