The ratio on the Board of Directors as well as the low salary are two of the evidences that independent members of the Board of Directors do not play an essential role in many companies, but their presence is mainly to meet legal requirements. determined.
In 2022, the State Securities Commission (SSC) will begin enforcing compliance with regulations on independent members of the Board of Directors. Hoa Phat Group Joint Stock Company and PetroVietnam Electricity Corporation were both fined 125 million VND. While it is not ideal for many companies to comply simply to avoid fines and negative press, it is still a step to nudge them in the right direction in the context of independent board compliance. Public companies are still not given much attention.
Appoint independent members of the Board of Directors only to meet legal requirements
"Report on survey of independent members of the Board of Directors at public companies in Vietnam" recently published by the Association of Independent Members of the Board of Directors of Vietnamese Enterprises (VNIDA) in collaboration with FiinGroup shows that many companies still do not have independent members of the Board of Directors or there are but in lower numbers than the legal requirements, usually only to meet the minimum number requirements.
This survey was conducted by questionnaire with 1,300 public companies on HOSE, HNX and UPCoM and information was announced by 544/769 companies listed on HOSE and HNX about independent members of the Board of Directors.
Regarding the level of compliance, automobile & parts and communication companies have the lowest compliance level, only reaching 30%, while the highest rate is 100% in the banking industry.
However, the ratio of independent members of the Board of Directors in banks is also low at 11.8% because they are following the Law on Credit Institutions 2010 instead of the Law on Enterprises 2020 and the Law on Securities 2019. Accordingly, credit institutions Applications established as joint stock companies are required to have at least one independent member of the Board of Directors regardless of the size of the Board of Directors.
Notably, VNIDA points out, a higher foreign ownership ratio does not mean a higher compliance rate for independent members of the Board of Directors. Specifically, the compliance rate is relatively high (69%) among companies with less than 10% foreign ownership. However, companies with foreign ownership of 30% or more had a lower compliance rate (66%).
In addition, although large capitalization companies have a higher compliance rate for independent members of the Board of Directors, awareness of independent members of the Board of Directors is lower than that of companies with high capitalization. medium and small.
Specifically, while large-cap companies have a higher rate of compliance with independent directors than small-cap companies, with 84% and 66% respectively, on average, the Independent members of the Board of Directors in large capitalization companies (25.7%) are lower than in medium capitalization (27.5%) and small capitalization companies (27%).
Listed companies disclose information about independent members of the Board of Directors through corporate governance reports and annual reports. However, most information disclosures tend to be pre-written and lack necessary information about independent members of the Board of Directors such as: nomination and dismissal process; detailed biographical information of the candidate; performance assessment indicators; minutes of committees.
Only 3/493 independent BOD members have experience in risk management, similar to labor and unions/ESG/CSR.
In total, there are 162 independent directors working on various committees of 98 out of 544 listed companies. There are no independent members of the Board of Directors with seats on the shareholder relations (IR) and social responsibility (ESG) committees. The audit committee has the largest size of 1.7 people, equivalent to 128 independent members of the Board of Directors across 75 companies, while the strategic committee consists of only one person.
Many companies still do not fully disclose information about the age, professional qualifications and remuneration of independent members of the Board of Directors.
Notably, according to VNIDA, remuneration for independent members of the Board of Directors does not seem to be commensurate with their capabilities and responsibilities, and shows their unimportant role at companies.
In addition, there is a large difference in remuneration between independent members of the Board of Directors at Vietnamese listed companies compared to the remuneration for non-executive members of the Board of Directors in other markets. The average remuneration for independent members of the Board of Directors at listed companies in Vietnam is 6,600 USD/year while in India it is 11,000 USD, China 34,000 USD, Malaysia 43,000 USD, Singapore 75,000 USD.
"In general, low remuneration shows that independent members of the Board of Directors do not play an essential role in many companies, but their presence is mainly to meet legal requirements," the VNIDA report emphasized.
With those issues, VNIDA and Fiingroup have made a number of policy recommendations. Prominent among these is the promotion and further consolidation of the importance of corporate governance in general and independent members of the Board of Directors in particular; strictly enforce regulations on independent members of the Board of Directors; complete the legal framework; Continuously improve the quality and standards of independent members of the Board of Directors.
First, the legal framework for independent members of the Board of Directors needs to be completed with more complete and clear regulations. Accordingly, there needs to be "independence" criteria for independent members of the Board of Directors; their powers; regulations on sanctions; Specific regulations on specialized committees.
Second, it is necessary to add regulations requiring public companies to disclose information about the process of nominating and appointing independent members of the Board of Directors. Regarding the reporting regime, there should be detailed regulations on specific contents and mandatory criteria for reports on independent members of the Board of Directors and the Board of Directors, as well as regulations on extraordinary reports to promptly detect and evaluate their performance and activities.
Third, applying a two-layer voting mechanism, a nomination committee with transparent procedures as well as a large source of potential independent board member candidates recruited through the introduction of professional associations to ensure their independence.
Fourth, capacity building, training and certification for independent members of the Board of Directors. Specialized knowledge such as corporate governance, finance, auditing, law and compliance, corporate social responsibility... is essential for them to perform their roles and improve their working efficiency. them in the company.
Fifth, the application of best practices for board evaluation should be strengthened as current regulations on this evaluation are limited.
Sixth, to protect independent members of the Board of Directors from personal liability arising from their violations, there should be a regulation requiring public companies (or at least listed companies) to purchase insurance. Director and management responsibilities for independent members of the Board of Directors. Compared to executive directors, the risk that independent directors may breach or fail to fulfill their fiduciary duties is much higher.
Seventh, it is necessary to promote the role of independent members of the Board of Directors as a profession.
Associations and professional organizations should be encouraged to establish and maintain a platform or network to connect independent members of the Board of Directors, set standards/criteria for them, and support their voices. , improve professional qualifications and share experiences.
