In general, SOEs are said to operate ineffectively and many of them caused big losses and committed corruption. But there are also many SOEs that are the pride of the country, such as Vinamilk, Sabeco, Saigontourist... These SOEs are famous Vietnamese brands.

The initial cause for the failure of SOEs is improper investment, investment in non-core areas and over-investment beyond financial risk management.

But looking deeper inside, the main cause leading to the failure of many state-owned enterprises is the mechanism and personnel management of these SOEs.

Investment by SOEs is based on subjective thinking, without paying attention to the flexibility of investment and the development of the global value chain, risk diversification. The investment projects with large capital often target fixed assets and real estate, so they quickly become a burden and debt for SOEs as the market goes down. 

Vinashin is a typical example. Some wasteful projects worth tens of trillions of VND of the Ministry of Industry and Trade (MOIT) were the result of a wrong investment policy. These SOEs invested in the risky segments that foreign investors did not dare to venture because the fixed asset investment index of these projects was too high and the risk of becoming a debtor exists when the market is volatile. Focusing on asset and technology purchasing benefit the buyer and seller, but it is harmful to the national interest.

Filling holes, renovation of SOE management 

Firstly, the mechanism to manage and supervise SOEs does not meet the requirements of development. We do not have a good approach between corporate governance and state management. The operation of SOEs does not go in accordance with the basic principles of corporate governance to meet the requirements of the market.

Secondly, the current regulations have not clearly assigned responsibilities, powers, obligations and rights of the individual and the group, as well as the responsibility of the governing body. Many SOE leaders have authority to make decisions at high risk without having to take commensurate responsibility.

To deal with the above problems, we need:

Firstly, SOEs must ensure these principles: transparency, efficiency, business risk prevention, prevention of the risk of abuse of power of officials. Vietnam’s SOE governance needs to adhere strictly to these guidelines.

Although most of the members of the board of members are appointed by the governing body to represent state capital. The board of members operates under the principle of collective leadership. But in fact, the relations between the superior and subordinate are formed between the members and the chairman of the board. The current regulations lack the mechanism to control power of the chairman of the board. The independence among elements is not clear. Sometimes it is difficult to discern between the decision of the board chairman individually and the decision signed by the chairman on behalf of the whole board.

Secondly, the separation of roles between the board members and boards of directors is not in line with governance practices. This is the reason it is difficult to hire executives who are foreigners.

Thirdly, the regulations to assess leaders of SOEs are not close to the indicators of the performance of SOEs. Once the assessment is carried out by officials of SOEs or officials of the governing body, the transparency is not high.

The current inspection and auditing mechanism are mainly in compliance with the law only, not focusing on efficiency and periodic performance of business indicators. The situation in which responsibility belongs to the whole team and the achievements belong to the top official is very common. The officials who make wrong decisions that cause losses don’t have to take responsibility for their decision. Unlike private enterprises, many candidates did not dare take leadership because of pressure and responsibility; in SOEs, everyone wants to be leaders because leaders at SOEs enjoy a lot of benefits but very little responsibility.

Fourthly, the board of members of SOEs lack independent experts, and financial and legal experts who have high risk management capacity. Therefore, risk management capability for the medium and long term investment projects is very limited.

Fifthly, when we highlight the role of the ministries for evaluation and approval of policies, the risk of failure is clear.

The government is developing a scheme to manage SOEs towards the establishment of a committee managing state capital management and eliminating a governing body mechanism. This policy is right and appropriate in the current context. Bellows are some solutions:

Firstly, the management model must be renovated. The job description, powers, responsibilities and interests of the state capital management committee, the representatives of State capital, each member of the board of members, the chairman of the board of members, the general director, the financial director, the human resources director must be specified. The role of orientation, role of operation and the role of control must be clarified. It is also needed to separate the role of orientation and the role of control from the role of management, creating prerequisites for hiring executive managers.

Secondly, criticism and the role of experts must be strengthened while a mechanism to control the power of the operation of the board of members should be set. Besides the activities of the supervisory board, there should be periodic evaluation activities of an independent audit committee. It is necessary to standardize the approval process for investment projects with large capital to strengthen counter-measures.

Thirdly, renovating the mechanism of setting annual business plans, associated with the application of KPIs, accountability mechanisms and the appointment and dismissal mechanism based on the results of the implementation of the set plan. We need to bravely eliminate the management mechanism of civil servants for leaders of SOEs; apply the remuneration mechanisms based on business result with business leaders instead of paying fixed salary based on the current regulations. But the payment must be under a roadmap to link individual responsibility to medium-term financial risks.

Fourthly, issuing standards on the qualification of officials and managers of SOEs is a must. It is not good to rotate officials from the governing body to SOEs.

Corporate governance is essentially different from state management. A business leader has to meet the standard required to each position.

Nguyen Hoa