4. Ownership and corporate governance

The state ownership function in Viet Nam is traditionally decentralised, with recently emerged consolidation and co-ordination of state ownership function in 19 of the country’s largest SOEs and state corporate groups through the Commission for the Management of State Capital at Enterprises (CMSC).

Policy framework for state ownership function in Viet Nam has gradually improved in recent years. The government established CMSC, a ministry-level entity in February 2018 under Decree No. 131/2018/ND-CP with a view to separate ownership of SOE from regulation function and enhance efficiency of sales and equitisation of SOEs. As per the Decree, state’s shareholder rights in 19 SOEs and state corporate groups including the State Capital Investment Corporation have been transferred from line ministries that previously had a dual role as a regulator and a shareholder of enterprises to the CMSC (see Table 4.1). The CMSC’s portfolio amounts to around 200 individual SOEs which represent two-thirds of the total state-owned equity capital in the country.

In practice, line ministries continue to have an important operational control in many of the companies that are in the portfolio of the CMSC. The Decree No. 131/2018/ND-CP also makes it clear that the CMSC should consult key line ministries including the Ministry of Planning Investment and the Ministry of Finance before making any proposal for approval to Prime Minister regarding key financial control and human resource issues of its portfolio enterprises that are established by the Prime Minister (see Box 4.1)

Especially given their extensive institutional memory and knowledge of SOEs that were previously under their portfolio, line ministries are likely to continue to be an important stakeholder in decision making process related to management as well as equitisation process of SOEs. Line ministries also often exercise undue influence over executive management and boards of SOEs through their political connections, hindering them from exercising apolitical and independent judgement on the corporate policy and management.

The creation of the CMSC has a dual impact on the current SOE governance landscape. On one hand, it is to facilitate the implementation of the government’s concrete goal for reducing state capital through equitisation of SOEs. However, on the other hand, the establishment of CMSC could be considered as an attempt to tighten the government’s grip on the equitised enterprises and enterprises that are undergoing equitisation process. It adds another stakeholder in the decision-making process regarding equitisation (Vuong, 2019[1]; Tien, 2021[2]).

According to the 2014 Law on Management and Use of State Capital invested in production and business in enterprises, “representative state owner” means an agency or organisation assigned by the government to exercise rights and responsibilities with respect to the state capital invested in joint-stock companies and limited liability companies. As per the Law, there is no limit to participation of public sector agencies in the ownership or performance of the ownership function of SOEs.

As such, a number of state ownership entities – line ministries and government agencies still perform the function of representing owners of state capital in state-owned enterprises other than the ones in the CMSC’s portfolio. These include the Ministry of Industry and Trade, the Ministry of Finance, the Ministry of National Defence, the Ministry of Transport, and the Ministry of Agriculture and Rural Development. At the subnational level ownership is typically exercised by the various regional People’s Committees (see Figure 4.1 and Table 4.1). According to OECD’s classification of state ownership models, characteristics of Viet Nam’s ownership structure feature both those of dual model and co-ordination agency model (see Box 4.2).

Viet Nam has yet to develop a concrete and unified ownership policy. The legal and institutional framework for state ownership builds on a number of documents specifying policy priorities in the area of state ownership and management. The Government of Viet Nam has formulated policies regarding SOE ownership through promulgation of the 2020 Law on Enterprises, 2014 Law on State-Owned Capital Management, relevant laws, decrees (Decree No. 10/2019/ND-CP) guiding the implementation of laws and sectoral ministries’ circulars. To varying degrees, these legal normative documents have specified the rights and responsibilities of state ownership representative bodies including the government, Prime Minister, sectoral ministries representing the owner, and the BoM/Chair/representative of state capital at SOEs.

Government entities that are responsible for developing ownership-related policies are the Ministry of Finance (MOF), Ministry of Planning and Investment (MPI), Ministry of Justice (MOJ), Ministry of Home Affairs (MOHA), and Ministry of Labour, Invalids and Social Affairs (MOLISA). According to the government, these sectoral ministries also consult stakeholders such as SOEs, associations, consumers, and general public.

Some main priorities that act as the basis for policies related to the government’s ownership of SOEs include conservation and development of the owner’s capital invested in enterprises; orientation of SOE development per economic, political, and social goals of the Government; strengthening of SOEs’ leading role in socio-economic development, etc.

