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
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