Creating a good balance among shareholders and the board of directors is one of the most significant roles of good corporate governance. However, in many countries, corporate governance has been underestimated, especially Vietnam. There are 95.6% companies in Vietnam that do not comply with the corporate governance regulations. That was a surprising number for me. Generally speaking, the terminology of corporate governance deals with internal and external control mechanisms in order to encourage the managers to reach the goal of management: maximizing the shareholder wealth.
Look at the history of the UK corporate governance, there are plenty of investigations into ways to improve the corporate governance of UK listed companies. From 1991 to 2010, there are more 6 times that the government had to change the corporate governance regulations. The most important reviews are the Cadbury Report which is the first report about corporate governance and the Higgs Reports dealing with Independent Non-Executive Directors problems. However, it is very surprised that only when there is a crisis, corporate governance has just been reconsidered and then changed to adapt the current situation. For example, the Cadbury Report (1992) was written by Adrian Cadbury after well-publicized corporate scandals or the Higgs review and the Smith Report (2003) were followed by the corporate collapse of Enron and WorldCom in the US. It also shows that the monitoring process of the UK government has a lot of problems. Let’s consider about the Enron company. Enron company is an American energy company. In addition to being the largest bankruptcy reorganization in American history at that time, Enron was attributed as the biggest audit failure. Before the Enron scandal, there are 3 main principles that almost all of companies applied to:
1. Use Independent Non Executive Directors (INEDs) to restrict and control the power of board of directors.
2. Use the private accountants to make financial statement.
3. Use the private financial analysts to predict and assess the level of efficiency of their own securities.
The second and third principles are belonging to the adequate disclosure.
In the theory, the idea of having INEDs is a great one. However, in 2002, a third of INEDs was recruited through personal contacts because the appointment of INEDs was based on the decision of CEOs and almost all of the appointed people had a strong relationship with CEOs. That is why, Lord Wakeham, a former UK government cabinet minister possessed 16 positions of board of directors including Enron. So, INEDs do not will to protect the interest of shareholders.
The second problem is about the audit function. Arthur Andersen is Enron’s auditor firm. However, it was accused of applying reckless standards in its audits because there was some conflicts of consulting fees paid by Enron. So Enron hired numerous CPA as well as accountants. They applied a new way to save more money to company. Therefore, Andersen did not fulfil its professional responsibilities in connection with its audits of Enron’s financial statements.
In 2003, the Higgs report was written by Higgs in order to revise these mistakes. The process of recruiting INED is monitored carefully and all of the firm must have INED. Moreover, the compensation committee, nominating committee, and audit committee also have independent directors.
In Vietnam, as far as I know, this is not official document about corporate governance regulations. More seriously, some of managers misunderstand about corporate governance and corporate management. I just wonder why corporate governance underestimated in Vietnam although it is really important for my countries. I do hope in the near future, this issue will be put in debate.
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