Every five years, the Prime Minister issues a Decision on criteria for the classification of SOEs as a basis for sectoral ministries, groups, and corporations to review and submit to competent authorities for approval. SOE strategies are also usually defined over a five-year period, the latest one being targeted at 2021-25 period. The approval process for strategies of SOEs is spelled out in the 2014 Law 69 on Management and Utilisation of State Capital and Decree No. 10/2019/ND-CP dated 30 January 2019 by the government, specifically as follows:

  • Enterprises with 100% state capital established by decision of the Prime Minister: the Prime Minister approves the strategy.

  • Enterprises with 100% state capital established by the owner’s representative agency: The owner’s representative agency approves the strategy in consultation with BoD and the company’s CEO.

  • Enterprises of which 36% or more is held by the State: The representative of the state capital portion in the enterprise shall report to the owner’s representative agency before giving opinions, voting and decisions at the GMS and the meeting of the BoM.

The formulation of the enterprise’s strategy is usually based on the orientations of the Party, the State and the government and the national Socio-Economic Development Strategy, as well as the planning of sectors and fields related to enterprises. SOE strategies are completed and approved by the responsible authorities after the national Socio-Economic Development Strategy is approved. The BoM of the enterprise participates in the process of formulating the development strategy of the enterprise.

Prime Minister: The Prime Minister as a state representative has an important decision-making authority over wholly state-owned parent company of SOE group. It can appoint and dismiss board of directors and CEOs of the parent company including those of CMSC and can also exercise its power on key management activities of the SOEs established by the Prime Minister based on the advice of key line ministries such as the Ministry of Finance and Ministry of Planning and Investment. The Prime Minister also has a final authority on the equitisation (See Box 4.3).

Commission for the Management of State Capital at Enterprises: The most important recent reform in state ownership framework in Viet Nam was the establishment of the CMSC.1 The government established the Commission in 2018 according to the Guidelines of the Party, the Law 69 on State Capital Management and the Decree No. 131/2018/ND-CP. They stipulate that CMSC is charged with exercising owner’s rights in 19 of the country’s largest state-owned groups and corporations which are found in key sectors of the economy. Its portfolio amounts to around 200 individual SOEs which adds up to a total equity capital of USD 32.5 bn., representing two-thirds of the total state-owned equity capital in the country. Data on corporate forms and subsidiaries of CMSC’ s key portfolio companies are provided in the Annex A.

The Commission’s shareholder rights in the 19 SOEs and state corporate groups include appointment and dismissal of board members and CEOs, restructuring, revision of charter and charter capital. It is also responsible for monitoring compliance of SOEs in its portfolio with governance standards including public reporting. As for SOEs that are established by the Prime Minister, the CMSC should consult the Prime Minister for approval prior to making decisions. The CMSC can make decisions on its own regarding other SOEs.

According to CMSC companies in its portfolio and are required to fulfil key functions: (i) preserve and increase state capital; and (ii) ensure essential services. In the largest seven SOE groups the president is appointed directly by the Prime Minister; CMSC is charged with appointing the executive management. In other non-financial SOEs the board/management is appointed by CMSC or the ownership ministries. In its recent seminar with the Prime Minister and other key SOE stakeholders, the CMSC expressed its concern about the full implementation of the right of CMSC as state capital representative in enterprises. In particular, it reported that the representative’s authority in approving investment projects in enterprises is not clearly defined in legal documents.

The Commission, which became operational in September 2018, is still being built up to full operational capacity. In terms of staff composition and the organisational structure, CMSC currently has more than 100 staff and nine departments. It has one chair and four vice chairs appointed by the Prime Minister. There are currently plans to add two more vice chairs. The operational departments of CMSC is divided according to sectoral lines: industry; agriculture, finance; and infrastructure. There is also a General Department which is in charge of the SCIC.

Ministry of Finance (MOF): While the MOF does not officially hold operational powers over the SOEs, it exercises wide-ranging financial controls. It can appeal to the government to promulgate regulations on finance and accounting for SOEs including regulations on transformation of wholly state-owned enterprises into joint-stock companies and regulations on financial administration of wholly state-owned enterprises. It supervises financial activities and performance of wholly state-owned enterprises. In case of detecting signs of violations, it can organise direct inspection. It is mandated to prepare the report on investment, management and use of state capital at enterprises nationwide for submission to the government so that the government may review it and present it in the year-end meeting of the National Assembly under its authority delegated by the government. The ministry manages public assets, grants, government guarantees for SOEs to borrow foreign loans. It also designs financial and accounting reporting system for SOE groups and sets additional regulations for insurance companies. It assists the Prime Minister on all financial issues of SOEs. The ministry is currently leading the process of amending the 2014 Law 69 on Management and Utilisation of State Capital.

