When there are no serious social, economic or political problems, good Corporate Governance (CG) does not only allow businesses to improve their competitiveness and business performance, but also help in reducing internal conflicts and disputes. Additionally, CG can help increase reliability, making it easier for businesses to raise funds. Good management can prevent risks, maintain stable operations and control costs much better, making it possible for businesses to focus more on increasing sales and profits. The 2019 and 2020 CG evaluation reports show that average profits made by well-managed companies were higher than those made by badly managed companies.
The 2020 report prepared by the Hanoi Stock Exchange on the Program for Evaluating Information Disclosure and Transparency (IDT) indicates that IDT has a positive relationship with business achievement measured by the Return on Equity (ROE) and the Return on Assets (ROA). The results also show that every 1% increase in IDT points is equivalent to a 0.1% increase in ROA and a 0.12% rise in ROE. Good CG can also help companies to reduce internal disputes and improve the ability to raise funds, making it possible for companies to cope with problems better and promote sustainable development. Internal disputes often arise in companies with poor management. Several recent internal disputes have caused deterioration in big companies and corporations in such industries such as banking, construction and big coffee enterprises.
The Covid-19 pandemic has proven that good CG can pave the way for better maintenance and development of production and business activities. One company representative has said that foreign-invested companies or joint ventures have been affected much less seriously than other companies, because they have a good CG system, making it possible for them to respond better to unexpected abnormalities, adapt to new situations more actively and reduce losses more effectively. Reality of last year has shown that several top listed companies have quickly adapted to the new normal and organized online general meetings of shareholders and stabilized their production and business activities during the most difficult of times.
The Organization for Economic Cooperation and Development (OECD) stressed in its report in June 2021 that good CG and financial markets played a pivotal role in surviving the Covid-19 pandemic and making a speedy recovery. International Finance Corporation (IFC) has provided the board of directors with an action guidebook titled “Overcoming the Crisis.” Crisis can be avoided and good CG is a great way to respond successfully to crisis situations and keep business growing because CG naturally includes a risk management and response system.
IFC believes that the 2008 global financial depression has made it clear that the road to success for companies is always full of unpredictable obstacles. It also shows that good CG and a powerful board of directors are crucial in helping a company to cope with the impact of unexpected crisis. Effective CG enables companies to adapt better to unpredictable changes in the business environment. The board of directors can establish an effective CG system with a coherent business strategy capable of taking into account all the potential risks, developing an appropriate risk management and monitoring system, and institutionalizing the decision-making process.
Not many Vietnamese companies have actually paid sufficient attention to effective CG system because they have not been made aware of its significant role and advantages. In fact, CG in Vietnam still concentrates more on complying or dealing with legal procedures than in voluntarily committing to improving their CG for their company interests. CG in Vietnam is generally considered to be at a lower level than several countries in the region and the world. The ASEAN Corporate Governance Scorecard shows that Vietnam is the lowest among the six dominant countries in the region, namely, Singapore, Malaysia, Thailand, Indonesia, the Philippines, and Vietnam.
Therefore, effective governance is not just formal or forced compliance with the laws. Good CG at the highest level is actually governance which could go beyond compliance. This means that businesses do not only properly and fully comply with the laws and regulations, but they also have to observe and abide by the principles of governance according to good international practices, which is more often than not at a higher level than the laws. As a result, businesses with good CG will find it easier in the long run to cope with crisis situations.