Professional Documents
Culture Documents
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• Education:
– BA: National Economics University
– MBA: Macquarie University
– Ph.D.: University of South Australia
• Teaching experience:
– NEU
– University of South Australia
• Management experience:
– Director, Department of International Cooperation, NEU since
2016.
My Contacts
• Dao Thanh Tung
– Office: Room 609 - Building A1
– Tel: 043 6 280 280 (5628)
– E-mail: tungdt@neu.edu.vn (Preferred)
My Expectations
• Read the chapters and cases before class and be prepared
to discuss concepts
• Participate in class cases and exercises
• Be responsible for learning, turning in assignments
• Contribute to your team
• Be Positive and Take Responsibility for What You
Learn: ASK QUESTIONS!!
Why did student fail this class?
• Miss more than 3 classes (regardless of the reasons)
• Do not do the readings (and cases) before the class
• Do not participate and take good notes of class
discussions
• Do not participate in team assignment
• Forget exam or assignment due dates
What You Learn From...
Materials
Lectures
Activities
Course Overview
Do Anh Dung
Chairman Tan Hoang Minh
Đinh La Thăng
Chairman PVN
Corporate governance
Strategic
Management
Management
Operation Management
Logistics and Supply Chain
Corporate Finance
Course textbook and materials
• Corporate Governance (2020),
2nd Edition, Oxford University
Press.
• Edited Reading Materials
• Case studies provided
• Other materials as advised
Gradings and Requirements
• Requirements:
Students are required to attend all
class sessions and to participate
actively in discussions. For
participation to be meaningful,
students should read assigned
material before coming to class.
• Gradings:
- Attendance and Participation: 10%
- Discussion paper and presentation:
40%
- Final exam: 50%
Course objectives
At the conclusion of this course you will
- Compensation
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io
Qu
at
rm
ar SHAREHOLDERS
fo
te
in
rl y
e
ic
re
pr
po Institutional
consultation
e
Investors
rt s
Direct
ar
power
Voting
Sh
Board of Directors
Dividends
Supervisory power
Dept capital
Wages
Employees Corporation Lenders
(management and
Labour physical capital) Interest payments
(market rates)
Go
ts
Ma
PUBLIC GOODS
pu e
od
ic
rke
In Pr
s&
TAXES
tp
ke
ar
Se
ric
M
rvi
e
ce
s
Suppliers
Suppliers Customer
Customers
National &
Local
Government
Financial
governance
Work
Customers Management
Management Employees
Governance
Contractual
governance
Competitors Suppliers
Problems when there is a separation between
ownership and management
• Compensation
• Law enforcement
The Legal and Regulatory Framework
• In International Standard:
– OECD Principles of Corporate Governance
• In Vietnam:
– Law on Enterprise (2014)
– Decree 71/2017 on Corporate Governance for listed
Companies in Vietnam
– Company Charter
36
Roles of corporate governance
• McKinsey & Company and WB researches found that
there is a strong relationship between good CG policies
and practices and high stock price and good company
performance.
• Agency theory
• Stewardship theory
Agency theory
Agency theory is concerned with the “agency problem”
that exists when there is an agency relationship.
Agency Relationship:
Owners and Managers
Shareholders
(Principals)
• Firm owners
Managers
• Decision makers (Agents)
Assumptions:
MANAGEMENT SHAREHOLDERS
BOARD OF
DIRECTORS
Outsider CG System
Characteristics:
• Shares are widely held and concentrated shareholding is
non-existent
• Managers are relatively free from control by the board
since the supervisory role of the board and the
management role of executive managers is often united.
• Outside disciplines such as capital market, market for
corporate control and hostile takeover play a leading
role in practicing CG and disciplining poor
management.
• Banks only have a credit function and are prevented
from holding large blocks of shares
Outsider CG System
Characteristics (cont.):
• Antitrust laws are hostile to cross holding of shares between
large companies
• Relationships with workers are also market-based and
competitive
• Long-term job security is low
• Top managers tend to be externally appointed and managerial
compensation is much higher than average employees’
compensation scheme.