Ministry of Planning and Investment (MPI): MPI shall appeal to the government to: Promulgate regulations on disclosure of information about business operations of wholly state-owned enterprises; regulations on rules for performing tasks of comptrollers of wholly state-owned enterprises; regulations on incorporation, consolidation, acquisition, splitting, dissolution and total sale of enterprises and transformation of wholly state-owned enterprises into multiple-member limited liability companies. The Enterprise Development Agency (EDA) of the ministry is the overall planning agency charged with overseeing business sector developments. It assists Prime Minister on investment and business areas and proposes investment and innovation plans of SOEs and small and medium-sized enterprises. It identifies sectors and SOEs for equitisation and reports to the Prime Minister with the aim of increasing participation of private sector in the economic development process. It is also responsible for undertaking impact assessments through consultations with various SOE governance stakeholders before a new law governing SOE sector comes into effect. The EDA is working with Korea’s Ministry of Finance with whom they have an MoU, inter alia in the context of performance management of SOEs. Benchmarking against the OECD SOE Guidelines and also Korea’s SOE performance evaluation system, MPI has developed a draft of key performance indicators (KPI) and has recently circulated it to various ministries and entities that are entrusted with state ownership function including the CMSC for their feedback. Once adopted, the MPI will oversee the implementation of KPI for individual SOEs.

Ministry of Home Affairs (MOHA): The Ministry of Home Affairs is responsible for the general governance of the State and advising the government in administrative organisation of the central and local governments, management of state personnels and civil servants, training of state governance, management of State archives. MOHA shall appeal to the government to promulgate regulations on recruitment, appointment, re-appointment, dismissal, grant of awards to, and imposition of disciplinary actions on, managers and comptrollers of wholly state-owned enterprises, and the representatives for state capital contribution portions. Senior managers or members of SOE board used to be considered as personnels in the state apparatus, under monitor of MOHA. The Law 52/2019/QH14 on Cadres, Public servants and Officials revised to remove senior managers and board members of SOEs from cadres and civil servants. However, MOHA is still tasked with the monitoring of SOEs’ Chairperson of the board of directors, vice presidents, and council members according to Decree 159/2020/ND-CP.

Ministry of Industry and Trade: The ministry has transferred the companies it used to control to the CMSC, which is to say the capital shares and the ownership rights. However, sectoral activities (e.g. hydrocarbons; electricity) remain under the direct control of the ministry. Matters such as energy prices and access to service are determined by government, not by the energy regulator.

Ministry of Labour, Invalids and Social Affairs (MOLISA): It ensures that wage growth rate of SOE groups does not exceed labour productivity. Wages and remunerations of SOEs’ BODs are provided as prescribed by the government and MOLISA. MOLISA shall appeal to the government to: Promulgate regulations on the compensation, remuneration and bonus package and other benefits granted to managers and comptrollers of wholly state-owned enterprises, and the representatives for state capital contribution portions; regulations on policies for recruitment, compensation, reward package and other benefits of employees working for wholly state-owned enterprises as provided in laws on labour. In some cases, wages and remunerations of SOEs’ BODs have yet to be based on assessments of their work performance.

Viet Nam Development Bank (VNDB): It is one of two public sector development banks in Viet Nam. It is charged with investing in development projects consistent with the state’s long-term Policy Strategy, and with funnelling incoming official development assistance to the intended recipients. VNDB is one of two public institutions allowed to issue bonds – the other being the national treasury – and it funds its lending and investments from bond issuances. The interest rates on treasury bonds and VNDB’s corporate bonds are identical. According to VNDB, more than half its loan portfolio currently consists of loans to SOEs.

The State Capital Investment Corporation is a state-owned holding company that was established in 2005 under Decision No. 151/2005/QD-TTg by Prime Minister as part of government initiatives on enhancing the efficiency of use of state capital and capital allocation in SOEs that were equitised or partially privatised. SCIC’s primary objectives are to represent the state capital interest in enterprises and invest in key sectors and essential industries with a view to becoming an active shareholder in SOEs and enhancing the role of the state sector while upholding the market rules. As such SCIC is mostly active as a shareholder in equitised and partly privatised SOEs.

SCIC sold its shares in 253 companies during 2015-20 period, raising around USD 1.8 billion from the sales. It is currently managing a portfolio of 145 firms that are operating in various sectors, including finance, energy, manufacturing, telecommunications, transportation and real estate (See Table ‎4.2). The SCIC is a shareholder in 40 listed companies, which include Vietnam Steel Corporation (93.93%), Song Da Corporation JSC (99.79%), Vietnam Water and Environment Investment Corporation JSC (98.16%) and Foreign Trade Logistics and Forwarding JSC (99.46%) (See Annex B).

