Exploring the role of good leadership and corporate governance practices in improving institutional investment to listed companies in vietnam stock market

VIETNAM NATIONAL UNIVERSITY, HANOI SCHOOL OF BUSINESS NGUYEN THI YEN VY EXPLORING THE ROLE OF GOOD LEADERSHIP AND CORPORATE GOVERNANCE PRACTICES IN IMPROVING INSTITUTIONAL INVESTMENT TO LISTED COMPANIES IN VIETNAM STOCK MARKET Major: Business Administration Code: 60 34 05 MASTER OF BUSINESS ADMINISTRATION THESIS Supervisors: Dr Tạ Ngọc Cầu Hà Nguyên, MBA Hanoi – 2012 ACKNOWLEDGMENT I would like to give special thanks to my advisors and teachers, Professor Tạ Ngọc Cầu, Professor Hà Nguyên and Professor Edward McAlvanahfor all of their willingness and enthusiasm in guidance and encouragement me through out my MBA program and the research progress of this dissertation To my mother (Kim Ngân) and family, I specially thank for their encouragement, support and trust during the MBA program I also want to show my deep gratitude to Hanoi School of Business for all their academic support and for administrative assistance since the commencement to the end of my Regular MBA program Last but not least, I wish to specifically acknowledge my ReMBA7 classmates, my colleagues at Bao Viet Securities Company and counterparts atothersecurities companies who contributed through their valuable discussions on my chosen topic Hanoi, September 2012 Nguyen Thi Yen Vy i ABSTRACT EXPLORING THE ROLE OF GOOD LEADERSHIP AND CORPORATE GOVERNANCE PRACTICES IN IMPROVING INSTITUTIONAL INVESTMENT TO LISTED COMPANIES IN VIETNAM STOCK MARKET Nguyen Thi Yen Vy MBA Candidate, 2008 – 2010 School of business Vietnam National University, Hanoi Supervisors: Dr Tạ Ngọc Cầu Hà Nguyên, MBA September 2012, 123 pages The formation of Vietnam stock market in 2000 opened wide door for companies in raising fund to finance their business activities On this modern financial market, institutions have been and should be major players who pump funds and create market liquidity However, since 2010, market liquidity has been decreasing and this is attributed to the lack of “big players” on the market Therefore, it is high time to retain current institutional investors and attract new ones to help recover the slumping market One of the main factors to foster that desire is the listed companies‟ excellent leadership and corporate governance, as they could help companies enhance investors‟ confidence through mitigating agency problems, creating greater value for companies and therefore institutional investors in most cases are willing to pay a good premium for well led and governed companies This study, accordingly, explores the relationship between good corporate leadership - governance practices and the improvement of institutional investment It also aims to serve as a guide for ii those who wish to strengthen leadership and corporate governance practices in their organizations Key findings of the research consist of three parts Firstly, it determines the relationship between good leadership - corporate governance practices and the improvement of institutional investment in Vietnam listed companies Secondly, it identifies weak points in the current leadership and corporate governance practices in Vietnam listed companies Thirdly, it provides guidance on how to perform good leadership - corporate governance practices efficiently and effectively to improve institutional investment The study relies on a variety of data collection methods, interviews, observations and case study method This technique provided a comprehensive illustration of the effectiveness and necessity of good leadership and corporate governance practices in association with successful improvement of institutional investors The thesis consists of three chapters: CHAPTER 1: LITERATURE REVIEW Chapter showed the correlation between good leadership - corporate governance practices and the improvement of institutional investment It also gave an overview of institutional investors, leadership and corporate governance CHAPTER 2: ANALYSIS AND ASSESSMENT ON THE APPLICATION OF LEADERSHIP-CORPORATE GOVERNANCE PRACTICES IN VIETNAM LISTED COMPANIES This chapter provides a snapshot on Vietnam economic outlook and securities market, makes assessment on leadership and corporate governance in Vietnam and show three examples of Asia Commercial Bank (ACB), FPT Corporation (FPT) and Vinamilk (VNM) which have the ability to keep quality