Issues arising from weak Corporate Governance Presenter: Lim Chor Ghee CPA(Aust), CA(M’sia), MBA(UK), MIntS(Syd), MIBP(UNISA), BComm(Melb) General Director / Practice Leader, Tricor Vietnam 12 May 2017

Tricor Group

Foreign Investors - Expectations? Finance 101: Investment objective: Dividend + Capital Gain Important: Efficient market (information transparency / availability), sufficient market liquidity, ease of exit Effective representation or ability to voice out in the BOD / GSM….. or only rely on corporate governance of investee companies?

Source: http://www. businessinsider

Source: http://www. businessinsider

“We propose the addition of at least three truly independent directors to the boards of Samsung Holdco and Samsung Opco” “… with suitable international corporate backgrounds … would result in the boards of directors becoming more representative of their respective shareholder bases” “… increased ratio of non-executive directors to executive directors would result in improved oversight and accountability” Source: http://www.businessinsider.com/elliott-management-samsung-presentation-2016-10?op=1

Providing legal consistency and clarity for market participants; Establishing better cooperation between regulators and enhancing SSC powers, resources, and independence; Improving protection of minority shareholders by increasing redress, and strengthening rules on RPTs, control changes and shareholder meetings; “Wish List” in ROSC 2013

Establishing board professionalism and effectiveness, including through a review and possible replacement of the inspection committee, and steps to improve compliance with current requirements, including the establishment of an Institute of Directors or equivalent organization; and Increasing transparency with greater auditor independence, better disclosure of ownership and control, and convergence of accounting standards with IFRS.

What have been achieved so far?

Room for improvement!

New Enterprise Law 2015 The concept / role of independent directors and audit committee under it Reduced quorum (51% 1st / 33% 2nd ) and voting requirements (51% ord / 65% special) in line with established jurisdiction) Public disclosures of related person’s holding (10% threshold, not 35%) Reduced large transaction threshold requiring GSM approval (35%) Multiple legal representatives Simplified enterprise administrative procedures

Good Corporate Governance – Anglo American model Independence of board members from management personnel Minority shareholders’ role at the board High level of financial and business disclosure Effective financial supervisory regime and regulation, and high level of professionalism in financial services industry

Are We Different in Asia? Predominance of family owned companies Policy promotion of state-owned companies Market inefficiencies to be reduced by internalizing value chain – good reasons for conglomeration / diversification? “We are learning” – need more time? Entrepreneurial spirit (long term view?) in family business

Major CG Issues - Vietnam Conglomeration – Aggressive and unrelated diversification (especially into financial and real property sector) Very high debt to equity ratio (>200) Significant and undisclosed related party transactions “Closely connected persons” at the board, lack of board diversity Issue with information transparency Weak “Corporate Governance Ecosystem”

Implications? “Frontier” not “Emerging” market - Low level of interest by foreign institutional investors Unsustainable corporate growth (“boom and bust” cycle) “Grow big and be sold” – Are “Vietnamese MNCs” only a dream / illusion? Slow capital market development. Lack of good quality investible assets for the general public (“In gold / land we trust”)

Lessons from our Thai neighbour

USD3.8 billion Source: Thai Union Group Annual Report 2016

Source: Reuters

Good corporate governance reduces emerging market vulnerability to financial crises, …… reduces transaction costs and the cost of capital, and leads to capital market development.