Requirements:
• A strict and reliable information disclosure and transparency
• Large capital market, efficiency of the stock market, well
developed financial institutions and highly growth managerial
labour market
Corporate Governance
Mechanisms
External Governance Mechanisms
• Market for Corporate Control
the purchase of a firm that is
underperforming relative to industry
rivals in order to improve its strategic
competitiveness
• Managerial Labour Market
• Financial Institutions
• Competition Market
• Stock Market
• Legal system
Insider CG System
Ideology:
• The insider CG system defines the firm as ‘a shared-fate
community of company people’.
• Objectives of companies not only enhance shareholders’
interest but also other stakeholders such as banks,
employees, suppliers and communities at large
Key players in insider CG system
Shareholders
Board of Stakeholder
Directors
Banks
Management
Insider CG System
Characteristics:
• Corporate ownership is concentrated among a stable
network of strategically oriented banks and other
industrial firms, rather than fragmented among
individuals investors
• Market for corporate control is largely non-existent
and hostile takeover is exception
• Stakeholders’ interests are presented on the
supervisory board, which exerts a strong monitoring
role on management
Insider CG System
Characteristics (cont.):
• Banks play a central role in providing financial services
and monitoring in times of financial distress
• Employee rights are recognised in exercising corporate
governance. Thus employees often a close connection
with company through long-term employment and on-
the-job training
• Top managements tend to be internally promoted and
managerial compensation is much closer to average
employees’ scheme so they are less finance-oriented and
focus more on long-term product strategy
Corporate Governance
Mechanisms
Internal Governance Mechanisms
Ownership Concentration
relative amounts of stock owned by
individual shareholders and institutional
investors
Board of Directors
individuals responsible for representing
the firm’s owners by monitoring top-
level managers’ strategic decisions
Strategic Investors
Internal Auditors
Corporate Governance
Mechanisms
Internal Governance Mechanisms
Executive Compensation
use of salary, bonuses, and long-term
incentives to align managers’ interests
with shareholders’ interests
Monitoring by top-level managers
they may obtain Board seats (not in
financial institutions)
they may elect Board representatives
Discussion Question 5
Ownership Insiders
Concentration • The firm’s CEO and other top-level
managers
Board of Related Outsiders
Directors
• Individuals not involved with day-
to-day operations, but who have a
relationship with the company
Outsiders
• Individuals who are independent of
the firm’s day-to-day operations
and other relationships
Governance Mechanisms
Lay off worker Have a free hand to lay Rarely lay off workers
off workers
Managerial Defense Tactics
MANAGEMENT SHAREHOLDERS
BOARD OF DIRECTORS
Composition of BoD in US model
(One tier board)
Corporate Structure
Stock
General Meeting
Corporate Structure Markets
General Meeting
appoints members of
governs confirms
BoardSupervisory
of Directors
Board
discipline dispose of
and control shares
CEO/President
appoints and
supervises reports to
Management
Board intervene
Bầu ra Shareholders
Inside and in distress
manages
Outside Directors
Corporation
sở hữu
Banks
manages and monitors
provide loans to
Corporations
own
One tier model of CG
• The most important feature of the one-tier model of
governance is the combination of the monitoring and the
managing bodies of the corporation.
• Advantages:
Quick decision making process
• Disadvantage:
- Over power on CEO
Regulatory Framework in US model
Yasuda
Tokyo Tatemono Co.
(insurance)
(real estate)
Yasuda Trust and
Banking Co. OKI Electric
Industrial Co.
Fuji
SA PPORO
Breweries Bank Nissan Motor Co.
Hitachi Ltd.
Canon
NNK Steel Corp.
Key players in Japnese model
Shareholders Government
Management Banks
Board structure of Japanese companies
Two tier board structure
Corporate Structure
General Meeting
Corporate Structure govern Banks
General Meeting Banks
appoints members of confer
appoints members and chairman of
proxies on
Supervisory Board
Supervisory
appoint Shareholders
Board
appoints and
supervises reports torepresentatives
appoints Management
Board
and supervises reports to Employees
Management
manages
Board
Corporation
Keiretsu
manages
Corporation own
provide loans to
Shareholders in Listed Companies (End of March, %)
1990 1997 2002 2007
Total market price of listed companies
Corporate Structure
reports to
General Meeting
Corporate Structure
General Meeting
appoints members of
Supervisory
appoints members and chairman of board
Supervisory Board
Board of monitors
directors
appoints and
supervises reports to
appoints Management
Board
and supervises reports to
Management
manages
monitors
Board
Corporation
manages Banks
Corporation
provide loans to
Whether there is a convergence of CG systems?
