VietNamNet Bridge – Chief Executive Officers (CEOs) of state owned enterprises (SOEs) would be dismissed if their businesses take loss for two consecutive years – this is an important provision of the draft decree on the operation of state owned economic groups and general corporations.

Big capital, big losses

The government has recently focused on amending many mechanisms on the operation of state owned economic groups and general corporations, because of the low business efficiency of the economic sector which is far below the potentials and the resources allocated to it by the state.

By the end of 2012, state owned economic groups and general corporations had had the total assets of VND2,100 trillion, of which fixed assts account for 43.7 percent. SOEs have been operating in all important business fields of the national economy, from oil and gas, telecom, transport, industry and agriculture.

However, the SOEs, which have been allocated big capital, have also taken big losses. By the end of 2012, the SOEs had incurred the loss of VND2,253 billion dong, while the accumulative loss had reached VND 17,730 billion. A lot of them reportedly took loss for two consecutive years, 2011 and 2012.

In an effort to heighten the efficiency of the SOEs’ operation, a new mechanism has been suggested that SOEs’ CEOs would be dismissed from their posts if the enterprises cannot obtain the targeted goals of the ROE (return on equity) for two consecutive years.

The CEOs would also be dismissed if their enterprises witness profitable years alternated with unprofitable years and the CEOs cannot fix the problem.

The old way of thinking?

Commenting about the draft decree, Dr. Le Dang Doanh, a well-known Vietnamese economist, said the suggested provision on dismissing CEOs who cannot bring profits to enterprises, in fact, is not a new provision at all.

The mechanism once existed, but it could not be brought into life due to the lack of necessary conditions.

The problem was that Vietnam lacked the method which could measure the business efficiency of businesses.

The Ministry of Planning and Investment, which is now drafting the new decree, has suggested an independent assessment mechanism which allows to measure the business performance based on the output goals, productivity and cost saving.

As such, the enterprises would be able to hire independent institutions to measure the business effectiveness with reference to the criteria set up by the planning ministry and assess how the CEOs fulfill their tasks.

The idea, according to experts, comes in line with the suggestion raised by OECD, an organization on cooperation for economic development, about the modern corporate governance.

“This is really a better way of approaching the issue than the current mechanism,” Doanh said.

Nevertheless, Dr. Nguyen Dinh Cung, Deputy Head of the Central Institute for Economic Management, believes that the Ministry of Planning and Investment keeps following the old way of thinking when compiling the draft decree.

“Two years of taking loss is more than enough to sap a business. It is too late if the state only thinks of dismissing SOEs after two years of taking loss,” Cung commented.

Dr. Cung said that CEO should be seen as a hired worker, who could be dismissed at any time. He thinks that it’s necessary to apply more severe regulations to find creative and talented managers and refuse incapable ones.

Phuoc Ha