Changing mindsets on capital preservation and governance of state enterprises

If there is fear and a lack of courage to accept risk, it is very difficult to develop an enterprise. However, if capital is lost, it might be labeled as "causing loss of state’s assets." What would you say about this?

Actually, the so-called ‘capital preservation’ mechanism today is a flawed mechanism. It is a must to preserve capital, but it cannot be understood in a way that not a single cent of capital can be lost. That way, development is impossible. Capital preservation must be viewed with a long-term vision—five years, 10 years. rather than looking at each year individually.

It is possible to have a loss this year, even a very large one. It is possible to have losses for five consecutive years. But if that is an investment for the future, it must still be accepted. 

Of course, not all state-owned enterprises (SOEs) can or need to do this. But if certain core groups or enterprises are selected and assigned a leading mission, then risky investment behavior and losses over a certain period must be accepted. It is impossible to assign a major mission while at the same time binding them with a “no losses allowed” mechanism.

In the long run, it is these enterprises that can become real bright spots. This is also the most positive, indeed the most revolutionary aspect of the spirit of the newly issued resolution.

What I mean is how to make this work in practice. In the past, we repeatedly said that SOEs cannot grow if they continued operating in the old way. With the old approach, enterprises merely stand still, or even shrink.

Now, if we shift to a new approach, i.e., accepting additional investment, allowing profits and capital to be retained, then in theory, SOEs can become larger enterprises. But a question may arise about whether SOEs growing in this way will conflict with or crowd out private enterprises growing in their own way, and how to avoid that.

One of the solutions in the resolution to strengthen SOE capacity is allowing them to hire CEOs. The question is how to hire foreign CEOs. What is your view?

We talk about hiring CEOs, but without changing leadership and governance methods, it still cannot be done. If an enterprise has decided to adopt governance in line with international practices, then it must pursue this principle. In that case, the role of the Party organization within the enterprise must also be clearly defined and aligned with its proper functions.

Where authority lies, responsibility must lie as well. But in reality today, this is not the case. There are CEOs who, after nearly four years in office, still have to seek approval from the Party Secretary or higher authorities for almost everything they want to do, even for very specific operational decisions.

If change is desired, the mindset must change. This time, I strongly emphasize the need for a mindset shift, and it must be a systemic change, not piecemeal adjustments.

If the give-and-take mentality persists, it cannot be called genuine decentralization.

Some SOE Directors said there are many reasons why they do not dare to act. How should the legal system be adjusted to remove this psychological barrier?

We make the Law on Enterprises, but the mindset is not that of an enterprise. A true enterprise must not be bound by so many barriers. 

We need to design a system that is self-managing, self-monitoring, and self-evaluating, rather than everything having to be concentrated at the State level.

In the context of the State's policy to increase the scale and role of SOEs, how can we avoid the situation that SOEs grow and overshadow the private sector? What is the key  for these two sectors to develop together?

In my opinion, if done correctly, these two sectors will develop together. The issue is that SOEs must choose the right industries and professions. They must go into technology, into new products, into fields that the market needs and the private sector finds difficult or unwilling to enter due to high risks.

SOEs can compete with foreign enterprises, but if they turn to compete directly domestically by using capital and institutional advantages to overshadow private enterprises, then it is not "leading" but dragging the market down.

Therefore, increasing capital should only apply to a number of corporations, general companies, and SOEs in key sectors, not to everyone. 

Tu Giang - Lan Anh