National Economics University Neu b us i nes s sc h o o l    Nguyen Thanh Ha CORPORATE GOVERNANCE OF OIL GAS AND MINING COMPANIES LISTED ON HANOI STOCK EXCHANGE Supervisor: Assoc. Prof. LE THI BICH NGOC Hanoi – 2013 2 ACKNOWLEDGEMENTS The successful completion of this dissertation would not have been possible without the support and cooperation of others. I know that this project was not my individual achievement but the result of many people to whom will be forever grateful. Of those, I would like to express my sincere gratitude to my colleagues in the Listing Management Department, who have been working with me in Hanoi Stock Exchange. Their role was fundamental in the getting observation for the questionnaire designed for the study and they contributed countless hours to the completion of this project together with me. Thanks to The Dean of NEU’s Business School – Assoc. Prof Tran Thi Van Hoa, Dr. Le Thi Lan Huong who helping me a lot during the time of studying the course in NEU’s Business School; And especially thanks to the Committee members because of your sharing expertise and guidance and each of you has assisted me in the review of my proposal research and development of my thesis topic. I would like to express my sincere thanks to Ms. Pham Thanh Hoa, and Ms. Doan Minh Hanh, program coordinator who were always available and eager to lend a helping hand. I would like to specially thank my supervisor Assoc. Prof. Le Thi Bich Ngoc for her on-going support and for being flexible with my work schedule while she corrected my thesis writing. I am also thankful to Hanoi Stock Exchange giving me much support to complete my dissertation. Last but certainly not least, I must thank my family. To my parents, who have always taught me the importance of education and encouraged me to continue in my post graduate studies at National Economics University. Thanks to my husband, who motivated me and shared with me when I felt so hard to keep my MBA course going and provided confidence in my ability to accomplish whatever I set out to do. To all of you, I am forever grateful. 2 3 TABLE OF CONTENT 3 4 ABBREVIATIONS AA Articles of Association ACGA Asian Corporate Governance Association AFS Audited Financial Statements AGM Annual General Meeting of Shareholders AR Annual Report ASEAN Association of South East Asian Nations BOD Board of Directors, board BOM Board of Management, management CEO Chief Executive Officer CG Corporate Governance CGG Corporate Governance Guidance CSR Corporate Social Responsibility EGM Extraordinary General Meeting ESG Environment, Social and Governance FS Financial Statements GMS General Meeting of Shareholders HNX Hanoi Stock Exchange HOSE Ho Chi Minh City Stock Exchange IASB International Accounting Standards Board ICGN International Corporate Governance Network IFC International Finance Corporation IFRS International Financial Reporting Standards ISA International Standards on Auditing MOF Ministry of Finance N/A Not Applicable OECD Organization for Economic Cooperation and Development SB Supervisory Board SSC State Securities Commission SX Stock Exchange VAS Vietnam Accounting Standards 4 5 LIST OF TABLES LIST OF FIGURES 5 6 EXECUTIVE SUMMARY This study was designed to investigate the corporate governance of 24 Oil gas and mining companies because like many companies in Vietnam in general and which being listed on Hanoi Stock Exchange in particular, the corporate governance is very important for their long-term development and sustainability as well as market stability. The objectives which covered in this study were to clarify the areas/categories of corporate governance in 24 reviewed companies, to analyze their current corporate governance and to give recommendations for improving the corporate governance in these 24 companies. The scope targeted in this study included 24 companies listed on Hanoi Stock Exchange. The companies are specializing in oil, gas and mining field and the corporate governance in 24 companies is very outstanding. The time for this study was 2012.The data collection in this study was gathered through the designed questionnaires. The questionnaires were to examine the aspects identified in the literature and meant to fulfill the objectives pre-determined. Secondary data is collected from the companies’ annual reports, Charter of company, Audited Financial Statements, website, AGM, CG guidelines, CG report, CG policy, special reports or the companies’ other previous studies (if any) which mentioning about the corporate governance or statistic of violating to disclose information by those oil and mining companies in 2012 done by HNX. The secondary data reviewed and prepared the platform for the formulation of questionnaire. By observing the possible responses for the 59 questions in the questionnaire, data was collected. For the purpose of the study, 59 questions which set up based on Enterprise Law in 2005, Circular No. 121 and Circular No. 52 and OECD’s recommendations were observed on 5 areas/categories (OECD’s principles of corporate governance). After analyzing, the strong point and weak point of each area/category were discovered and clarified. 