Board characteristics, board responsibilities and firm performance evidence from vietnams stock market

BOARD CHARACTERISTICS, BOARD RESPONSIBILITIES AND FIRM PERFORMANCE: EVIDENCE FROM VIETNAM’S STOCK MARKET In Partial Fulfillment of the Requirements of the Degree of MASTER OF BUSINESS ADMINISTRATION In FINANCE MAJOR By Mr Nguyễn Thế Hiển ID: MBA02011 International University - Vietnam National University HCMC September 2012 BOARD CHARACTERISTICS, BOARD RESPONSIBILITIES AND FIRM PERFORMANCE: EVIDENCE FROM VIETNAM’S STOCK MARKET In Partial Fulfillment of the Requirements of the Degree of MASTER OF BUSINESS ADMINISTRATION In FINANCE MAJOR by Mr Nguyễn Thế Hiển ID: MBA02011 International University - Vietnam National University HCMC September 2012 Under the guidance and approval of the committee, and approved by all its members, this thesis has been accepted in partial fulfillment of the requirements for the degree Approved: -Chairperson Committee member -Committee member Committee member -Committee member Committee member -iAcknowledge To complete this thesis, I have been benefited from the following my Advisor I would like to send my sincere thanks to Ph.D Hien Thu Nguyen who took advantage of the guidance, impart knowledge, valuable experience for me during the time of implementation, help me to be able to complete this thesis I Would like to thank all of my lecturers from the International University – Vietnam National University Hochiminh City, guided me with valuable knowledge during the period time of attending school of business Administration Finally, I would like to thank my parents, family and friends for helping, taking care and encouragement me to complete this thesis -iiPlagiarism Statements I would like to declare that, apart from the acknowledged references, this thesis either does not use language, ideas, or other original material from anyone; or has not been previously submitted to any other educational and research programs or institutions I fully understand that any writings in this thesis contradicted to the above statement will automatically lead to the rejection from the MBA program at the International University – Vietnam National University Hochiminh City -iii- List of abbreviations CGI: Corporate Governance Index BR: Board ‘s responsibilities FI Financial Institution GSO General Statistics Office HNX Hanoi Stock Exchange HOSE Ho Chi Minh Stock Exchange LEV Financial Leverage OECD Organization for Economic Co-operation and Development ROA Return on Assets ROE Return on Equity MTBV Market to book value ratio Mbratio Market to book value ratio D/E Debt to equity ratio CEO Chief Executive Director BOD Board of Director BOUT Number of outside directors on the board (including independent non-executive directors, non-executive directors, and honorable directors) BEXC Number of executive directors on the board TOP5 Percentage of total outstanding shares held by five largest shareholders -ivBOARD CHARACTERISTICS, BOARD RESPONSIBILITIES AND FIRM PERFORMANCE: EVIDENCE FROM VIETNAM’S STOCK MARKET ASTRACT: This thesis examines the relationship between Responsibilities of Board and firm performance To examine mentioned relation, we develop an instrument to assess the Board responsibilities practices that Based on the Asean corporate Governance Scorecard which revised OECD Corporate Governance Principles My sample includes 100 firms listed on HOSE and HNX stock exchange Based on the extant literature, I develop a conceptual framework and a set of hypotheses to examine the relationship between board Responsibilities and firm performance This thesis also follow Empirical analysis is undertaken by authors Yan-Leung Cheung, J.Thomas Connelly, Piman Limpaphayom, Lynda Zhou from Chulalongkorn University, Thailand and City University of Hong Kong The findings of the study show that board responsibilities were positively related with market based firm performance On that Background, the authors offer research model includes independent variables and control variables, There is one explanatory variable which is the responsibility of the Board and five control variables are firm size, financial leverage, board size, age of the Board of Directors and the Number of women in the Board, All explanatory and control variables are included in the analysis in order to determine the extent of their influence on the firm performance through three dependent variable is ROE, ROA and MBratio The findings of the study show that board responsibilities were also positively related with Market based firm performance, but there are no relation between Board responsibilities and accounting based firm performance The study contributes to the understanding how important board-Responsibilities in corporate governance and its influence on firm performance, therefore author recommend solutions to improve responsibilities of the board as well as corporate governance practices in Vietnam The findings of my thesis are expected to stimulate scholars for further research to identify the Relation between board responsibilities and firm