Vietnam Entrepreneurs Day, talking about Enterprise Law and good governance

Celebrating the 20th anniversary of Vietnamese Entrepreneurs Day (October 13), we must mention the 25th anniversary of the 1999 Enterprise Law. Mr. Phan Duc Hieu, Standing Member of the National Assembly's Economic Committee shared.

From “free enterprise thinking”...

The 1990 Law on Companies and the 1991 Law on Private Enterprises marked the official legal recognition of the private economy. However, the 1999 Law on Enterprises really created a breakthrough reform in market entry and changed the mindset according to the principle that “ people can do business in anything that is not prohibited by law ” . Hundreds of thousands of private enterprises were established from this mindset.

Mr. Phan Duc Hieu, Standing Member of the National Assembly's Economic Committee. Photo: Chi Cuong

It has been 25 years since the free enterprise mindset was first laid down by the 1999 Enterprise Law! Looking back on the past, what would you like to say at this time?

Since 1999, the Enterprise Law has been amended three times, in 2005, 2014 and the current Enterprise Law was passed by the National Assembly in 2020.

The two most important contents of the Enterprise Law are market entry and corporate governance. The Enterprise Law of 1999 really created a breakthrough reform of market entry and changed the mindset according to the principle that " people are allowed to do business in what is not prohibited by law " .

This is a reform point, a breakthrough, completely contrary to the previous principle that people can only do what the law allows.

Each amendment to the Enterprise Law has resulted in stronger legal reforms on business rights, simplification of business establishment and promotion of good corporate governance.

Perhaps, the 2024 Enterprise Law marks a strong change in corporate governance, sir?

Yes, the 2014 Enterprise Law has established a legal framework on corporate governance updated with good international practices, to ensure safety and protect the interests of investors, especially minority shareholders.

As soon as the Enterprise Law 2014 took effect, the World Bank (WB) ranked our country 87th out of 190 countries in terms of shareholder and investor protection; an increase of 90 ranks compared to before the Enterprise Law 2014 took effect.

After that, the investor and shareholder protection index ranking gradually dropped due to reforms in many other countries and ranked 97/190 in 2020.

The 2020 Enterprise Law has focused on the amendment to perfect the legal framework on corporate governance to meet the standards of good and common practices in the region and internationally with the goal set by the Government. That is to improve the mechanism to effectively protect the legitimate rights and interests of investors, shareholders, and members of enterprises; promote corporate governance to meet the standards of good and common practices in the region and internationally; and raise the investor protection index ranking by at least 20 levels (according to the WB ranking and compared to the 2020 ranking).

Along with the Enterprise Law, the Securities Law also completes the content on corporate governance. The Securities Law 2019 has added regulations on the governance of public companies and listed companies according to the principles of international practice with some governance standards higher than the Enterprise Law.

Along with efforts to improve the legal framework, promoting good corporate governance practices according to international practices has also been promoted. The set of corporate governance principles according to G20/OECD was first published in Vietnamese by the International Finance Corporation (IFC). The set of corporate governance principles of Vietnam according to best practices was compiled and published by the State Securities Commission and IFC in August 2019.

It can be said that in the past 10 years, Vietnam has made many efforts and achieved great progress in perfecting the legal framework on corporate governance, aiming to approach good corporate governance standards according to good international practices and standards.

...to good corporate governance practices

In Vietnam, the issue of corporate governance is worrying in terms of awareness, governance practices and the consequences it is causing. Awareness of the benefits of good governance has been raised but there are still many limitations; not many businesses pay due attention to, and are aware of, the meaning, role and benefits of good governance for sustainable production and business activities.

Change the ranking order of the Investor Protection indicator of the Enterprise Law according to the World Bank's Doing Business Report, period 2000-2020. Source: Compiled by Mr. Phan Duc Hieu

Recently, there have been many internal disputes in many businesses. Why do you think this is?

Most of them are largely due to poor corporate governance. Lack of a good corporate governance framework has turned family conflicts into corporate disputes, inter-corporate disputes, and undermined corporate performance.

Weak corporate governance will lead to uncontrolled conflicts of interest, a major shareholder dominating all operations of the company and the management and administration apparatus being ineffective, leading to risky and unsustainable business operations; small shareholders being abused and having their interests appropriated... are all causes of business collapse.

Of course, it must be affirmed that awareness of corporate governance benefits shows signs of improvement.

However, the level of governance is uneven among different businesses and within the same type of business. There is even a large gap between practice and legal requirements. There is still a widespread tendency to cope with and comply with regulatory requirements rather than voluntarily commit to improving governance for the benefit of the company or business itself.

The Corporate Governance Assessment Report of Vietnamese Listed Companies clearly shows the above reality. Many companies have not even met the legal compliance requirements; and the application of international good practices is very limited.

The gap between our country’s laws and practices is very clear when compared to other countries in the region. According to the World Bank’s Doing Business Report, in terms of legal framework, our country is on par with Indonesia and higher than the Philippines. However, according to the ASEAN Governance Scorecard Report, our country’s actual level of corporate governance is the lowest.

Specifically, how can we envision the legal framework for governance in Vietnam, sir?

Legally, the current Enterprise Law and Securities Law are major legal steps in improving the governance framework according to regional and international good governance principles and practices.

I would like to emphasize that the benefits and requirements of good corporate governance have been clearly demonstrated.

The 2019 and 2020 corporate governance assessment report shows that the average profit of companies in the good governance group is higher than the average profit of companies in the poor governance group.

The 2020 Information Disclosure and Transparency Quality Assessment Program (CBTT&MB) results report of the Hanoi Stock Exchange shows that the CBTT&MB score (of the Information Disclosure and Transparency Quality Assessment Program) has a positive relationship with business results measured by ROE (return on equity) and ROA (return on assets).

The Organisation for Economic Co-operation and Development (OECD) recently stressed that good corporate governance and financial markets play a particularly important role in economic recovery from the Covid crisis.

The International Finance Corporation (IFC) has also published a Board of Directors Action Guide titled: Overcoming Crisis. Crises are avoidable and therefore good corporate governance is a way to respond well to crises and move forward because the nature of corporate governance already includes a risk management system and risk response...

It seems that turning a good legal framework into good corporate governance in practice is still a big challenge in our country, sir?

That is correct. In other words, improving corporate governance and promoting good corporate governance practices is a challenge for our country and requires more efforts to ensure that enterprises substantially implement good governance activities in addition to good legal regulations.

Clearly, more than anyone else, business leaders, boards of directors, and individual members of the Board of Directors and Executive Board need to understand that they have an important role in practicing good corporate governance. More importantly, at the highest level of good corporate governance, it is governance that goes beyond compliance.

This means that enterprises not only comply with the provisions of the Law but also implement and apply the principles of good international practice governance, at a level higher than the Law and for the sustainable interests of the enterprise itself, for the welfare of the community of parties related to the enterprise's operations and to ensure the effective and sustainable exploitation of natural resources in the production and business process.

This is what Vietnamese businesses must aim for to go further and become stronger.

Source: https://baodautu.vn/ngay-doanh-nhan-viet-nam-noi-ve-luat-doanh-nghiep-va-quan-tri-tot-d227337.html