institutional ownership over years CHAPTER 3: RECOMMENDATION iii Chapter presents both opportunities and threats to the improvement of institutional investment, then provides recommendation and action plan to identifying and improving the institutional investment through good leadership and corporate governance practices The author knows that successful application of good leadership and corporate governance is an art of each company Nevertheless, the study shows that the theory and practical experience can be jointed to figure out a reasonable method for most companies The most importance is that the companies should well consider their own conditions and objectives to select what are most appropriate iv TÓM TẮT TÌM HIỂU VAI TRỊ CỦA CÁC THƠNG LỆ TỐT VỀ LÃNH ĐẠO VÀ QUẢN TRỊ DOANH NGHIỆP TRONG VIỆC CẢI THIỆN ĐẦU TƯ TỪ CÁC TỔ CHỨC ĐỐI VỚI CÁC CÔNG TY NIÊM YẾT TẠI VIỆT NAM Nguyễn Thị Yến Vy Học viên MBA, niên khóa 2008-2010 Khoa Quản trị kinh doanh - Đại học Quốc Gia Hà Nội Hướng dẫn: Tiến sỹ Tạ Ngọc Cầu Hà Nguyên, MBA Tháng - 2012,123 trang Thị trƣờng chứng khoán Việt Nam đƣợc thành lập từ năm 2000 mở rộng cửa cho việc tìm kiếm nguồn vốn để tài trợ cho hoạt động kinh doanh doanh nghiệp Trong thị trƣờng tài đại này, nhà đầu tƣ tổ chức nên đóng vai trị lực lƣợng chủ chốt bơm vốn tạo khoản cho thị trƣờng Tuy nhiên, từ năm 2010 đến nay, khoản thị trƣờng đà giảm nguyên nhân đƣợc cho bắt nguồn từ giảm tham gia từ phía nhà đầu tƣ tổ chức lớn Do đó, giai đoạn cần thiết để giữ chân nhà đầu tƣ tổ chức tham gia thị trƣờng nhƣ thu hút thêm nhà đầu tƣ tổ chức để vực dậy thị trƣờng đà giảm mạnh Một nhân tố hỗ trợ cho ƣớc muốn lực lãnh đạo quản trị doanh nghiệp vƣợt trội công ty niêm yết, nhân tố góp phần gia tăng niềm tin nhà đầu tƣ thông qua giảm bớt vấn đề ủy quyền-tác nghiệp (agency problems), tạo giá trị lớn cho doanh nghiệp nhờ nhiều trƣờng hợp, doanh nghiệp đƣợc trả giá cao Theo đó, luận văn đào sâu tìm hiểu mối quan hệ thơng lệ tốt lãnh đạo - quản trị doanh nghiệp v gia tăng đầu tƣ nhà đầu tƣ tổ chức Luận văn đƣa hƣớng dẫn để doanh nghiệp áp dụng thông lệ lãnh đạo quản trị doanh nghiệp đƣợc hiệu Luận văn tìm đƣợc ba điểm Thứ nhất, xác nhận mối quan hệ thông lệ lãnh đạo - quản trị doanh nghiệp tốt với việc gia tăng đầu tƣ nhà đầu tƣ tổ chức công ty niêm yết Việt Nam Thứ hai, nhận diện yếu thực tiễn lãnh đạo – quản trị doanh nghiệp công Thứ ba, cung cấp hƣớng dẫn thực nhằm nâng cao chất lƣợng lãnh đạo quản trị doanh nghiệp để tăng đầu tƣ từ tổ chức Phƣơng pháp nghiên cứu luận văn bao gồm thu thập thơng tin, vấn, quan sát nghiên cứu tình (case study) Nhiều phƣơng pháp kết hợp nhằm cung cấp tranh toàn cảnh cần thiết tính hiệu việc áp dụng thơng lệ lãnh đạo - quản trị doanh nghiệp tốt việc gia tăng nguồn vốn đầu tƣ từ nhà đầu tƣ tổ chức Luận văn bao gồm ba chƣơng: CHƢƠNG 1: SƠ LƢỢC LÝ THUYẾT Chƣơng xác nhận mối liên hệ thông lệ lãnh đạo - quản trị doanh nghiệp tốt với việc gia tăng nguồn vốn đầu tƣ từ nhà đầu tƣ tổ chức Đồng thời, điểm qua lý thuyết nhà đầu tƣ tổ chức, lãnh đạo quản trị doanh nghiệp CHƢƠNG 2: PHÂN TÍCH THỰC TRẠNG VÀ ĐÁNH GIÁ VỀ THỰC TẾ ÁP DỤNG CÁC THÔNG LỆ TỐT VỀ LÃNH ĐẠO – QUẢN TRỊ DOANH NGHIỆP TẠI CÁC CÔNG TY NIÊM YẾT VIỆT NAM Chƣơng khái quát triển vọng kinh tế nhƣ triển vọng thị trƣờng chứng khoán Việt Nam, đánh giá thực tế lực lãnh đạo quản trị công ty niêm yết Việt Nam trình bày ba trƣờng hợp điển hình việc thu hút giữ chân nhà đầu tƣ tổ chức lớn nhiều năm, Ngân hàng TMCP Á Châu (ACB), CTCP FPT (FPT) CTCP Sữa Việt Nam (VNM) CHƢƠNG 3: KHUYẾN NGHỊ vi Chƣơng trình bày hội lẫn thách thức việc cải thiện thu hút vốn từ nhà đầu tƣ tổ chức, sở đƣa khuyến nghị kế hoạch hành động nhằm nhận biết thu hút nhà đầu tƣ tổ chức tốt thông qua áp dụng thông lệ tốt lãnh đạo quản trị doanh nghiệp Tác giả nhận thức việc áp dụng thành công thông lệ lãnh đạo quản trị doanh nghiệp nghệ thuật riêng công ty Tuy nhiên, luận văn cố gắng liên kết vấn đề lý thuyết kinh nghiệm thực tiễn nhằm đề xuất phƣơng pháp hợp lý cho phần lớn công ty Điều quan trọng công ty cần xem xét điều kiện mục tiêu cụ thể để áp dụng cho thích hợp vii TABLE OF CONTENTS ACKNOWLEDGMENT i ABSTRACT ii TÓM TẮT v TABLE OF CONTENTS viii LIST OF FIGURES xii LIST OF ACRONYMS xiii INTRODUCTION CHAPTER 1: LITERATURE REVIEW 1.1 An overview of institutional investors 1.1.1 The impact of having institutional investors involved in a company‟s ownership 1.1.2 What influences the investment decision of institutional investors (Determinants of institutional ownership) 13 1.2 An overview of leadership and corporate governance 21 1.2.1 Leadership 21 1.2.2 Corporate Governance 24 1.3 Why good leadership and corporate governance practices can help companies in general and Vietnamese listed companies in particular to improve institutional investment 31 1.3.1 They become “an increasingly important factor for investment decisions” 31 1.3.2 Mitigate agency problems 31 1.3.3 Create greater value for companies 32 viii 1.3.4 Institutional investors would pay a good premium for well led and governed companies 33 Chapter summary: 33 CHAPTER 2: ANALYSIS AND ASSESSMENT ON THE APPLICATION OF LEADERSHIP-CORPORATE GOVERNANCE PRACTICES IN VIETNAM LISTED COMPANIES 34 2.1 Business environment in Vietnam 34 2.1.1 Vietnam Economic Outlook 34 2.1.2 Vietnam Stock Market 39 2.2 Leadership and corporate governance in Vietnamese listed companies 46 2.2.1 Organization type influences the leadership and corporate governance style 46 2.2.2 Vietnamese companies are late developers in the area of leadership development 47 2.2.3 A large majority of Vietnamese companies are either state-owned or familyowned 48 2.2.4 Board of Directors, committees and CEOs issues 50 2.2.5 Ambiguous disclosure practice and weak transparency 52 2.2.6 Weak regulation to protect minority shareholders 53 2.2.7 Weak risk management 54 2.2.8 Remuneration/Compensation 57 2.2.9 Communication (Investor Relation) 59 2.3 Three cases of most attracted Stocks – ABC, FPT and VNM 62 2.3.1 The case of ACB 63 2.3.2 The case of FPT 67 2.3.3 The case of VNM 70 ix 115 Appendix Questionnaire to Sell-side Which position (s) you have in your company? (You can chooseseveral answers) How many members of board are there in your company? Is there any representative of institutional shareholder in your company‟s BoD? Which criteria are used to select the member of BoD?(You could choose more than one answer) - Professional competence - Leadership competence - Large social network - Dependent on vote How is the BoD of your company evaluated? (You couldchoose more than one answer) - Only base on company‟s business result - Internally mutual evaluated, base on various sides - Not evaluated yet How is the structure of remuneration system for the members of BoD? - Fix - Variable - Others: 116 How often is the board meeting in your company? - Once a year - More than once a year - Only when needed What are your viewpoint toward communicating with institutional investors? Do you think your company‟s shareholders understand/not understand the company‟s vision, mission, strategy and plan? Do you think your company‟s employees understand/not understand the company‟s vision, mission, strategyand plan? 10 Are the BoD under big pressure about the company‟s business result from shareholders? 11 Does your company appy any Risk Management System? What is it like? 12 How could you characterize your corporate culture? (You can choosemore than one answer) - Customer oriented - Trust oriented - Business result oriented - Others 117 Appendix4 List of fund management companies in Vietnam th (As of August 30 2012) No Company Name Thép Việt JSC Tín Phát JSC Thái Management JSC VIPC Fund Management JSC AIC Fund Management JSC An Phú Fund Management JSC Global Management JSC Hùng Việt JSC VietnamSynergy Capital Management JSC 10 Lộc Việt JSC 11 RNG Fund Management JSC 12 13 SME Fund Management JSC Sabeco Fund Management JSC Sài Gòn 14 JSC Thăng Long Fund Management 15 JSC 16 Việt Cát JSC 118 17 Việt Tín JSC Việt 18 Management JSC 19 Nhân Việt JSC Sài 20 Gòn Management JSC 21 Thành Việt JSC 22 23 PVFC CapitalManagement JSC Vietnam Management JSC 24 25 26 Anpha Fund Management JSC An Bình JSC An JSC 27 28 Minh Việt Securities Investment Fund Management JSC Phƣơng Management JSC 29 30 FPT Fund Management JSC MB Fund Management JSC Phúc 31 SGI Management JSC Viet Capital Asset Management 32 Joint Stock Company 33 34 Victoria JSC Viet Dragon Fund Management JSC 35 HAPACO Securities Investment Fund Management JSC BIDV PARTNERS 36 Management JSC 37 Vietcombank Management Company Prudential Management Private 38 Company 39 Công ty TNHH MTV Quản lý quỹ Ngân thƣơng Việt Nam IPA Fund 40 Securities Managemen Company 41 Techcom Limited Manulife 42 (Vietnam) Company Limited 43 44 SSI Asset Company Limited Bao Viet Limited Company Dong 45 46 A Limited ACB Company Limited Capital 47 Lotus Investment Company 120 Appendix The