performance Keywords: corporate governance, firm performance, Board responsibilities, the board of directors , -vTABLE OF CONTENTS ASTRACT………………………………………………………………………………….iv CHAPTER 1: INTRODUCTION………………………………………………………… 1.1 Overview ………………………………………………………………………………1 1.2.Rationale for the thesis & Research Questions…………………………………………2 1.3.Research Objectives…………………………………………………………………….3 1.4.Research Objects & Scopes…………………………………………………………… 1.5.Research Significance…………………………………………………………………3 1.6 Research Structure………………………………………………………………………3   CHAPTER 2: LITERATURE REVIEW- RESEARCH MODEL AND HYPOTHESIS… 2.1 Agency theory and The Responsibilities of the Board…………………………………4 2.2 Role and responsibilities of the Board of Directors in Vietnam………………………7 2.3 Firm performance……………………………………………………………………12 2.4.Factors impact on firm performance…………………………………………………12 2.5 Previous Research Summary……………………………………………………… 18 2.6 Research Model and Hypothesis Development………………………………………21 CHAPTER 3: RESEARCH DESIGN AND METHODOLOGY…………………………27 3.1 Research Design………………………………………………………………………27 3.2 Sample and Data sources…………………………………………………………… 27 3.3 Variables Measurement Design………………………………………………………27 3.4 Methods and Data Collection…………………………………………………………29 3.5 Data Analysis Methods 30 3.6 Data Analysis Process 31 CHAPTER 4: RESULTS AND DISCUSSION ………………………………………… 32 4.1 Descriptive Statistics 32 4.2 Correlation Analysis 35 4.3 Regression analysis and testing hypotheses 36 4.4 Testing Statistical Hypothesis .40 CHAPTER :SUMMARY AND CONCLUSION ……………………………………….42 5.1 Summary of findings Conclusions .43 5.2 Suggestions and Recommendations……………………… …………………………44 5.3 Limitations and Next Research………………………… ………………………….47 REFERENCES……………………………………………………… ………………… 49 APPENDIX 1……………………………………………………… ………………… 51 -1CHAPTER 1: INTRODUCTION Chapter presents the reasons for forming the subject, the urgency of the research, then presents research objectives, identify the object and scope of the research as well as practical significance that study can be achieved, finally announced the presentation layout of the thesis 1.1 OVERVIEW:  The concept of Corporate Governance and responsibilities of the Board of Directors   To attract capital from domestic and foreign investors in the development of the global investment environment today, the enterprises must set up corporate governance accordance with the provisions of the Vietnam’s issued legal framework and the best international CG practices which are trusted by key stakeholders in the capital market Good corporate governance will help businesses create solid profits, enhance development, helping businesses build credibility, attract good team work and glue them with business Good governance will enhance prestige and position of the enterprise, enhance the enterprise's ability to access external capital, create a foundation for sustainable business development According to corporate governance, the Board is considered a core element, plays a crucial role in building and maintaining effective governance principles The criteria for assessment of corporate governance is built on the basis of the OECD corporate governance principles, including (A) the rights of shareholders and the basic property functions , (B) equal treatment for shareholders, (C) the role of the stakeholders, (D) disclosure and transparency, (E) the responsibility of the board (Board), in which two factors (D) and (E) are of crucial importance Worldwidely, there is evidence that the implementation of poor corporate governance or improper performance will lead to bankruptcy and collapse, for example, corporations names such as Enron, WorldCom (U.S.), Baring (UK), Informatics, Citiraya (Singapore) , did not practice or violated true high standards of corporate governance Violation of corporate governance are the differences and diversity, but its general effect potentially leads to bankruptcy and collapse This, unfortunately, is a practical example of corporate governance in Vietnam -2In Vietnam, through scandals relating to Bach Tuyet Cotton, Tuong An Vegetable Oil we see the role of the Board of Directors - the driver how much important to businesses Responsibilities of the Board of Directors is considered very important as the members of the Board of Directors are expected to set the overall strategy for the company, monitor risk management, monitor the results of management, ensure the integrity of the financial statements, and train and create personnel succession plan for senior management positions In general, the role and responsibilities of the Board is of paramount importance for the future of a business Good corporate governance and Board members have responsibility not only to help enterprises responsible for the failures mentioned above that make businesses grow Research results from the Corporate Governance Scorecard project by international financial institutions (IFC) of the World Bank (WB), the Global Corporate Governance Forum (GCGF) and the State Securities Commission (SSC) last published in 2010 showed that corporate governance