Loan
Individual
・Financial crisis
・Big Bang
stock
bank
・Deregulation of stock
Crossholdings market
of shares
Credit
0.0
1950 55 60 65 70 75 80 85 90 95 2000 02
‘One size fits all’ model?
Key stakeholders
Board structures
Value and culture
Strategy
Corporate Governance
a. Rules-based approach
b.Principle-based approach
Rules-based Approach to CG
5
Advantages
• With a focus on legal and regulatory controls to modify
the behaviour, the cost of compliance is lower than that
associated with monitoring and controlling in an
imperfect market and efficiency gains are expected to
the extent that relatively simple rules can be applied
universally
a. Alternative to legislation
b. Less detailed
c. Soft law approach
d. Manifest in ‘voluntary codes’-UK and Singapore
e. Demonstrated through indices- competitive.
f. Avoidance of ‘tick-box’ compliance-flexibility.
g. Changes implemented quickly since not rule of law
9
Advantages
• Principles-based approach gives companies the
flexibility to tailor its CG practices to fit its specific
circumstance
• By requiring companies to simply disclose whether or
not they has complied with the ‘best practice’, the
principles based approach allows the capital markets
and ultimately the shareholders to judge the
effectiveness of the CG practice rather than rely on the
premise that government already has all regulations
and shareholders are free from playing their role
Disadvantages
13
Corporate Governance Best Practices
- Culture,
- Legal system, and
- Institutional setting of capital markets.
14
Key characteristics of rules-based and principles-
based approach
Rules based approach Principles-based approach
Complies with a specific set of Emphasizes ‘doing a right thing’ by
procedural requirements (e.g. a appropriate means
check list of ‘yes’ or ‘no’)
Follows the letter of the law Follows the spirit of the law
Represents the minimum of ethical Includes and extends the legal
standards domain to issues that law does not
address
Emphasises details and Emphasises communication
enforceability
Tends towards the quantitative, Tends towards the qualitative,
objective end of spectrum subjective end of the spectrum
Necessary condition for effective Sufficient condition for effective
governance governance
Requires constant monitoring Develops over a longer term
Focus on detection Focuses on prevention
More explicit, detailed, prescriptive More implicit, broad
Promotes blind obedience Promote alignment with values
Mandatory Discretionary
Easier to implement More difficult to implement
Rules and Principles of CG in Vietnam
24
.
Model Charter
for Public Companies
2007
Model Charter for Public Companies
28
Code of Corporate Governance for
Listed Companies
Stricter rules introduced by the Code:
Art. 11 - …At least 1/3 of board members are non executive
directors
Art. 19 - …Chairman of the board are not allowed to hold
CEO position (if not approved by the Shareholder meeting)
Art. 32 - …BoD needs to establish Board Committee
(Nomination Committee, Audit Committee and Compensation
Committee). Those committees must be chaired by
independent director
Board of Directors
• Only when the company gets into the trouble, the board starts
actively practicing their role (Chiu and Lewis, 2006).
Board Qualities
• Board qualities include:
- Competence
- Attitude of directors
- Knowledge
- And practical experience that contributes to their
implementation of corporate governance
• Zahra (2000) assumes that senior managers with
experience only in former SOEs operating in planned
economy are unlikely to effectively manage a market
oriented organization.
• Therefore, senior managers in transition economies have
to upgrade their knowledge and capabilities to meet
increasing the demand of the market.
Board Committees
• Nomination Committee
• Remuneration Committee
• Audit Committee
• Corporate Governance Commitee
Nomination Committee
• Identifying individuals qualified to be board members,
• Recommending or selecting director nominees for the
next annual meeting of shareholders;
• Addressing director qualification standards, director
responsibilities, director access to management, director
compensation, director orientation and continuing
education, management succession and annual
performance evaluation.