Central Institute for Economic Management: The CIEM under the Ministry of Planning and Investment is in charge of developing and overseeing the implementation of Enterprise Law which provides the main elements for corporate governance framework in all enterprises in Viet Nam. CIEM is advisory to the MPI on all matters related to the enterprise sector including SOEs. They are entrusted with preparing draft legislation for the ministry. CIEM is currently developing national corporate governance code for SOEs at the time of writing this report.

The governing bodies of SOEs in Viet Nam depend in part on the companies’ corporate form. Limited liability companies (LLCs) have the so-called BoM as provided for by the Enterprise Law. A distinction is drawn between single-owner companies and limited liability companies with dispersed ownership. Only the latter are required to establish BoMs, which act as the owners’ representatives and make decisions in lieu of general shareholders meeting. If no BoM is established the owner is required to appoint a President with oversight responsibilities over the executive management.

Joint stock companies (JSC) have BoD that are functionally equivalent to those of private companies. BoDs have non-executive representatives and, in JSCs without a BoC, independent board members. The Enterprise Law does not provide for two-tier boards, but in practice some SOEs have established management boards at the discretion of the CEO.

Most SOEs and their subsidiaries are moreover required to establish a BoC.

2 BoCs have a supervisory role and are afforded certain rights in order to provide supervision of the BoMs/BoDs and company operations. Controllers are appointed by the owners (or through the GMS in the case of JSCs), but they are often staffed by the state owner or salaried by the company, which could potentially call into question their ability to autonomously conduct their control work.

The governance arrangements of an SOE varies according to the degree of state ownership in the company. SOEs most often have either a BoM or a BoD, which are together most closely related to the conception of “boards” in the SOE Guidelines. Table 4.4 provides, compares and contrasts the types of Boards across Viet Nam’s forms of SOE.

Wholly-owned SOEs (one-member company LLCs) have a BoM rather than a BoD, where the BoM is considered to be the direct representative of the state owner. Though not required to have a BoM, the mission team understands that the state opts for most single-member LLCs to establish one. BoMs in single and multiple-member LLCs have a limit of seven members, while multiple-member LLCs additionally have a minimum of three. The mission team understands that it is common for SOEs to reach the threshold of seven members. The BoM is composed of representatives of the state (in the case of wholly-owned LLCs) and other authorised representatives of other shareholding organisations (in the case of majority-owned LLCs).

Table 4.5 provides information on the composition of boards in three wholly-owned SOEs. It is worth noting that only SCIC provided information on its website about the authority of appointment of the members – even research of Viet Nam’s largest SOEs did not share this information.

For JSCs, whether listed or unlisted, the BoD should have between three and 11 members on five-year terms. In unlisted JSCs, the BoD is comprised of the Chair, and employee or state representatives and may have a Deputy Chair in larger companies (as is the case for instance with SCIC).

In public companies, at least one-third of the BoD should be non-executive members. Moreover, in unlisted public companies and listed public companies without a BoC (instead, having an audit committee), at least 20% of the members of the BoD shall be independent members. The Corporate Governance Code for listed companies goes further to encourage listed companies (including SOEs) to meet a minimum of one-third independent board members. Independent board members can only be elected up to two continuous terms. JSCs without a BoC must also establish an Audit Committee affiliated with the BoD. The organisational structure, functions and duties of the audit committee shall be specified in the company’s charter or the audit committee’s operating regulations promulgated by the BoD. Listed SOEs must also have between three and 11 members of the BoD, with a mix of executive, non-executive and independent board members. At least one-third of the BoD must be non-executive members.

There is very little gender diversity on SOE boards (BoD or BoM). There is even lower female representation in executive management Figure 4.2. provides the gender representation in SOE leadership positions, taking into account information for ten large SOEs (three of which are wholly-owned SOEs, seven of which are publicly listed JSCs).

Nomination and appointment procedures are detailed in the Enterprise Law for wholly-owned SOEs (single-member LLC) and majority owned SOEs (multi-member LLCs and JSCs). Guidelines for the nominations processes are found in Decree 97/2015/NĐ-CP and Decree 106/2015/NĐ-CP.

In the case of wholly-owned SOEs, the BoM’s members are designated and dismissed by the owner. The Chair of the BoM is in theory elected by majority of members of the BoM, subject to the approval of the state. The term of office of the Chair and other members of the BoM shall not exceed five years. A member of BoM may be designated again for not more than two terms in the same company unless they worked for the company for more than 15 consecutive years before the first designation.