and evaluation of the market always correspond to each other Accordingly, 25% of firms with the highest corporate governance scores has high market to book value of 2.5 times And the corporate governance of the companies with average and poor corporate governance have on average market to book value ratios at 1.7 and 1.6 times, respectively This is a signal that corporate governance is important and is priced by the market 1.2 RATIONALE  FOR  THE  STUDY  &  RESEARCH    QUESTIONS:   Around the world, there are many studies about the impact of the Board of Directors on the effectiveness of enterprise, such as Othman research (2010), which is about the impact of the structure of the Board of Directors and published information on enterprise performance in Africa Study of Rashid et al (2010) explored the composition of the board of Directors and efficiency enterprises in Bangladesh Bathula (2008) studied the relationship between characteristics such as the percentage of ownership of the executive board, the board size, the part-time executive director, the gender of the Board of directors and enterprise performance -3However, as per the understanding of materials collected, there has not been a study conducted to explore the effects of the responsibilities of the Board of Directors on firm performance in Vietnam Therefore, the author chooses the theme "The Impact of the responsibility of the board on firm performance: evidence from stock market of Vietnam" to find out how is the impact of the responsibility of the Board of Directors on the firm performance From there, the research helps companies to have a proper look at the role and responsibilities of the Board of Directors, be able to enhance the role and responsibilities of the Board of Directors in order to increase firm performance 1.3 RESEARCH OBJECTIVES The research aims at achieving the following objectives - Explore  the  impact  of  role  and responsibilities of the Board of Directors on firm performance   - Measure the impact of the responsibilities of the Board of Directors on firm performance   1.4 RESEARCH OBJECTS & SCOPES: The object and scope of the study: The study was conducted on a sample of 100 companies with the largest market capitalization listed on the stock exchanges in Vietnam including Ho Chi Minh City Stock Exchange (HOSE) and Hanoi Stock exchange (HNX) in 2011 Data is collected for the fiscal year ended in 2011 1.5 RESEARCH SIGNIFICANE The thesis contributes evidence on the impact of the role and responsibilities of the Board of Directors for firm performance Practical significance: The research results help companies and investors better understand the role and responsibilities of the Board of Directors in Vietnamese enterprises, and the impact of the Board's responsibility for the firm performance 1.6 RESEARCH STRUCTRURE:   To achieve the research objectives, the thesis is organized in layout consists of five chapters The specific content of each chapter is as follows: -43Hypothesis H4: There is relationship between board size and firm performance Results: Reject Age of the Board does not affect on the firm performance This is not true with the study of Vroom and Pahl (1971) or the study of the Child (1974) These studys suggest that older members of the director Board will avoid risky decisions, they pursued a strategy of low-scale growth carefully However investors in the market did not pay any attention to carefull decision as a uniqe impact on firm performance, even if they think the caution of older members in the board are factors obstructing the profitability of the business f Women in the Board of Directors   H6: The number of women directors is positively related to firm performance Results: accept Comments: women in the Board of Directors is measured by the number of female members in the board have a positive impact on the firm performance This result was exactly as the previous research studies, most studies are the same result that the number of women in the Board will make the firm performance better This theory is very true to the actual operation in Vietnamese market, the presence of women in the Board made the firm works very effectively, particularly the least Vinamilk Company or REE   -44CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS Chapter will present the conclusions of the research results obtained, a number of proposals for business management implications in policy and strategy to increase the responsibility of the Board of Directors The final chapter presents limitations exist and further research 5.1 CONCLUSIONS This study explores the responsibility of the board at the companies listed on the Vietnamese stock market in order to confirm its effect on the firm performance The results of quantitative research has confirmed a number of hypotheses of the research model in a certain level Research process was conducted through the theoretical basis of research and domestic and abroad studies on issues regarding the relation between responsibilities of the Board and the firm performance On that