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An analysis of the role of supervisory boards in syate owned joint stock companies dinh hoang thang nguoi huong dan huynh the du An analysis of the role of supervisory boards in syate owned joint stock companies dinh hoang thang nguoi huong dan huynh the du An analysis of the role of supervisory boards in syate owned joint stock companies dinh hoang thang nguoi huong dan huynh the du An analysis of the role of supervisory boards in syate owned joint stock companies dinh hoang thang nguoi huong dan huynh the du An analysis of the role of supervisory boards in syate owned joint stock companies dinh hoang thang nguoi huong dan huynh the du An analysis of the role of supervisory boards in syate owned joint stock companies dinh hoang thang nguoi huong dan huynh the du An analysis of the role of supervisory boards in syate owned joint stock companies dinh hoang thang nguoi huong dan huynh the du An analysis of the role of supervisory boards in syate owned joint stock companies dinh hoang thang nguoi huong dan huynh the du An analysis of the role of supervisory boards in syate owned joint stock companies dinh hoang thang nguoi huong dan huynh the du An analysis of the role of supervisory boards in syate owned joint stock companies dinh hoang thang nguoi huong dan huynh the du An analysis of the role of supervisory boards in syate owned joint stock companies dinh hoang thang nguoi huong dan huynh the du An analysis of the role of supervisory boards in syate owned joint stock companies dinh hoang thang nguoi huong dan huynh the du An analysis of the role of supervisory boards in syate owned joint stock companies dinh hoang thang nguoi huong dan huynh the du An analysis of the role of supervisory boards in syate owned joint stock companies dinh hoang thang nguoi huong dan huynh the du An analysis of the role of supervisory boards in syate owned joint stock companies dinh hoang thang nguoi huong dan huynh the du An analysis of the role of supervisory boards in syate owned joint stock companies dinh hoang thang nguoi huong dan huynh the du An analysis of the role of supervisory boards in syate owned joint stock companies dinh hoang thang nguoi huong dan huynh the du An analysis of the role of supervisory boards in syate owned joint stock companies dinh hoang thang nguoi huong dan huynh the du An analysis of the role of supervisory boards in syate owned joint stock companies dinh hoang thang nguoi huong dan huynh the du An analysis of the role of supervisory boards in syate owned joint stock companies dinh hoang thang nguoi huong dan huynh the du An analysis of the role of supervisory boards in syate owned joint stock companies dinh hoang thang nguoi huong dan huynh the du An analysis of the role of supervisory boards in syate owned joint stock companies dinh hoang thang nguoi huong dan huynh the du
MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY FULBRIGHT ECONOCMICS TEACHING PROGRAM DINH HOANG THANG AN ANALYSIS OF THE ROLE OF SUPERVISORY BOARDS IN STATE-OWNED JOINT-STOCK COMPANIES THE CASE OF VIETNAM CONSTRUCTION AND IMPORT-EXPORT JOINT-STOCK CORPORATION MASTER OF PUBLIC POLICY THESIS HO CHI MINH CITY, 2014 AN ANALYSIS OF THE ROLE OF SUPERVISORY BOARDS IN STATE-OWNED JOINT-STOCK COMPANIES THE CASE OF VIETNAM CONSTRUCTION AND IMPORT-EXPORT JOINT-STOCK CORPORATION Public policy Code: 60340402 Supervisor: Dr. Huynh The Du (i) CERTIFICATION I certify that the substance of the thesis has not already been submitted for any degree and is not being currently submitted for any other degree. I certify that to the best of my knowledge any help received in preparing the thesis and all sources used have been acknowledged in the thesis. The study does not necessarily reflect the views of the Ho Chi Minh City Economics University or Fulbright Economics Teaching Program. Author Dinh Hoang Thang (ii) ACKNOWLEDGEMENTS I would like to express my deep gratitude to my parents who always encourage me in my life. I would like to express my sincere appreciation to my supervisor, Dr. Huynh The Du, who has helped me in performing the thesis. With rich knowledge, experience and enthusiasm, he has effectively contributed to my thesis. I am graceful to Dr. Tran Thi Que Giang, Mr. Do Thien Anh Tuan, Ms. Dinh Vu Trang Ngan, Mr. Vo Duy Minh for thoughtful and valuable comments on the very beginning of my thesis. I would like to thank all my teachers in Fulbright Economics Teaching Program, who have retransmitted their deep knowledge and experience to me as well as my classmates. Last but not least, I express my thanks to all of my friends, especially Ms. Nguyen Thi Nhung and Ms. Do Trieu Anh, Ms. Tran Thi Loc, who help and motivate me in pursuing the study. Ho Chi Minh City - May, 2014 Dinh Hoang Thang (iii) ABSTRACT The role of the Supervisory Board (SB), in accordance with Vietnam’s legal regulations, is to protect shareholders’ interests by monitoring the duties of the Board of Management (BOM) and the CEO, examining the reasonableness, legitimacy, honesty and caution of management; appraising the business operation report of the CEO, management report of the BOM and financial reports of the company. However, hardly has the SB been considered as