6 7 With the findings of the study, it was known that which weak points in 5 areas/categories should be changed or improved to enhance corporate governance in the 24 oil gas and mining companies and which strong points in 5 areas/categories should retain to maintain their current corporate governance. 7 8 CHAPTER 1: INTRODUCTION 1.1 Rationale Corporate governance is a reasonably new concept to Vietnam, introduced largely as a result of changes to the Law on Enterprise in 2005 and with the introduction of corporate governance Regulation for listed companies in 2007. The purpose of the corporate governance Regulation is to implement the “best international practice on corporate management suitable to the conditions of Vietnam to ensure a stable development of stock market and a transparent economy in Vietnam”. Improvements in corporate governance can serve a number of public policy objectives such as enhancing market stability, increasing investor confidence and trust, encouraging investment into Vietnam from foreign sources and reducing the cost of capital for companies. Recently, the overall corporate governance performance of reviewed companies indicates efforts to implement elements of good corporate governance (refer to the report of corporate governance scorecard in 2009 done by International Finance Corporation (IFC). However, the results of the review would indicate that corporate governance in Vietnam is at the rudimentary stage and ripe for improvement. Corporate governance developments seem to have been led by investment in regulatory and legislative developments – a rule driven “top down” approach. It should be noted that besides as lack of awareness, corporate governance practices in Vietnamese companies are more driven by compliance with regulatory requirements than commitment to a higher practice of sound governance. Therefore, issues which are not provided for in current laws and regulations, such as ones relating to external auditors (independence and GMS (General meeting of shareholders of AGM) attendance… ) or stakeholders’ roles, have not been given 8 9 sufficient attention by the companies. Consequently companies’ scores in these areas are low. Oil Gas & Mining stocks have always been prioritized in investors’ portfolio not only because of the amazing business performance but also because of the crucial role of this industry in the long-term development strategy of Vietnam. Currently, there are 24 Oil Gas & Mining companies listed on HNX. Oil Gas & mining stocks make up 20% of the total charter capital of listed organizations on the exchange and rank 3 rd in scale of charter capital, behind Banking, Real Estate and Food & Beverage. It does mean that Oil and Mining stocks have a big attraction in the market. All of Oil Gas and Mining companies have been equitized and converted in to joint stock company in which Petrol Vietnam Oil and Mining Group is a state-owned company holding a majority interest of 51% and exercises its control via the GMS and the director appointed by the State to the company’s Board of Directors. While holding structures can serve legitimate purposes, cross-shareholdings and lack of transparency have the tendency to create opaque ownership structures. This could make a company difficult to understand for shareholders and investor. Such structures could be used to expropriate and circumvent the rights of individual shareholders. Poor consolidates accounting, or even the absence thereof, is a further CG issue that has yet to be tackled. Moreover, according to IFC’s report – the international financial organization who did their corporate governance review in 2009 of which the 100 largest publicly listed companies on Hanoi Stock Exchange (HNX) and Ho Chi Minh Stock Exchange (HOSE) being selected, the Oil and Mining companies have the lowest score of corporate governance by 39,1% amongst 09 industry sectors being selected by IFC for that review. Based on the above mentioned issues, this study is carried out with the aim of exploring the corporate governance status in the Oil Gas and Mining companies 9 10 and also helping Oil Gas and Mining companies to understand the message that sound CG is good for their business and it can positively affect the profitability and market performance of them. 1.2 Research Objectives The study covers three following objectives: 1) Clarify the major categories to evaluate corporate governance of Oil Gas and Mining Companies (The major categories are rights of shareholders, equitable treatment of shareholders, role of stakeholders in corporate governance, disclosure and transparency and the responsibilities of the board). 2) Assessing the current corporate governance of Oil Gas and Mining Companies 3) Give recommendations to improve corporate governance of Oil Gas and Mining Companies 1.3. Research Questions To achieve the objectives targeted by the study, some questions must be answered: 1. What are the major categories of corporate governance? And how are they in Oil Gas and Mining Companies? 