Background, the authors construct a research model to include independent variables and control variables There is one explanatory variable which is the responsibility of the Board and five control variables, including firm size, financial leverage, board size, age of the Board of Directors and the proportion of women in the Board All explanatory and control variables are included in the analysis in order to determine the extent of their influence on the firm performance through three dependent variable, which are ROE, ROA and MBratio The sample includes 100 companies with the largest market capitalization on the stock market Information collected through the annual report, financial, business rules, administrative regulations, business website After conducting the descriptive statistics and correlation analysis, the regression analysis results from Table 4.3, Table 4.4 and Table 4.5 show that there is no relationship between the responsibilities of the Board and the accounting baseds firm performance But in side of the market, there is a positive relationship between responsibilities of the Board and the market valuation which is represented by Mbratio (market to book value ratio) The results show that the higher the degree of responsibility of the board, the higher firm performance This proves that investors appreciate the role and responsibilities of the Board in planning and strategic direction with a long-term, it is also a key factor for them to invest in that firm -45Research results on the Vietnamese stock market differ from previous studies The previous research shows that firm performance affected by the characteristics of the Board, but there are no evidence form Vietnam stock market show relationship between firm performance and the Board characteristic except gender diversity It is also quite interesting to explore the role of women in the board The results of this study exist positive relationship between women in the Board and firm performance This result is consistent with previous studies of the world Besides, the results shows the negative effect of leverage to the firm performance The results obtained in this study is that the higher leverage will reduce the market to book value ratio This probably because in 2011, the surge in interest rates challenged the companies with difficulties 5.2 SUGGESTIONS AN RECOMMENDATIONS : Based on the results of the study, board responsibilities have significant impact on market performance of the companies, which is an important factor to attract investors and raise funds from the financial market, the author would like to present a number of management implications and recommendations for Vietnamese enterprises to improve responsibility of the Board, which attract capital from investors and the financial institutions to help companies raise capital, increase operational efficiency and sustainable development 5.2.1 The authority agency needs to boost up propaganda of corporate governance as well as responsibilities of the Board: In Vietnam, the implement of corporate governance is only in the beginning stages, The role and responsibilities of the Board in corporate governance in Vietnam is still spontaneous, many listed companies still go beyond the regulations and implement corporate governance in a particular way The reason of this situation is that corporate governance issues are quite new and has not been widely enforced As in enterprises, the implementation of the principles of corporate governance has not been given a proper attention -46The authority agencies need to update the code on corporate governance appropriate to the actual situation and meet the Organization for International Development Cooperation principles about corporate governance At the same time, it needs to enhance the dissemination of knowledge and regulations on corporate governance for Vietnamese enterprises Incentives and sanctions need to be issued to require companies to implement corporate governance practices in which the board responsibilities shall be emphasized on In order to solve the concentration of power into a group of major shareholders, reducing the family style or state-owned enterprises style in corporate governance is necessary The author recommends that companies should build a fully corporate governance guidelines, clearly referring to the values and responsibilities of the director Board and Supervisory Board Recognizing the need for coordination between the Board of Directors, Supervisory Board and Board of executive, now aims to monitor and evaluate the firm performance Board of Directors is the highest authority of the firm, who must establish corporate governance guidelines’ uniform from top to bottom, build vision, building a Ethics Code applying to the firm business activities All members working in the companies need to know and adhere to these values 5.2.2 To enhance coordination and clear delegation between the director Board, Management Board, supervisor Board, shareholder Companies should develop corporate governance regulations by clearly written