The responsibilities for nomination, discipline and dismissal of members of the BoM resides with the competent ministry, or CMSC, and thus is dispersed across government representatives and entities. The Prime Minister fulfils this function for Chairs of economic groups. Other board members of economic groups are nominated, disciplined and dismissed by line ministries, who also fulfil this role for boards (and chair) of other SOEs in their portfolios. Likewise, provincial committees nominate, discipline and dismiss board representatives of SOEs in their sub-national portfolios.

Board positions are not advertised. State authorities propose a list of nominees to the SOE board, which then deliberates prior to accepting or rejecting the nomination. If a potential applicant is accepted by the board, this acceptance will be shared with the state authority after which the appointment will be made. There are regulations that guide the nomination process that include nomination criteria, the preparation process and the official appointment procedure (Decrees 97/2015/NĐ-CP, Decree 106/2015/NĐ-CP). All potential applicants must follow this process.

In theory, if the SOE board refuses a nomination the candidate will not be appointed. However, the mission team was not informed of such a disagreement ever occurring. While SOEs reflect on the suitability of candidates for the position, it seems they most commonly assume CMSC has done the necessary due diligence on the credibility of the applicant and their fulfilment of required criteria prior to becoming part of the pipeline or pool.

In majority-owned SOEs, other shareholders, including minority shareholders and employees, suggest and authorise suitable applicants for board appointment in accordance with the proportions of capital ownership.

In the case of JSCs, the Enterprise Law establishes that the shareholder or group of shareholders holding at least 10% of the ordinary shares (or a smaller ratio specified in the company’s charter) is entitled to nominate candidates for the BoD and the BoC as follows:

  • The ordinary shareholders shall hold a meeting to nominate candidates for the BoD and the BoC and inform the participating shareholders before the opening of the GMS;

  • The number of candidates depends on the quantity of members of the BoD and the BoC and shall be decided by the GMS. In case the number of candidates nominated is smaller than the permissible number, the remaining candidates shall be nominated by the BoD, the BoC and other shareholders.

Criteria for selection of members of the BoM and BoD are detailed in the Enterprise Law Article 93 pertaining specifically to SOEs and Article 155 pertaining to JSCs, respectively. The requirements are provided in Box 4.4.

Single and multi-member LLCs typically have a BoM as the supreme governing body of the company. The obligations of the BoMs in limited liability companies naturally differ depending on whether the SOE is wholly or partially owned, as shown in Table ‎4.6 summarising the obligations of SOEs’ governing bodies. In the case of a single-member LLCs (that is, wholly-owned SOEs), the BoM’s role is to perform the owner’s, and company’s rights and obligations in the owner’s name. A BoM in a multiple-member LLC (majority-owned SOE) has rights to, among other things, decide on increases or decreases in charter capital and to elect and dismiss the Chair of the BoM and other executive management members.

Joint stock companies have a BoD acting as the managerial body of the company with the right to make decisions on behalf of the company, and to perform rights and obligations of the company (except those under the responsibility of the General Shareholders’ Meeting). The BoD takes decisions on matters such as long-term operational strategy, annual business plans and organisational structure. The BoD also has the responsibility of supervising SOE operations. The mission team has been informed that the BoD does not interfere in the day-to-day management of the company.

For wholly-owned SOEs, the law does not foresee specialised board committees but companies may use internal regulations to establish such committees. In practice, certain state banks have established human resource, investment and asset management committees. JSCs can choose to establish an Audit Committee attached to the BoD instead of a BoC.

MCs and BoDs are supervised and evaluated by the BoCs described in the above section in most SOEs, except JSCs opting for an Audit Committee instead of a BoC. For wholly-owned SOEs, the BoC can have between one and five members, including a Chief Controller, who can be selected and salaried by the state owner (CMSC). For majority-owned SOEs in the form of a JSC, the BoC has between three and five controllers – one of which is a Chief Controller.

For JSCs with an Audit Committee attached to the BoD, its organisational structure, functions and duties should be specified in the company’s charter or the Audit Committee’s operating regulations promulgated by the BoD. Chapter 12 and Chapter 13 of this review sheds light on the differences between the Audit Committee and the BoC.

In majority-owned SOEs the Chair of the BoM or the BoD will most often be the legal representative of the company. Regardless of the SOE form, the company should be represented legally by the Chair of the BoM or BoD unless otherwise prescribed by the company’s charter, as is most common, and/or the CEO. In the case of a JSC and if the company has more than one legal representative, both the Chair and CEO ought to be the company’s legal representatives.