• The nomination committee is normally composed of
independent directors.
CG Committee
• An increasing number of companies create a corporate
governance committee in recent years, particularly after
highly publicised case of misgovernance.
• Corporate governance committee performs the
following tasks:
- Develop and recommend to the board a set of corporate
governance principles applicable to the company
- Monitor the CG practices by the board
- Clarify the duties and responsibilities of the board
- Evaluate board structure and composition.
Audit Committee
• The main roles of the audit committee cover:
- Oversight of the financial reporting process, selection of
the independent auditors, pre-approval of all audit and
non-audit service
- Review of the results of work performed by the internal
and external auditors
- Guarantee of transparency and accuracy of disclosed
information
• The audit committee normally comprises a majority of
outside members and is chaired by independent, non-
executive directors.
Remuneration Committee
• The role of the remuneration committee is that of
separating those determining top management pay and
those receiving the pay.
• Without this separation, there exists an opportunity for
senior executives to reward themselves pay raises that
are not congruent with shareholders’ interest.
• The role of this committee includes determining top
management pay that are optimal to both company’s
shareholders and senior management
• Remuneration committee would normally have a
majority of independent non-executive directors.
Review Questions
• What are the basic duties of the board and individual
directors in the governance of a corporation
• What are the advantages and disadvantages of having
one person hold the offices of chairman of the board and
CEO?
• How does the board uses committees to further its
work?
• What is the role of independence in directors carrying
out their duties?
• How does a CEO gain control over the board?
Discussion
• Read Agency and Stewardship Theory and Board
Composition and answer the following question:
• Advantages:
- Link management’s decision to company performance in
medium term
- Manager has right not to buy the shares if the share price falls
• Disadvantages:
- Excessive powerful manager can influence on the stock option
repricing
- The managers can time stock options to their advantage as
evidence show that stock options are granted just before the
announcement of good news and tend to be delayed until after
bad new announcement
Pension and other benefits
• To encourage the management in the long term,
management pay will be paid according to accumulated
3-5 year company performance
• Good pension package
• Other personal benefits
• Only when the company gets into the trouble, the board
starts actively practicing their role (Chiu and Lewis,
2006).
Weak Board Composition
• A number of financial institutions do not have a separate
risk committee but rather have made it a matter for audit
committee
• One Survey reports that audit committees feel that their
effectiveness may be negative impacted by overloaded
agendas and compliance activities
• The legal requirement in the US for audit committees to
have only independent directors distorts the information
content
Weak Board Competence
• Boards of the influenced banks was lack of banking and
financial experience
• At 8 US major financial institutions, two thirds of
directors had no banking experience
• Many of directors without a financial background sit on
audit and risk committees.
• However, banking experience is not enough: Northern
Rock had two board members with banking experience
while at Bear Stearns 7/13 directors had a banking
background
• At Lehman Brothers, 4/10 board members were over 75
years of age and only 1 had current financial sector
knowledge
Risk Management Failure
• One of the greatest shocks from the financial crisis has
been the widespread failure of risk management.
Social Responsibilities
Content:
Popular understanding of corporate governance in
Vietnam
Current policies of CG in Vietnam
Current status of CG in Vietnam
Roadblocks to understanding and implementing
corporate governance in Vietnam.
Vietnam CG Balance Scorecard
I. Popular Understanding of
Corporate Governance in Vietnam
I. Popular Understanding of CG
Corp.
Governance Corp.
Management
5
I. Popular Understanding of CG
6
I. Popular Understanding of CG
Corporate governance means a system of rules to ensure that a
company is effectively operated and controlled in the interests of
shareholders and related persons. Rules of corporate governance
shall ensure:
• an effective managerial structure;
• the rights of shareholders;
• fair and impartial treatment as between shareholders;
• roles of persons with related interests;
• transparency during the company’s activities;
• that the board of management and the board of controllers lead
and manage the company effectively.
-Circular No. 121/2012/QD-BTC
Code on Corporate Governance for
7
Listed Companies
I. Popular Understanding of CG
8
.
