In early October 2011, the Central Party Committee decided to restructure SOEs or “overhaul” coaches.
Many measures were suggested to restructure SOEs, including: speeding up equitisation, applying the modern corporate governance model, putting SOEs in a more competitive environment, etc. Most of these measures are outside methods.
Let’s imagine an old coach, which runs very slowly while consumes a lot of petrol. One suggests to change the coach’s body shell (equitisation), or let it run with other coaches (competitive market), or control its fuel consumption (corporate governance model).
Each coach has engine, driver and owner. The engine is the management and arrangement of employees and machinery inside SOEs. Equitisation will lead to the change of the owner. This method will result in the change of personnel (the driver and assistant to driver) not help improve the coach’s engine, meaning SOEs’ money-making ability. It is hoped that equitisation would force SOEs to operate transparently and publicly and to place pressure on SOEs’ managers to force them do their job better. However, this is only hope.
Placing SOEs in a competitive environment is considered an initiative at first but perhaps it is not. A group of kids are running. They are healthy already and they have been running everyday. Some kids are forced to join this group. However, these kids are not familiar with running so they are tired very quickly. Whether these kids want to run? SOEs are these kids.
The corporate governance model is inappropriate yet. Vietnam is bedeviled by the kindness of others. Some countries transfer this model to Vietnam free of charge and Vietnam hopes that this model would help SOEs to improve their governance. However, when receives this model, SOEs do not know about the foundation of this model. If they apply this model, it is only the formalism.
The corporate governance model appeared in the late of 80s and developed strongly after 1990, in the countries where have age-old companies, which were established in mid-19th century. In Vietnam, the first SOEs were set up in 1956 and the first private companies were founded in 1990. The corporate governance is like a pair of ice-skates that is only suitable for adults, not for babies. The babies are Vietnamese companies.
Last yer the International Finance Corporation (IFC) and the State Securities Commission (SSC) published a thick book about corporate governance. Briefly, corporate governance is a requirement for long-aged and lucrative enterprises. Applying corporate governance means in which way the driver is requested to report to the owner of a coach and the goal is to prevent the management board from spending wrongly.
In Vietnam, whenever a SOE incurs heavy losses, call to tighten management of SOEs is launched. It is a call of management task. But there is no tool for management. It is like we call a farmer to “hoe up ground” while the farmer has a stick. How he can hoe?
To mend an old and broke coach, it must be repaired inside, at its engine.
Mending inside
Dealing with the problem of quality and effectiveness of SOEs, means how to make SOEs operate at profit. A multi-national company in Vietnam receives capital from Switzerland but it reports its activities to a regional management firm based in Singapore. The company’s director is replaced each three years. The firm in Vietnam earns high profit. Why? Because management is not overlapped like Vietnam’s SOEs and they use a scientific management method.
SOEs work ineffectively because of poor management. They are managed unscientifically. Because of this, coaches do not have speed, fuel and power meters. They run slowly. Their business reports are unclear. Drivers always have good reasons to lay the blame on others. Each coach runs slowly and when they join a group, they still run slowly. Without a common management system, conflict between management boards and managing directors can happen easily.
In this situation, some suggested to fix the entire system, but please don’t! SOEs need to be mended inside each enterprise. “Installing meters” for coaches to control their operation is needed. This is not a new method because it has been applied in many foreign firms.
Scientific management includes three levels, with corporate governance as the third level. If Vietnamese SOEs do not reach the first level, how can it jump to the third level?
TBKTSG
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