SOEs and subsidiaries are required to have a BoC, for which details on the characteristics, nominations and responsibilities are provided in Table ‎4.7. The BoC is meant to “supervise” the BoM and BoD in LLCs and JSCs respectively, among other things, and should provide a degree of assurance for all owners on the operational and financial performance of firms. In Viet Nam this function is often referred to as the “supervisory board”, but it is not the same as those which forms part of a dual structure as found in Germany, for instance. Nor is it an Audit Committee. Many SOEs additionally have a management board that is subordinate to the BoM or BoD.

BoC sizes, sources of appointment and salary vary depending for wholly or majority-owned SOEs. In wholly-owned LLCs the state appoints the Chief Controller and controllers directly, most often being salaried employees of the CMSC. The mission team was informed that the CMSC uses the BoC as a way of assessing compliance of the firm. In turn, the CMSC evaluates wholly-owned SOE managers (the BoM, the Executive Board where existing, Controllers, and Chief Accountant) to ascertain whether there are grounds for commendation or discipline. In majority-owned LLCs, the BoM has the right to designate the Chief Controller and controllers. In majority-owned JSCs, the GMS appoints the BoC and Chief Controller.

The roles and obligations of the BoC appear similar on paper for wholly and majority-owned SOEs. The BoC is afforded rights needed to fulfil its obligations, including the right to access information and to examine accounting books. However, there are discreet differences in their tasks and rights and one major difference insofar as many wholly-owned BoCs are staffed by CMSC representatives.

In all SOEs, the BoC may use an independent consultant or internal auditors to support its activities (Article 165.10 of the LOE). The BoC should prepare reports on the company’s performance (including that of the leadership). In wholly-owned SOEs, this report goes directly to the state owner. In the case of JSCs, the reports are presented to the GMS and will cover the company’s business performance, performance of the BoD and the CEO, as well as the BoC’s report on its own performance including of its controllers. Reports of the BoCs should be disclosed periodically on their websites along with information about the BoC and its activities.

Both wholly and majority-owned SOEs in Viet Nam are subject to a range of internal and external financial controls. SOEs, except certain JSCs, have a BoC that is meant to supervise the BoM or BoD and financial operations among other things. SOEs are also required to establish an internal audit function. All SOEs are subject to both state audit and independent external audit. This section details these functions that together comprise the financial control environment of Vietnamese SOEs. The mission team identifies potential overlaps, gaps and duplications between the responsibilities of the various control functions that are explored in the assessment against the Guidelines in the Chapter 12.

An enterprise’s BoC is assigned an important role in internal financial control. Despite slight differences in the financial control activities of the BoC according to the form of the company, BoCs are generally responsible for supervising accounting tasks and examining accounting books, financial statements and, in the case of wholly-owned SOEs, transactions. BoCs in JSCs also validate the adequacy, legitimacy and truthfulness of income statements, and annual and biannual financial statements. BoCs will share their findings via reports with the state owner (in the case of wholly-owned SOEs) and the GMS (in the case of JSCs), respectively.

According to the law, BoCs should be afforded the rights that enable them to conduct their work autonomously, including the authority to request BoMs/BoDs and members of executive management to provide reports on the company’s management, investment and business operations. In wholly-owned SOEs, the BoC can request information on subsidiary companies’ finance and business performance if necessary. Majority-owned SOEs are granted more generally the ability to access company documents at various company locations to conduct their financial supervision.

Parent companies that are wholly or majority-owned by the state were required to have in place an internal audit unit or function as of 1 April 2021, two years after the issuance of Decree No. 05/2019/ND-CP. The Decree establishes roles and responsibilities of internal audit and related stakeholders. It has been recently supplemented with guidance to support compliance, issued by the Ministry of Finance. That includes guidance on sample internal audit regulations for corporate use (Circular No. 66/2020/TT-BTC) and the recently-issued Vietnamese Standards and Code of Ethics for Internal Auditing (Circular No. 08/2021/TT-BTC).

The law aims to provide assurance over the functioning of internal controls of an entity. More specifically, the objectives are to inspect, assess and consult in order to provide assurance: on departments’ handling of operations in a way that prevents, detects and manages risks; on the efficiency and performance of management and risk management; and of fulfilment of the company’s objectives, plans and missions. The Decree prescribes approaches to internal audit including audit planning processes and establishes qualifications for internal auditors. The law generally aims to support Vietnamese companies in aligning with international good practice in internal audit and enhancing corporate governance. This could prepare SOEs to better navigate a transition from Vietnamese accounting standards, currently applied, to IFRS in pursuit of the five-year roadmap that at least certain SOEs are working towards.