successfully fulfilling their designated jobs, especially in State-owned enterperises. This study was done in its case study paradigm to explore the actual role of the SB in Vietnam Construction and Import-Export Joint-stock Corporation (Vinaconex), as the typical company for research purpose. Data used to perform the purposes of the thesis are widespread official information of the company, working papers, and other kinds of information related to the study. Upon applying Agency theory and experience of other countries, this study identifies that the Vinaconex’s SB does not have real power to protect shareholders’ interests, including the State and minority shareholders’ interests due to conflicts of interest and information asymmetry between the SB and shareholders, the SB and the BOM/CEO; lack of independence of the BOM/CEO in terms of personnel, finance and duty and low competency of the SB members. Thesis’s policy recommendations focus on the enhancement of those areas including: improvement in the independence of the SB’s members in term personnel, finance and duty; standardization of the framework of information provided to the SB and higher frequency of the SB’s meetings and reports; higher technical competency of the SB members. Further, it is needed to decrease control of the Party and the Government over the company, privatize and reduce the State ownership /./ Keywords: Supervisory board, agency theory, shareholders, interest. (iv) ABBREVIATIONS Abbreviations English Vietnamese AGM Annual General Meeting Đại hội đồng cổ đông BOD Board of Directors Hội đồng quản trị, Ban điều hành (in two-tier model) BOM Board of Management Ban điều hành, Ban Giám đốc (in two-tier model) Hội đồng quản trị (in Vietnam) CEO Chief Executive Officer Giám đốc/ Tổng giám đốc/ Giám đốc điều hành SB Supervisory Board Ban Kiểm soát SCIC State Capital Investment Corporation Tổng công ty Kinh doanh Vốn Nhà nước SOE State-owned enterprise Doanh nghiệp nhà nước Viettel Viettel group Tập đoàn Viễn thông Quân đội Vinaconex Vietnam Construction and Import-Export Joint-stock Corporation Tổng công ty Xuất nhập khẩu và Xây dựng Việt Nam (v) TABLE OF CONTENTS CERTIFICATION (i) ACKNOWLEDGEMENTS (ii) ABSTRACT (iii) ABBREVIATIONS (iv) TABLE OF CONTENTS (v) LIST OF GRAPHS (vi) LIST OF TABLES (vi) LIST OF BOXES (vi) CHAPTER 1: INTRODUCTION 1 1.1. Introduction 1 1.2. Research Objective 3 1.3. Research Questions 3 1.4. Research Methods, Sources of Information and Research Scope 4 1.5. Thesis structure 4 CHAPTER 2: THEORETICAL FRAMEWORK AND LITERATURE REVIEW 5 2.1. CORPORATE GOVERNANCE AND SUPERVISORY BOARD IN VIETNAM 5 2.1.1. Corporate governance 5 2.1.2. Supervisory board in joint-stock company 6 2.2. THEORETICAL FRAMEWORK AND LITERATURE REVIEW 7 2.2.1. Agency theory 7 2.2.2. Design a contractual relationship 8 2.2.3. Literature review 11 2.3. EXPERIENCE OF OTHER COUNTRIES 15 CHAPTER 3: VINACONEX CASE 20 3.1. VINACONEX 20 3.2. Supervisory Board of the Company 21 3.3. The flow of work related to the SB in Vinaconex 24 3.4. Principal-Agent problem between Supervisory Board vs. the BOM/CEO 26 3.4.1. Goals/given tasks 26 3.4.2. Agency cost 27 3.4.3. Current Interest alignment instruments and Information system 31 3.5. Principal-Agent problem between Supervisory Board vs. Shareholders 32 3.5.1. Goals/given tasks 32 3.5.2. Agency cost 33 3.5.3. Current Interest alignment instruments and Information system 36 3.6. The technical competence of the Supervisory Board members 37 3.7. The dependence of Supervisory Board 37 3.7.1. The dependence in term of personnel, finance and duty 37 3.7.2. The real incentives of the SB, BOM members 39 CHAPTER 4: CONCLUSION, POLICY RECOMMENDATIONS AND LIMITATIONS 42 4.1. Conclusion 42 4.2. Policy recommendations 42 4.3. Limitation of the study 44 REFERENCES 45 APPENDIX I. REGULATION ON SB IN THE ENTERPRISES LAW 2005 57 APPENDIX II. REGULATION ON SB IN THE CORPORATE CHARTER 60 APPENDIX III. REGULATION ON SB IN THE ORGANIZATION AND OPERATION REGULATION OF THE SB 62 (vi) LIST OF GRAPHS Graph 1.1: One-tier board structure and Two-tier board structure 1 Graph 2.1: Agency relationship related to the SB 8 Graph 2.2: External and Internal Categories of Interest Alignment Instruments 9 Graph 3.1: The company structure 21 Graph 3.2: The Structure of Supervisory Board in Vinaconex 22 Graph 3.3: Flow of monitoring function of the SB 24 Graph 3.4: Flow of periodical/unusual inspection function of the SB 25 Graph 3.5: Flow of creating the SB’s report 26 Graph 3.6: The mixing role of the SB members in Vinaconex and in block holders 28 Graph 3.7: The mixing role of the SB in Parent company and Subsidiaries 29 Graph 3.8: Conflict of interest between Inside and Outside members 34 Graph 3.9: Dual participating mechanism in Vinaconex 41 LIST OF TABLES Table 3.1: Share structures of Vinaconex 20 Table 3.2: Number of shares owned (share of parent company) 23 LIST OF BOXES Box 1: The Responsibilities of the boards of SOEs as OECD guidelines 18 Box 2: Member of the Supervisory Board in Vinaconex Jsc 23 -1- CHAPTER 1: INTRODUCTION 1.1. Introduction There are two common models of corporate governance around the world: one-tier and two-tier board structure (Jungmann, 2006). The difference between them is