birth and growth of institutional investors The concept “Institutional Investor” was assumed to first come out in March, 1967, from a Montreal Stock Exchange Then, it was delivered to Wall Street-ers, fund managers and government officials 56 Institutional investors started to become important participants in the US equity markets in past three decades Over this period, both the number of institutional investors and the amount of funds they manage have grown dramatically 57 In Vietnam, institutional investors, especially foreign ones, joined as dynamic players on securities market since the birth of the two stock exchanges: Ho Chi Minh City Securities Trading Center (now it is Hochiminh Stock Exchange – HSX) and Hanoi Securities Trading Center (now it is Hanoi Stock Exchange – HNX) If foreign institutional investors are mentioned as an integral part of the foreign indirect investment (FII), the first FII wave in Vietnam came more than 10 years ago, in the 1990s when seven large investment funds came to Vietnam, including Vietnam Lazard Fund, Templeton Vietnam, Beta Fund, etc., bringing total capital of nearly US $700 million All of them withdrew during the Asian financial crisis The second wave of FII kicked off in 2002 with Mekong Enterprise Fund, which had the total capital of US $18.5mil Since then, Vietnam has welcomed 10 others with total capital exceeding US $1bil Together with foreign direct investment (FDI), foreign indirect investment (FII) has been making positive contribution to the economic development of Vietnam The investment of big international financial institutions in Vietnam‟s stock market has continuously grown over the past time 56 http://www.institutionalinvestor.com/Article/1356891/HISTORY-The-World-As-We-Found-It.html 57 Murat Binay,“Performance Attribution of US Institutional Investors”, 2005 121 Appendix Definition and classification of institutional investors  Definition of institutional investors “An institutional investor can be defined as a fiduciary entity established to 58 manage client assets with full investment discretion”  Institutional investors classification  Based on legal entity type: Institutions can be classified into five categories: - Banks and bank trust departments: manage personal trust funds and contracted pension assets - Insurance companies: invest their own property-casualty and life insurance funds - Investment companies (mutual fund families): managing money on behalf of fund holders - Investment advisors: are money management firms that exercise investment discretion on behalf of clients A significant portion of pension fund assets are managed by investment advisors In the world, Barclay's Bank PLC, Morgan Stanley Dean Witter and Goldman Sachs & Company are three of the largest Endowments, public and corporate pension funds and philanthropic foundations: comprises university and private endowments, philanthropic foundations, funds that are managed in-house by private and public pension funds, and law firms acting as trustees  Based on trading taste, there are three categories of institutional investors: - “Transient” institutions: exhibit high portfolio turnover and own small stakes in portfolio companies They are attracted to companies with investor relations 58 Murat Binay,“Performance Attribution of US Institutional Investors”, 2005 122 activities geared toward forward-looking information and “news events,” like management forecasts, that constitute trading opportunities for such investors in “Dedicated” institutions: provide stable ownership and take large positions individual firms They appear to be insensitive to the quality of disclosure an “Quasi-indexers”: also trade infrequently but own small stakes (similar to index strategy) They are attracted to companies with “high-quality” annual and quarterly report disclosure 123 ... Nasdaq Stock Market, The Strategy and Practice of Investor Relations, p.112 governance practices and the attraction of institutional investors Therefore, the role of leadership and corporate governance. .. of investment from institutional investors 1.1 An overview of institutional investors 1.1.1 The impact of having institutional investors involved in a company’s ownership Despite the increasing... GOOD LEADERSHIP AND CORPORATE GOVERNANCE PRACTICES IN IMPROVING INSTITUTIONAL INVESTMENT TO LISTED COMPANIES IN VIETNAM STOCK MARKET Nguyen Thi Yen Vy MBA Candidate, 2008 – 2010 School of business