Poor CEO risk management skills were largely blamed for listed firms' losses
According to statistics released by the State Securities Commission (SSC), 16% of listed firmed in Vietnamese stock market suffered from losses in 2011, and 60% of firms see reduction in their revenues, leading to CEOs being criticised seriously by their board of directors and shareholders.
Responsibilities lie with CEOs
Poor CEO risk management skills were largely blamed for the results, and this had meant many listed companies had been forced to borrow capital beyond their asset value, yet yielding much lower results than initially expected.
Some economists explained that some companies had been overly hasty to diversify their investment into non-core businesses, with some investors confused about what the markets the companies were actually concentrating on.
Many CEO decided to use shareholder capital to invest in real estate and securities, but when they couldn’t predict the potential consequences of their decisions, put at risk the company’s human resources and finances.
Prime examples this year included Song Da Urban & Industrial Zone Investment and Development Joint Stock Company (Sudico) which dismissed its CEO at the end of 2011.
In the latest shareholder meeting of Saigon-Hanoi Securities Joint Stock Company (SHS), Chairman of the board, Do Quang Hien officially admitted his poor supervision over the former general director, leading to the company accumulating losses worth hundreds of billion of VND.
La Nga Sugar Cane and Sugar Joint Stock Company dismissed its general director who was also its deputy chairman of the board because he was found to have a fake university certificate. At the end of 2008, this company dismissed one general director because he had caused losses worth more than VND12 billions (USD 574,712) due to speculative stock investment.
Concerned parties had to share responsibility
Almost companies blamed unprofitable business results on their CEOs. However, if the company’s investment in non-traditional markets can make profit which outstrips that made from its main business aspect, the CEO is honoured as a hero for their risky decisions.
Anne Molyneux, international senior consultant in the field of business management said, “Responsibilities cannot be the sole burden of a CEO, we have concerned parties that stand beside him. The investors often entirely trust an auditing company for checking the company’s operation and pointing out violations by the board.”
However, auditors only have the responsibility to read annual reports and check the company’s accounting system.
It’s the management board that has the right to supervise and check the company’s trading activities to detect ineffective projects, unusual transactions, and lack of risk management skill by the CEO and the board.
“In many companies, auditors don’t have proper rights to make decisions or question the board”, Anne said.
Dominic Scriven, General Director of Dragon Capital, said, “When the business status of a company becomes unprofitable, the CEO should resign, but other concerned parties also need to explain what has happened to shareholders.”
“Management boards here operate ineffectively. Each board should establish an auditing committee operating independently to point out shortcomings in CEO’s decisions, with the responsibility to report these failings in time to the board. Vietnamese investors still depend too much on the State to help them supervise and detect problems inside the business. But no management agency can do that task properly for them,” Dominic said.
Bui Hoang Hai, Deputy Manager of the Issuance Management Department under the SSC, emphasised, “We can only manage risks in some conditional business like securities or investment funds.”
“Instructions on risk management given to public enterprises are optional. We are planning to publish a handbook and open training courses on risk management skills,” Hai said.