The Decree required companies to decide whether internal audit would manifest as a function or department and to situate it in the organisational structure. Companies should clearly define: (i) the roles and responsibilities between the BoM/BoD and BoC regarding internal audit; (ii) the reporting mechanism for internal audit to the BoM/BoD vs. the BoC; and (iii) the differences between the BoC and the internal audit function/department. Achieving such clarity is paramount to the coherent control of an SOE. In practice, it appears that such differentiations have not been made.

The Decree provides the BoM and BoD with authority to establish rules for internal audit, usually established through company-specific internal audit regulations. The Decree itself is not prescriptive and gives the governing bodies of SOEs quite a lot of leeway to establish responsibilities and activities. This is important task, as the effectiveness of internal audit will depend, in part, on the clarity of responsibilities regarding those of the BoM /BoDs and the BoCs. This is elaborated upon in Chapter 13.

The State Audit Office (SAV) was established in 1994 as subordinate to the Executive branch of government and later became independent from government and accountable to the National Assembly. The SAV is responsible for providing assessments, confirmations, conclusions and recommendations regarding the management and use of public finance and/or assets as well as the compliance with law. Among SAV’s auditees are SOEs, including large economic groups and corporations, and entities responsible for equitisation. For enterprises in which the state holds 50% of charter capital or less, audits can be conducted ‘in case of necessity’.

Audits by the SAV should be carried out at least every two years according to the State Audit Law and can also be instigated at the request of the National Assembly. The SAV reportedly reduced the number of audits in 2019 in order to focus on the quality of its assessments. Indeed, the OECD team was informed that SAV audits could be conducted less frequently than every two years. The State Audit Law of 2015, which details the SAV’s functions, duties and powers, appears to afford it with sufficient powers to execute its function (Articles 9-11). The SAV receives an annual budget allocation from the government, as decided by the Prime Minister, but has financial autonomy in its allocation.

The SAV’s audit recommendations can be targeted to the SOE or to the state as owner regarding the need to adjust policies or address violations. The SAV can also initiate investigations or refer cases to other governmental control authorities. The OECD team understand that the SAV also undertakes non-audit activities, such as hosting trainings for BoDs (and presumably BoMs) on newly-issued legal documentation. The mission team understands from certain governmental authorities that the State Auditor’s findings often tend to carry more weight than that of independent auditors, owing largely to the stature of the SAV in the country. As one SOE put it, the SAV “can audit anything [it] wants, issue sanctions and report cases to other authorities”.

In its work in assessing management and use of public funds and assets, the SAV conducts different audits, evaluations and non-audit activities (e.g. trainings) vis-à-vis SOEs:

  • The SAV conducts financial audits that, in the case of SOEs, comes in addition to that conducted by independent external auditors elaborated upon below. Along with the Inspectorate of the MoF, they also assess financial costs of SOEs periodically or upon request. For enterprises implementing public policies, the determination of costs must comply with norms promulgated by state agencies and be audited by the State Audit. The information is only provided to serve the requirements of state management agencies and is not made public.

  • The SAV conduct compliance audits of SOE business activities with relevant laws (including sectoral legislation). For example, an SOE specialising in construction and installation and participating in an expressway project must comply with the regulations on capital construction investment issued by the government, the Ministry of Planning and Investment, the Ministry of Finance, and the Ministry of Natural Resources and Environment and will be audited by the State Audit for each bidding package.

  • The SAV conducts operational audits, to determine and evaluate the economics nature, efficiency and effectiveness of management and use of public finance and assets.

  • Beyond financial, compliance and operational audits, the SAV can audit other aspects of SOE and corporate groups’ governance and operations, for instance evaluating in 2019 the structuring process of SOEs with a focus on financial management, equitisation and divestment; as well as assessing financial market restructuring activities in its audits on commercial banks and credit institutions in an effort to evaluate ownership, debt control and with a view to improving credit quality.

The CMSC, the Ministry of Finance and, to a lesser extent, line ministries also play a role in overseeing the finances of SOEs. Various regulations require SOEs to prepare quarterly reports, as well as six-months and annually. The Chapter 12 of the review explores the timeliness of disclosure, having ascertained that there may be concerns about delays and reliability of SOE disclosure more generally.