2. How is the corporate governance in Oil Gas and Mining Companies at present? 3. What should be done to improve the corporate governance in Oil Gas and Mining Companies? 10 [...]... Assessing current corporate governance practices in Oil Gas and Mining Companies e) Chapter 5: Conclusions and recommendations for Oil and Mining Companies to improve their corporate governance 15 15 16 16 CHAPTER 2 THEORETICAL FRAMEWORK ON CORPORATE GOVERNANCE 2.1 Nature of corporate governance 2.1.1 Definitions of corporate governance There is no single definition if corporate governance that can... listed on Hanoi Stock Exchange b) The study will focus on corporate governance of Oil Gas and Mining companies c) Time: 2012 d) Objects: 24 Oil and Mining Companies 1.4.5 Structure of thesis The thesis is organized into the following chapters: a) Chapter 1: Introduction b) Chapter 2: Theoretical background on corporate governance c) Chapter 3: Oil and Mining companies and its current corporate governance. .. mentioning about the corporate governance or statistic of violating to disclose information by those oil and mining companies in 2012 done by HNX The secondary data reviewed and prepared the platform for the formulation of questionnaire The questionnaires are designed based on the OECD’s good corporate governance principles and regulations in Circular no 121 (issued by MOF regarding the corporate governance. .. situations and jurisdictions The various definitions that exist today largely depend on the institution or author, country and legal tradition International Finance Corporation (IFC) defines corporate governance as “the structures and processes for the direction and control of companies. ” The Organization for Economic Cooperation and Development (OECD), which in 1999 published its Principles of Corporate. .. consist of 59 questions which are set up based on Enterprise Law in 2005, Circular No 121 and Circular No 52 and OECD’s princiles which are detaited in the following chapter 4 of the thesis 1.4.3 Data analysis The data are pre-processed using the Microsoft Excel for Microsoft Professional Windows XP 14 14 1.4.4 Scope of research a) This study concentrates in 24 Oil gas and Mining companies listed on. .. billion in losses), BCCI and Maxwell (£480 million) business empires collapse, calling for improved corporate governance practices to protect investors (U mmittee publishes the first code on corporate governance and in 1993; companies listed on the U.K.’s stock exchanges are required to disclose governance on a “ King Report (S Africa) (on Internal Controls and Financial Reporting), Greenbury (on Executive... EU-wide repercussions (EU) mbly of Vietnam adopts the Law on Competition mbly of Vietnam amends the Law on State Bank of 1997 and the Law on Credit Institutions of 1997 mbly of Vietnam adopts the new Law on Enterprises and the Law on Investment, which replaces (i) the Foreign Investment Law, (ii) the Law on Enterprises o mbly of Vietnam adopts the Law on Securities am adopts the CG Regulations and the Model... for companies in Vietnam, in general and listed companies, in particular 2.2.3 Benefits of corporate governance Good corporate governance is important on a number of different levels At the company level, well-governed companies tend to have better and cheaper access to capital, and tend to outperform their poorly governed peers over the long-term Companies that insist upon the highest standards of governance. .. of ownership registration; 2) convey or transfer shares; 3) obtain relevant and material information on the corporation on a timely and regular basis; 4) participate and vote in general shareholder meetings; 5) elect and remove members of the board; and 6) share in the profits of the - corporation Shareholders should have the right to participate in, and to be sufficiently informed on, decisions concerning... for corporate control should be allowed to function in an efficient and transparent manner + The rules and procedures governing the acquisition of corporate control in the capital markets, and extraordinary transactions such as mergers, and sales of substantial portions of corporate assets, should be clearly articulated and disclosed so that investors understand their rights and recourse Transactions . the corporate governance of 24 Oil gas and mining companies because like many companies in Vietnam in general and which being listed on Hanoi Stock Exchange in particular, the corporate governance. National Economics University Neu b us i nes s sc h o o l    Nguyen Thanh Ha CORPORATE GOVERNANCE OF OIL GAS AND MINING COMPANIES LISTED ON HANOI STOCK EXCHANGE Supervisor: Assoc. Prof governance? And how are they in Oil Gas and Mining Companies? 2. How is the corporate governance in Oil Gas and Mining Companies at present? 3. What should be done to improve the corporate governance