that in two-tier board structure, there is an additional board called Supervisory Board (SB) who supervises the Executive Board in managing and running the company. The one-tier board structure is more popular in the world, especially in Anglo-Saxon countries such as the UK, the US while the two- tier board is common in continental European regions such as Germany and the Netherlands… (Kruijs, 2012; Maassen, 2002). The following outline summarizes the differences between the two corporate governance structures. Graph 1.1: One-tier board structure and Two-tier board structure Source: Author’s illustration based on Peij (2010) In Vietnamese corporate governance, there is also a board called Supervisory Board in joint-stock company. However, even with the same name, Vietnamese SB is different with the one in two-tier model. According to the current regulations, each joint-stock company with over 11 individual shareholders or has an organizational shareholder who owns over 50 percent of shares, must establish a SB who is independent of both the BOM and the CEO (Enterprises Law 2005). See Graph 3.1 in page 21 for visualization. [...]... Vinaconex (2012a) -24- 3.3 The flow of work related to the SB in Vinaconex According to the Corporate Law 2005, the main duty of the SB is to supervise the BOM/CEO in managing and running the business Supervising is the method to prevent, detect and timely deal with the violations of the BOM/CEO There are two kinds of work the SB performs in Vinaconex: monitoring and inspecting Monitoring During the. .. regulated in the Enterprises Law 2005, the SB’s role is to protect shareholders’ interests by monitoring the duties of the BOM/CEO; examining the reasonableness, legitimacy, honesty and caution of management; appraising the Business Operation Report of the CEO, the Management Report of the BOM and financial reports of the company; giving opinions and petitions to the BOM/CEO or even Annual General Meeting... cost There are many reasons that can create agency cost in the relationship between the SB and the BOM/CEO The thesis categorizes them into two common types of factor in agency theory: conflict of interest and information asymmetry Conflict of interest Conflict of interest can diminish the actual power of the SB over the BOM/CEO In many cases, the SB is inferior to the BOM/CEO in reality (Nguyen Tan,... First of all, there is a conflict of interest, including strong position of bank, problem of interlocking directorships, and other personal links For strong position of bank, the SB in German is often dominated by large banks or some individuals, whose have close business relationships with the company, so the SB members are not independent (Andre, 1995) Relating to the interlocking directorships, the. .. permanent residence in Vietnam At least one SB member must have knowledge of accounting or auditing In a joint- stock company, the SB has the role to examine, supervise and be the counterweight to the BOM/CEO to increase the transparency and protect shareholders’ interests (Tran Minh Son, 2010) With 79 percent of the State ownership, the SB of Vinaconex has more responsibilities than other companies The. .. out the effectiveness of the SB, nevertheless, the real value of this board is ranging from providing an actual contribution to being an injurious organ (Van Hamel et al, 1998, as cited in Wang, 2013) In Germany, when analyzing the facts that may influence the independence and the control over the BOD of the SB in the mid to late 1990s, Tüngler (2000) summarized many factors which could affect the. .. Vinaconex and answer these three following questions: (i) How does the Supervisory Board in Vinaconex perform its work? (ii) What are the factors which affect the function of the Supervisory Board in Vinaconex? (iii) Does the Supervisory Board in Vinaconex have power to protect the interests of shareholders including the State and minority ones in reality? Due to Vinaconex is still a state -owned joint- stock. .. 2013) The other important issue related to the current board structure of SOEs is the nonexistence of principal According to Mi & Wang (2000), the principals of SOEs are the State or all citizens The agents are the central government, the local government, the local officials, the managements, and the employees All of them, including the SB, are the agents and have the obligation to act upon the interests... shareholders’ interests (including the State and minority shareholders) in reality or not And then, the thesis proposes policy recommendations to increase the actual power of the SB in SOEs 1.3 Research Questions In the thesis, the research objectives were formulated as research questions The central theme of this research is to analyze the functions and characteristics of the SB in SOEs through the case of Vinaconex... (SB_Mem1_Head): The Head of the SB has joined the SB since December 2006 This person has over 15 years working experience in the field of audit and finance Before acting as the Head of the SB, he was the Deputy Chief Accountant of the company Member 2 (SB_Mem2): Member Two has been in the SB since December 2006 This person has joined in Vinaconex since 2002, and concurrently acts as Head of External and Legal