document which defines the responsibilities and rights between the director boardmanagement board - supervisor board and shareholders In addition, corporate governance regulations must guarantee equal interests of each parties Regulation of corporate governance have emphasized the responsibilities of the Board in setting up policy and operational control of the firm as well as harmony interests between shareholders and managers     5.2.3 To enhance the presence of independent directors in the Board: In parallel with the issuance of documents required to have a minimum of 1/3 independent board members, the authority agencies should control for compliance It -47must ensure the presence of independent members in the Board of Directors The authority Agencies should also issue standards and regulations about qualifications, professional ethics for independent members to prevent firms appointed pretendedly, not interested in professional and ethical standards required Board members must be persons with appropriate competence and experience Independent members of the Board of Directors should be a fairly arbitration to resolve conflicts of interest between large and small shareholders The independent Board members create a counterweight to the major shareholders in the Board of Directors, to protect firm interests as well as the small shareholders benefits, they bring external perspective on control strategies, providing skills and new knowledge to company They are objective in the hearing and resolve disagreements in the leadership of the company   5.2.4 Improving competency and responsibilities of the Board: It is necessary to limit board member participate in many enterprises in order to ensure their enough time to work effective To fulfill its role and responsibilities on the Board, members need to spend time to devote for their firm If a member is involved in many of the director Board of different companies, there is not enough time to complete the tasks Therefore, detailed information about each member of the Board must declared, especially with the number of seats held by that person Mechanisms to assess the quality of each member of the Board: Board should ensure the development and maintenance of knowledge and skills for its members to continue to operate effectively in an ever-changing environment of corporate governance and law Therefore, the assessment of the operation of the Board and the Supervisory Board is required To have an effective governance mechanism, the firm must have the assessment of the Board of Directors along with 5.2.5 Enterprises should set up specialized committees and the committees under the Board of Directors: Business environment of enterprises becomes more and more complex, the challenges facing the Board of Directors also increased, thus the committees under the Board was established to assist the Board of Directors, especially in areas required professional skills However, the establishment of this committee is not mandatory and the ultimate responsibility of the committees also belongs to the Board of Directors -485.2.6 Proposal to strengthen the role and presence of women in the director board   It is interesting to find in this research that the presence of women in the board positively impact on firm performance The strength of women in the role of board members is shown on both the perspective: business and relationships For the strength of most of the female board member is shown in that sense is the role of management; know both considered the great interest in the details - both see the trees and see the forest; know more calm unexpected situations For most of female board members are treated harmonious relations with the outside, the inside, with the same level colleagues and subordinates In a recent study, Smith, Smith and Verner (2006) found that women on board of directors have significant positive effect on firm performance Research results of the subject results coincide with previous studies It is also quite interesting to explore the role of women in the board The results of this study exist positive relationship between women in the Board and firm performance However, women representation on boards is very limited According to Catalyst census, women directorship is only 12.4 per cent in the US and 6.4 in the UK; the percentage of executive directors is percent in both countries (Singh & Vinnicombe, 2004) In Canadian boards, women representation was less than percent (Burke, 1997) In Vietnam there are no official statistics, the percentage of women in the board but it can be seen that the female members of the board of the listed firm on the stock market Hose and HNX very rare So this thesis strongly suggest to increase the number of women in the board -495.3 LIMITATIONS AND FURTHER RESEARCH 5.3.1 LIMITATIONS OF RESEARCH: Research results help the firm to understand the important role of the responsibilities of the director Board to the firm performance Therefore firms can make policies and solution to improve the level of responsibilities of the director Board