Around 68 per cent of listed public companies are complying with minimum legal requirements on independent directors, in which the lowest rate is 30 per cent in the automobile sector, and the highest rate is 100 per cent in banking.

Compliance rate rise bodes well for listed companies, illustration photo/ Source: Shutterstock

The information was provided in the ‘Independent Directors Survey of Public Companies in Vietnam’ report, compiled by FiinGroup and the Vietnam Independent Directors Association (VNIDA).

The survey and the report have been carried out with the primary technical support from the International Finance Corporation through the SECO-funded Vietnam Integrated ESG Programme, and covered 544 companies that have disclosures on independent directors out of 769 companies listed on the Ho Chi Minh City and Hanoi stock exchanges.

Under 2020 legislation guiding the implementation of the Law on Securities, a listed company’s board is required to have at least one independent director if there are 3-5 board members in total, at least two independent directors if there are 6-8 board members, or at least three if there are 9-11 board members.

The report also pointed out that in the financial sector, financial services have the second-highest compliance after banking at 81 per cent. Two of the top five are consumer goods industries (personal/household goods and retail), which are among the industries most favoured by foreign investors in recent years.

In contrast, insurance and basic resources firms are among the poor-performing industries in terms of compliance rate.

Many companies still do not fully comply, either by having no independent director on the board or having a lower number than that required by law. The list includes large companies such as Hoa Phat Group and PetroVietnam Power Corporation.

The report noted that having a higher degree of foreign ownership does not necessarily mean a better compliance rate of independent directors.

According to international practices on modern corporate governance, transparency is considered the top criterion to ensure the effectiveness and sustainability of corporate governance activities and protect the stakeholders’ legitimate interests. One cornerstone to enhancing corporate governance transparency is the improvement of both the role and performance of independent directors on the company’s board.

In Vietnam, principles of international corporate governance codes have been increasingly adopted into local law, especially those related to independent directors. The legal framework on independent directors has been significantly updated with more detailed regulations governing board independence, transparency, and equity in corporate governance.

However, the implementation of these regulations, especially in public companies, has not been carefully considered. The appointment of independent directors is often merely for compliance purposes, rather than aiming at the actual value that independent directors could bring to the company.

The strengthening of legal provisions on independent directors shows that the Vietnamese legislature has correctly recognised and highly valued the importance of independent directors in corporate governance, according to Dang The Duc, vice president and secretary-general of the VNIDA.

“This also demonstrates the efforts of state agencies in developing a sustainable capital market in Vietnam and upgrading the securities market in particular,” Duc said.

Suitable solutions were proposed to enhance the actual role of independent directors and towards a transparent, effective, and sustainable corporate governance system.

FiinGroup Vietnam chairman Nguyen Quang Thuan said, “Improving the quality of corporate governance, including promoting the role of independent directors in a substantive and suitable manner to the Vietnamese market conditions, is an important factor in supporting the sustainable development of the Vietnamese securities market.”