Tran Anh Dao, acting CEO of the Ho Chi Minh City Stock Exchange, emphasised the correlation between robust corporate governance practices and improved profitability in listed companies at the 2023 Board of Directors Summit held by the Vietnam Independent Directors Association last week.
“Listed enterprises with better corporate governance often exhibit higher return on equity and better potential for stock value appreciation,” Dao noted.
She also highlighted the imperative of adapting to digital transformation, implementing environmental, social, and governance (ESG) standards, and embracing technological innovations amidst significant economic challenges. “Adaptive governance has become more crucial than ever,” she stated, “It is an approach that allows businesses to respond swiftly to major changes and economic shocks.”
Dao underscored the pivotal role of the board in steering companies through difficulties, enhancing not just stability but also robust growth.
Hoang Viet Phuong, head of Research and Advisory at SSI Securities, believed positive factors could outweigh the negatives. “A study of 500 listed companies in 2023 showed that those with better corporate governance principles had higher returns on equity and assets. Importantly, good governance also reduces the risk of price volatility and enhances the potential for stock value growth,” Phuong explained.
|Governance playing part in ESG goal
On the other hand, Pham Hai Au, director of Risk Assurance Services at PwC Vietnam, believed that board considerations are multifaceted and crucial for steering a company’s future.
“Primarily, they must ensure that the company’s purpose and strategy are in sync with the needs of key stakeholders and align with the broader business strategy. This involves comparing approaches with competitors and integrating ESG risks and opportunities into the company’s long-term planning.”
Au further highlighted the importance of adhering to ESG frameworks. “Boards need to navigate various regulatory requirements and understand their target audience, materiality, risks, and issues to adhere to appropriate standards and frameworks. It’s also vital to stay abreast of changes in these standards.”
Vivi Firdauzi, representative from Egon Zehnder’s Financial Services Practice Group, noted that the composition of boards is evolving in response to the increasing complexity of their responsibilities.
“Building a board that’s fit for purpose is essential. In an ideal scenario, having 8-9 members on a board is optimal for fostering effective collaboration and content-driven discussions,” she shared.
This size allows for more efficient decision-making and more profound engagement among members. Additionally, committee work can be significantly enhanced by bringing in topic experts as advisors.
This approach adds depth and expertise to the board’s deliberations. It is also beneficial to have board directors with transformational performance and leadership experience, as this expertise is key to enhancing the board’s future performance.
In the realm of corporate investigations, directors face crucial decisions, noted Barry Tong, partner of Advisory at Grant Thornton Hong Kong.
“When allegations arise, the first step is to consider whether an investigation is warranted. If affirmative, it’s vital to establish an independent investigation committee and a crisis management team,” he said.
According to Tong, appointing independent parties to conduct the investigation is often appropriate to ensure unbiased findings. The next critical phase is formulating a comprehensive investigation plan, which includes defining the scope based on a preliminary assessment.
“The overarching aim is to manage and effectively resolve potential problems. This requires not just identifying issues, but also implementing solutions that safeguard the corporation’s integrity and future,” Tong added.
Prof. Yuen Teen Mak, founding director of the Centre for Investor Protection at NUS Business School, identified key factors often contributing to corporate governance and accounting scandals: poor corporate culture, weak board oversight, and the breakdown of lines of defence.
“A strong corporate culture is rooted in ethical leadership at the top. The board must set a tone of high conduct standards and ensure these principles of values, ethics, and culture are deeply integrated into strategic objectives and decision-making processes,” Mak said.
Specifically, in assessing corporate culture, Mak said that a range of indicators should be taken into account.
Key indicators include turnover and absenteeism rates, training data, and the nature of recruitment, reward, and promotion decisions.
Additionally, the use of non-disclosure agreements, whistleblowing, grievance, and ‘speak-up’ data, and employee surveys are critical.
“It’s also important to consider board interactions with senior management and the workforce, alongside health and safety data, including near misses,” he stated. “Other aspects like promptness of payments to suppliers, attitudes to regulators, internal audit, and employees, and insights from exit interviews provide valuable insights into the health of a company’s corporate culture.”