IFC Survey:
NOTE:
WHY?
Vinashin
Accountability
• In larger corporations this would mean:
– Management is accountable to the Board; and
– The Board is accountable to the shareholders.
• For smaller companies, accountability is external:
– Creditors
– Suppliers
– Regulations
– Potential investors
Suggested means for improving CG in Vietnam
Fairness
• In larger corporations this would mean:
– Protection of shareholder rights;
– Treating all shareholders, including minority
shareholders, equally
– Providing effective redress for violation of rights
• For smaller companies, fairness means the same
thing:
– Similar problems could arise, i.e. the oppression
of minority shareholders
Suggested means for improving CG in Vietnam
Transparency
• The same for large and small companies, i.e. to
ensure timely and accurate disclosure on all material
matters, including:
– Financial situation;
– Corporate performance;
– Ownership; and
– Corporate governance
Suggested means for improving CG in Vietnam
Independence
• Procedures and structures are in place to minimize or
completely avoid conflicts of interest, e.g.
– Comply with approval requirements of the Law on
Enterprises for related party transactions
• Independent directors and advisers may not be
relevant to smaller companies
Suggested means for improving CG in Vietnam
3. State-owned enterprises
• Larger business entities in Vietnam tend to be state-
owned enterprises.
– Therefore, efforts to improve governance
standards should have large focus on SOEs
• SOEs in Vietnam:
– Production and activities account for as much as
39% of GDP
– As private sector in Vietnam matures, more SOEs
will develop into large corporate entities
Suggested means for improving CG in Vietnam
State-owned enterprises
• Encouraging the equitization of SOEs:
– Equitized SOEs, including those which are
destined for equitization, are introducing and
implementing more good corporate governance
practices
– Investors will be willing to buy shares of partially
equitizing SOEs at valuations acceptable to the
government only if there are improved corporate
governance standards that better protect the
interest of minority shareholders
– Equitization is a vehicle for advanced good
corporate governance standards within SOEs
Suggested means for improving CG in Vietnam
State-owned enterprises
• Need to clarify and separate the regulatory and
ownership functions of the state:
– SOEs continue to enjoy preferences that private
companies do not enjoy;
– There is a need to clarify and delineate the roles
and responsibilities of government agencies that
are involved in the governance of SOEs
– Ideal - same laws and regulations relate to both
SOEs and non-state firms
C. Scorecard reports on
corporate governance
practices of Vietnamese
companies
Scorecard report
• The IFC and the SSC conducted a survey of 100
largest companies listed on the Hanoi and Ho Chi
Minh Stock exchanges, which together represent
some 90% of the total market capitalization of these
exchanges.
B. Corporate Governance Initiatives in Vietnam
The results:
• Overall compliance – 42.5%
• Shareholder rights - compliance at 47%
– Strong area of compliance - rights to vote, to
receive dividends, equal treatment for share
repurchases
– Weak areas - appointment of external auditors
B. Corporate Governance Initiatives in Vietnam
The results:
• Equal treatment of shareholders – 57.8%
– Strong area of compliance - requirement for
directors to be re-nominated and re-elected at
regular intervals
– Weak areas - facilitation of cross-border
shareholder voting
B. Corporate Governance Initiatives in Vietnam
The results:
• Role of stakeholders - compliance at 22.7%
– This area is not well understood in Vietnam
• Disclosure and transparency - compliance at 39.4%
– Strong area of compliance - annual audit
undertaken by external auditors
– Weak compliance - identifying independent
directors, no disclosure on remuneration of board
and executives, no CG report
B. Corporate Governance Initiatives in Vietnam
The results:
• Responsibilities of the board - compliance at 35.9%
– Strong area of compliance - existence of
guidance for the board on material transactions
that must be approved by the board
– Weak areas - lack of induction policy and
program to orient new board members,
company records on supervisory board do not
include consideration of and reporting of
supervisory board’s performance
B. Corporate Governance Initiatives in Vietnam
• Conclusions
– Vietnam is in the early stages of a long journey
towards improving corporate governance
– Extensive training is needed for directors,
shareholders, regulators on laws, regulations and their
responsibilities
– Training is needed as well for the media