  • As the representative of the state owner, the CMSC is assigned prime responsibility for monitoring the financial position of SOEs 100% owned by the state each six months – for the first half of the year and again for the whole year at year’s end. It is the responsibility for the SOE to submit to CMSC the reports each six months and annually pursuant to Decree No. 87/2015/ND-CP on supervision of state capital investment in enterprises, financial supervision, performance assessment and disclosure of financial information. The mission team understands that these six-monthly reports should include an evaluation of capital preservation against criteria on capital preservation as established by the MoF and should include an explanatory note where there are economic losses. The year-end assessment includes a self-evaluation and self-prescribed rating on an A-B-C scale based on the figures from the independently-audited financial report. Where there are economic losses, members of the BoM must send an explanatory report to competent ministries and the Ministry of Finance of the reason that capital was not preserved, and the countermeasures planned for the future. SOE reports deriving from periodic disclosures required in the Law on Enterprises should also be disclosed on the company website. The monitoring enables the CMSC to assume its responsibility in informing Prime Minister for decisions related to reorganisation, conversion or dissolution of SOEs and charter capital and for approval for investment strategies and business plans (Decree 131/2018/ND-CP).

  • The Ministry of Finance, and the Ministry’s Corporate Finance Department in particular, promulgates regulations on finance and accounting for SOEs, and plays a role in supervising financial performance and equitisaton of SOEs. In case of a potential violation, it can organise a direct inspection. Assessments are conducted every three to six months based on quarterly financial reports prepared by SOEs (pursuant to Decree 81/2015/ND-DP). It conducts this work informed, in part, by reports of the CMSC, of competent line ministries and other relevant agencies such as the SAV and the government Inspectorate. The Department prepares an annual report summarising financial supervision and performance evaluations, rating SOEs in 2018 and summarising the situation of state capital investment in enterprises in 2019 (MOF, 2020). The MoF’s Corporate Finance Department is also responsible for following-up with companies undergoing equitisation to acquire reports on progress of equitisation, restructuring or divestments, preparing monthly and quarterly reports for the ministry and quarterly reports for the Prime Minister on SOEs’ status in this regard.

  • Finally, the government Inspectorate of Viet Nam (GIV) can also play a role in financial control through its inspections and investigations that may touch upon how SOEs use capital of government, engage in procurement or distribute funding to different businesses and activities. In the case of an SOB, there are usually two main areas of investigation – credit services and accounting systems – but there are special cases in which GIV could look, for instance, at an SOE within the equitisation process and activities related to their listings on the securities market.

Since 2012, all SOEs are subject to external independent audit of annual financial statements, pursuant to the “Law on Independent Audit” and Decree 17/2012/ND-CP. In this way, SOEs are subject to the same standards as private firms but are additionally subject to audit by the SAV. SOEs operating in “classified” industries are exempt from the annual independent audit.

Following the issuance of Decree 61 and later 81/2015/ND-CP, SOEs must disclose annual audited financial statements on their websites before forwarding them to their line ministries and the Ministry of Planning and Investment. Audit reports themselves are excluded from disclosure.

In practice, audit recommendations are considered by the SOE and, if ‘sensible’, will be addressed the following year. According to the provisions of the Law on Independent Audit and the Law on State Audit, Directors of SOEs must have a written representation enclosed with relevant supporting documents in case the auditor provides conclusions or opinions as “inappropriate” or requests so.

SOEs are audited against Vietnamese Accounting Standards. The mission team understands that there is a five-year roadmap for the introduction of IFRS that at least certain SOEs are working towards. Many large SOEs are audited by one of the “big 4” auditing firms. Listed firms must be audited by one of the 40 pre-approved audit firms listed by the SCC.

Annual financial reports must be externally audited by an auditor qualified to audit a public interest entity working in the securities sector. External auditors should be selected through public tender and the successful candidate is reported to the relevant authorities, which is explored in more detail in the Chapter 12.


[2] Tien, F. (2021), Corporate Acquisitions and Mergers in Vietnam, Kluwer Law International B.V., 7. 20.

[1] Vuong, Q. (2019), The Vietnamese Economy at the Crossroads, Southeast Asia and the ASEAN Economic Community, https://www.academia.edu/44314404/The_Vietnamese_Economy_at_the_Crossroads.


← 1. At its launching ceremony in 2018, CMSC also signed an MOU with Singapore’s Temasek Holdings to share knowledge and experiences in modern capital management while respecting market rules.

← 2. Board of Controllers are provided for by the Enterprise Law. They exist in private companies as well but here, unlike in the SOEs, their existence is at the discretion of the owner and not compulsory.

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