in order to increase the firm performance However, this research exists some limitations: - Sample observation limited to 100 largest market capitalization companies listed on the stock market in 2011, instead of studied all the companies listed on both the Stock Exchange of Vietnam in Hanoi and Ho Chi Minh City   - Besides that, the impact of board responsibities on firm performance is expected to be seen in long term rather than short-term This research collected data only for the year 2011, much shorter than other studies in many countries around the world due to limited time of writing the thesis     5.3.2 FURTHER RESEARCH In the future, other researchers can continue to carry out the research with a larger sample size covering both of the stock markets of Vietnam Simultaneously, a research should be done with data collected for longer period from to years By increasing time horizon and expanding the sample size research results are expected to reflect a more significance of the model by taking into account both firm and macro-economic factors in various years Responsibilities of the board as part of the original structure of corporate governance in which Board responsibilities plays an important role on implementing the principles of corporate governance Because of time limitation, author studied only the responsibilities of the Board and its impact on firm performance instead of the overall corporate governance practices In the future if possible, researchers should exam the relationship between overall corporate governance index and firm performance -50- REFERENCES Abidin, Zubaidah Zainal (2009) Board Structure and Corporate Performance in Malaysia ; International Journal of Econimics and finance , Vol No Feb 2009, www.ccsenet.org/journal.html Arntz , Roger (2010) Board Composition and Firm Performance in the Netherlands; Tilburg University Arosa ,Blanca ; Iturralde,Txomin; Maseda, Amaia (2010) Outsiders on the board of directors and firm performance: Evidence from Spanish non-listed family firms; Journal of Family Business Strategy (2010) 236–245 Al-Matari, Yahya Ali; et al Al-Swidi, (2012) Board of Directors, Audit Committee Characteristics and Performance of Saudi Arabia Listed Companies; International Review of Management and Marketing Vol 2, No 4, 2012, pp.241251 ISSN: 2146-4405 www.econjournals.com A Rashid; A De Zoysa; S Lodh; (2010) Board Composition and Firm Performance: Evidence from Bangladesh; Autralasian Accounting & Finance Journal Vol Bolton, Brian (2008) Corporate governance and firm performance Brennan, Niamh (2006) Boards of Directors and Firm Performance: Is there an Expectations Gap?; Published in Corporate Governance: An International Review, 14 (6) (November 2006): 577-593) Bathula, Hanoku Board Characteristics and Firm Performance: Evidence from New Zealand; Auckland University of Technology CHEUNG, Yan-Leung (2007) et al JIANG Ping, Does corporate governance matter in China? China Economic Review 19 (2008) 460–479, Available online at www.sciencedirect.com Cheung, Yan-Leung (2007) et al J Thomas Connelly Do Investors Really Value Corporate Governance? Evidence from the Hong Kong Market; Journal of International Financial Management and Accounting 18:2 2007 Connelly, J Thomas (2006) Form versus Substance: The Effect of Family Influence and Corporate Governance Practices on Firm Value in Thailand Darmadi, Salim (2010) Board diversity and firm performance: the Indonesian evidence; Online at http://mpra.ub.uni-muenchen.de/38721/ MPRA Paper No 38721, posted 10 May 2012 / 09:55 Joecks, Jasmin; Pull, Kerstin; Vetter, Karin ( 2006) Gender Diversity in the Boardroom and Firm Performance: What Exactly Constitutes a “Critical Mass”?; -51Jackling, Beverley and Johl, Shireenjit (2009) Board Structure and Firm Performance: Evidence from India’s Top Companies; Corporate Governance: An International Review, 2009, 17(4): 492–509 Ghabayen, Mohammad Ahid (2012) Board Characteristics and Firm Performance: Case of Saudi Arabia; International Journal of Accounting and Financial Reporting ISSN 2162-3082 2012, Vol 2, No Hillman, Amy I.; Daziel, Thomas (2003) Board of directors and firm performance: integrating agency and resource independent perspectives; Academy oi Managemenf Review 2003, Vol 28 No- 3, 383-396 Khan, Aamir (Corresponding author) Dr Sajid Hussain Awan (2012) Effect of board composition on firm’s performance: a case of Pakistanian listed companies ; interdisciplinary journal of contemporary research in business vol 3, no 10, Feb 2012, ijcrb.webs.com Lawal, Bello (2012) Board Dynamics and Corporate Performance: Review of Literature, and Empirical Challenges ; International Journal of Economics and Finance Vol 4, No 1; January 2012 , www.ccsenet.org/ijef Ong, Chin Huat and Lee, Soo Hoon (2000) Board Functions and Firm Performance: A Review and Directions for Future Research; Volume 3, No I June 2000 Ponnu, C H and Karthigeyan, R M (2010) Board independence and corporate performance: Evidence from Malaysia; McGee, Robert W (2008) corporate governance in Asia: a comparative study of