esg challenges in an emerging market
DESCRIPTION
Juerg Vontobel, Founder and Special Advisor - Vietnam Holding Asset Management Ltd. - SwitzerlandTRANSCRIPT
CORPORATE GOVERNANCE IN VIETNAM
Hannes Valtonen, VinaCapital
Introduction
Set up GRC function in Vietnam at largest foreign fund manager
Prior experience Asia 9 years (Japan, Korea, China, Vietnam) Europe 4 years
Sectors: fund management, automotive, retail
Internal audit, compliance, operations, risk management
Agenda
Background on Vietnam Regulations for foreign investors Securities markets / IPOs Corporate governance in Vietnam Risk management and challenges Reputation and branding strategy
Agenda
Background on Vietnam Corporate governance in VN Regulations for foreign investors Securities markets / IPOs Risk management and challenges Branding strategy
Background - Key facts
Population 87 million Population growth 1.1%
growth Under 25 years about 50% GDP per capita (2008) $1,040 Real GDP growth (1999-2008) 7.5% Agricultural output (2008) 21%
GDP Employed in agriculture (2007) 57%
Private sector employed (2006) 72%
Background - Context
Doi Moi reforms 1986 US embargo lifted 1994 ASEAN membership 1995 HCMC stock exchange 2000 Foreign investment/enterprise laws
2000 US bilateral trade agreement 2001
Background - Context
IPO take-off 2006-2008 Investment/Enterprise law 2006 WTO membership 2007 Global economic crisis 2008
Foreign investment FDI
Investment Law 2006 allowed foreign investment in any sector except if restricted
Local and foreign companies same standing
Conditional/prohibited FDI sectors Opening in stages with WTO commitments FX regulations, but right to repatriate
investment and profits
Foreign investment (portfolio) No restrictions on selling and buying
Vietnam stocks (except FX) FX regulated , but right to repatriate
investment and profits
Securities markets
2005 2006 2007 2008 2009 July
Stocks 40 183 249 338 367
Market cap mil$
590 13,780 31,560 13,010 24,100
Daily turnover mil$
0.8 10 71 42 74
Performance 20% 147% 26% -66% 32%
Foreign volume 15% 23% 27% 22% 13%
World Bank
Capacity of securities regulator Framework/standards for informal
markets Code of CG for listed firms Enforcement of regulatory compliance Training directors in CG Better quality, timely, access to
information
Doing Business 2010
Ease of… 2010 Rank out of 183 economies
Starting a business 116
Construction permits 69
Employing workers 103
Registering property 40
Getting credit 30
Protecting investors 172
Paying taxes 147
Trading across borders 74
Enforcing contracts 32
Closing a business 127
Doing business (overall score) 93
Why is governance important?
Underpins market confidence, financial markets integrity and economic efficiency
Basis for transition from planned to market-based economy
Crucial for attracting foreign investment Lessons from Global Financial Crisis for
Vietnam in developing standards and institutions
Perspectives
Economy in transition Knowledge, skills developing Institutions under development Ambitious plans, implementation difficult Laws drafted, practice Different perspectives by business
sector/approach
Challenges
Transparency and disclosure Legal environment and contracts Land ownership / use rights Board governance
Transparency/disclosure
Lack of experienced auditors Annual reports limited disclosure (notes) Inconsistent application of accounting
and valuation policies
=>Extensive due diligence, investigation
Legal environment
Developing legal environment Inconsistent implementation of law at
different levels Transparency/corruption Lack of precedent/enforcement
Þ Carefully align interests of partiesÞ Milestones, payments in stages
Land ownership / use rights
Complicated and opaque regulations and approval processes
Development often involves resettlement and negotiations
=>local partner almost always necessary
Board Governance
Lack of experienced independent directors
Oversight lacks independent audit committee (supervisory committee)
Policies on related party transactions
Þ Board representationÞ Minority protections, veto rights
Summary
Transitional developing economy Asian society, values, networks Don’t assume, get good advice Know your partners, align interests Strong international influences and
changes taking place