HÀ NỘI — Nearly one-third of listed companies in Việt Nam do not meet requirements for independent board members, highlighting corporate governance challenges as the country's stock market enters a new phase following its upgrade to secondary emerging market status.

A 2023 survey by the Vietnam Institute of Directors (VNIDA) and FiinGroup found that only around 68.4 per cent of listed companies met the relevant requirements, leaving nearly one-third below the prescribed standards.

Việt Nam was officially upgraded by FTSE Russell from frontier market to secondary emerging market status on September 21. However, foreign investors continued to be net sellers for nearly the first 10 months of the year, including after the upgrade.

Regulators have also stepped up efforts to improve corporate governance, including imposing penalties on some companies for violating regulations on independent board members.

Hoàng Đức Hùng, chairman and director of the Vietnam Institute of Corporate Governance (VNICG), said the market upgrade brought higher requirements for corporate governance and information transparency, alongside greater expectations from investors.

"This is the time for Vietnamese businesses, particularly public and listed companies, to standardise their governance practices, strengthen board capabilities and enhance the role of independent directors in line with regional and international standards," Hùng said at a recent seminar on enhancing board members in emerging markets.

Such improvements would help companies increase their ability to attract capital and find partners.

Under Việt Nam's Decree No. 155/2020/ND-CP, the minimum number of independent directors required depends on the size of a listed company's board. 

Boards with three to five members must have at least one independent director; those with six to eight members must have at least two; and boards comprising nine to 11 members must have at least three.

However, compliance remains a challenge. 

At some joint-stock companies, including public and listed businesses, independent directors continue to perform largely nominal roles, according to the information presented at the seminar.

Singapore's corporate governance framework offers a reference for Việt Nam as its capital market develops. Listing rules of the Singapore Exchange (SGX) require each listed company to have at least two independent directors, accounting for at least one-third of the board. Under Singapore's corporate governance code, independent directors must form a majority when the board chairman is not independent.

Since 2022, independent directors who have served for more than nine years have been subject to shareholder approval through a two-tier voting process. 

First-time directors of listed companies must also complete mandatory training under requirements set by SGX Regulation (SGX RegCo).

Strengthening board capabilities

According to Fann Kor, CEO of Singapore Chartered Accountants (ISCA), geopolitical volatility, technological breakthroughs and sustainability requirements were creating new challenges for corporate boards.

Through its cooperation with VNICG, ISCA aims to connect Vietnamese and Singaporean directors, facilitate experience-sharing and develop their professional capabilities. 

The partnership also seeks to build a governance community with an international outlook, helping improve the quality of assessment and decision-making in an increasingly complex business environment, she said.

Pang Te Cheng, Singapore's Consul General in HCM City, said that the combination of expertise from Singapore and Việt Nam could help raise professional standards, improve transparency and strengthen investor confidence.

He said such cooperation would not only deepen bilateral relations but also support Việt Nam in its next phase of sustainable economic development. — BIZHUB/VNS