Indonesia, Malaysia, Thailand and Vietnam Ranasinghe, D.N (2010) Composition and Configuration of the Board and Firm Performance in Financial Services Industry in Sri Lanka; DSM Business review – Vol 2, No.2 (December, 2010) Saat,Nur Ashikin Mohd Et al Karbhari,Yusuf (2010) Effective Oversight Roles of Board of Directors – The Case of Listed Firms on Bursa Malaysia; World Review of Business Research Vol No March 2011 Pp 231 - 245 Shukeri, Siti Norwahida Et al Shin, Ong Wei & Shaari, Mohd Shahidan Does Board of Director’s Characteristics Affect Firm Performance? Evidence from Malaysian; Public Listed Companies; International Business Research; Vol 5, No 9; 2012 ISSN 1913-9004 E-ISSN 1913-9012 Published by Canadian Center of Science and Education Shakir, Roselina (2006) Board size, Board composition and Property firm performance; Faculty of Built Environment Universiti Malaya 50603 Kuala Lumpur roselina@um.edu.my -52Wu, Wei (2009) Board composition and firm performance: a quantitative study on Chinese listed companies; Umea School of Business Spring semester 2009 Master Thesis List of websites: HCMC Securities co, ltd: www.hsc.com.vn Ho Chi Minh City Securities Trading Center: www.hose.vn Hanoi Securities Trading Center: www.hnx.vn Sites securities: http://vietstock.vn/, www.vndirect.com.vn, www.cophieu68.com, www.cafef.vn, www.vinacorp.vn www.ifc.org www.oecd.org www.sbv.gov.vn www.ssc.gov.vn -53Appendix THE ASEAN CORPORATE GOVERNANCE SCORECARD Part E: Responsibilities of the Board E.1 E.1.1 E.1.2 E.1.3 E.2 E.2.1 E.2.2 E.2.3 E.2.4 E.3 E.3.1 E.4 E.4.1 E.4.2 E.4.3 E.4.4 E.4.5 E.4.6 E.4.7 E.4.8 E.4.9 E.5 E.5.1 Are the role and responsibilities of the board of directors/commissioners clearly stated? Are the types of decisions requiring board of directors/commissioners' approval disclosed? Does the company disclose its corporate governance policy / board charter? Does the company have a code of ethics or conduct? Are the details of the code of ethics or conduct disclosed? Does the company disclose that all directors/commissioners, senior management and employees are required to comply with the code? Does the company disclose how it implements and monitors compliance with the code of ethics or conduct? Does the company disclose that the board of directors/commissioners has reviewed and approved the vision and mission? Does the board of directors/commissioners comprise at least five members and no more than 12 members?(i.e., between - 12 members) Do independent, non-executive directors/commissioners number at least three and make up more than 50% of the board of directors/commissioner? Does the company provide a definition of independence in its annual report? Are the independent directors/commissioners independent of management and substantial shareholders? Does the company disclose the number of years the director/commissioner has been with the company? Does the company have any independent directors /commissioners who have served for more than nine years? Does the company disclose that it has set a limit of five board seats in publicly-listed companies that an individual director/commissioner may hold simultaneously? Does the company have any independent directors/commissioners who serve on more than five boards of publicly-listed companies? Does the company have any executive directors who serve on more than two boards of publicly-listed companies outside of the group? Does at least one non-executive director/commissioner have prior working -54E.5.2 E.6 E.6.1 E.6.2 E.6.3 E.6.4 E.6.5 E.6.6 E.7 E.7.1 E.7.2 E.7.3 E.7.4 E.7.5 E.8 E.8.1 E.9 E.9.1 E.10 E.10.1 E.10.2 E.10.3 E.11 E.11.1 E.11.2 E.11.3 E.11.4 experience in the major industry the company is operating in? Does the company disclose a board of directors/commissioners diversity policy? Do different persons assume the roles of chairman and CEO? Does the chairman have a family or business relationship with the executives? Is the chairman a non-executive director/commissioner? Is the chairman an independent director/commissioner? Is the chairman the current or immediate past CEO? Are the role and responsibilities of the chairman disclosed? Does the Annual Report disclose that board of directors/commissioners meetings are scheduled before or at the beginning of the year? Does the board of directors/commissioners meet at least six times per year? Have all directors/commissioners attended at least 75% of all the board meetings held during the year ? Does the company disclose that there is a minimum quorum of at least 2/3 for board of directors/commissioners meetings ? Does the company disclose that the non-executive directors/commissioners of the company have met separately at least once during the year without any executives present ? Does the company disclose details of its orientation programmed for new directors/commissioners? Does the company disclose that it provides ongoing or continuous professional education to its directors/commissioners? Does the company disclose that board papers for board of directors/commissioners meetings are provided to the board at least five business days in advance of the meeting? Does the company disclose the role and function of the company secretary? Does the company disclose the qualifications and experience of the company secretary? Does the company have a Nominating Committee? Does the Nominating Committee comprise of a majority of independent directors/commissioners? Does the Nominating Committee have an independent chairman? Does the company disclose the terms of reference/governance -55E.11.5 E.11.6 E.11.7 E.12 E.12.1 E.12.2 E.12.3 E.12.4 E.12.5 E.13 E.13.1 E.13.2 E.14 E.14.1 E.14.2 E.14.3 E.15 E.15.1 E.15.2 E.15.3 E.16 E.16.1 E.17 E.17.1 structure/charter of the Nominating Committee? Does the annual report disclose the number of Nominating Committee meetings held? Did the Nominating Committee meet at least twice during the year? Is the attendance of members at Nominating Committee meetings disclosed? Does the company disclose the process followed in appointing new directors/commissioners? Does the company disclose the criteria used in selecting new directors/commissioners? Are all the directors/commissioners subject to re-election at least once every three years? Does the company disclose information on its board of directors/commissioners renewal policy? Does the company have a term limit for its independent directors/commissioners? Does the company disclose how the board of directors/commissioners plans for the succession of the CEO/managing director/president and key management? Does the board of directors/commissioners conduct an annual performance assessment of the CEO/managing director/president? Is an annual performance assessment conducted of the board of directors/commissioners? Does the company disclose the process followed in conducting the board assessment? Does the company disclose the criteria used in the board assessment? Is an annual performance assessment conducted of individual directors/commissioners? Does the company disclose the process followed in conducting the director/commissioner assessment? Does the company disclose the criteria used in the director/commissioner assessment? Is an annual performance assessment conducted of the board of directors/commissioners committees? Does the company have a Remuneration Committee (RC)? -56E.17.2 E.17.3 E.17.4 E.17.5 E.17.6 E.17.7 E.18 E.18.1 E.18.2 E.18.3 E.18.4 E.19 E.19.1 E.19.2 Does the Remuneration Committee comprise a majority of independent directors/commissioners? Does the Remuneration Committee have an independent chairman? Does the company disclose the terms of reference governance structure/ charter of the Remuneration Committee? Does the annual report disclose the number of Remuneration Committee meetings held? Did the Remuneration Committee meet at least twice during the year? Is the attendance of members at Remuneration Committee meetings disclosed? Does the company disclose its remuneration policy (i.e the use of shortterm and long-term incentives and performance measures) for its executive directors? Is there disclosure of the fee structure for non-executive directors/commissioners? Is the total remuneration (fees, allowances, benefits-in-kind and other emoluments) or any increases in remuneration for the non-executive directors/commissioners approved by shareholders? Do independent non-executive directors/commissioners receive options, performance shares or bonuses? Does the company have an Audit Committee? Does the Audit Committee comprise entirely of non-executive directors/commissioners with a majority of independent directors/commissioners? E.19.3 Does the Audit Committee have an independent chairman? E.19.4 Does the company disclose the terms of reference/governance structure/ charter of the Audit Committee? E.19.5 Does the Annual Report disclose the profile or qualifications of the Audit Committee members? E.19.6 Does at least one of the independent directors/commissioners of the Audit Committee have accounting expertise (accounting qualification or experience)? E.19.7 Does the Annual Report disclose the number of Audit Committee meetings held? E.19.8 Did the Audit Committee meet at least four times during the year? E.19.9 Is the attendance of members at Audit Committee meetings disclosed? E.19.10 Does the company disclose that the Audit Committee has primary responsibility for recommendation on the appointment, re-appointment and removal of the external auditor? -57E.20 E.20.1 E.20.2 E.20.3 E.21 E.21.1 E.21.2 E.21.3 Does the company have a separate internal audit function? Is the head of internal audit identified or, if outsourced, is the name of the external firm disclosed? Does the appointment and/ or removal of the internal auditor require the approval of the audit committee? Does the company disclose the internal control procedures/risk management systems it has in place? Does the annual report disclose that the board of directors/commissioners has conducted a review of the company's material controls (including operational, financial and compliance controls) and risk management systems? 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