Mr. Truong Gia Binh’s decision to build a school for 1,000 children orphaned by the Covid pandemic is very humanistic. However, from a corporate governance perspective, this decision shows that the relationship between owner/leader and shareholders in Vietnamese listed companies is still a long way from meeting international standards.
I will probably get criticized—when “my mouth itches” to write this post. I must affirm first that I fully support Mr. Truong Gia Binh from the perspective of social contribution. As an entrepreneur, I always carry out the social responsibilities that every business and entrepreneur needs and wants to do.
I also always idolize Mr. Binh and the sisters and brothers at FPT for building a company with a very good reputation and culture. I always wish and learn so that my company will have a culture close to FPT’s (equal, democratic, open). (Many of my associates who came from FPT know this very well).
Just the other day, answering a press interview, Mr. Binh said that the idea of establishing FPT’s cadet school to teach orphans was formed just 24 hours earlier. That is a wonderful, inspiring story, a good-hearted effort by Mr. Truong Gia Binh (and FPT). Just imagining 1,000 unfortunate orphans who lost their families in the pandemic receiving a long-term commitment from a major corporation is enough to warm people’s hearts.
But it is not without points that make me uneasy. What I ponder is the so-called corporate governance issue. Because from the perspective of international standards, Mr. Truong Gia Binh’s decision regarding governance is not really quite sound.
Two things need to be established:
- First, FPT is an enterprise.
- Second, FPT is a public enterprise with many shareholders, including foreign institutional investors, rather than a family company or a single-member company.
Mr. Truong Gia Binh is the founder of FPT, but currently owns only 6.11% of FPT’s shares (according to CafeF).
The ultimate goal of a business is to generate profit, not to do charity.
So when a public enterprise wants to do charity, they must establish a separate charity fund/budget. All activities and budget of this fund need the approval of the General Meeting of Shareholders and/or the Board of Directors (BOD). Because every dong the business spends on charitable activities is taken from the annual profit of the business and affects the interests of shareholders.
Roughly calculated, FPT’s valuation at this time is calculated by multiplying annual profit by 22.16 times (according to CafeF). If indeed as Mr. Binh estimated, the annual cost to raise 1,000 orphans is 80 billion, then it means that each year, Mr. Binh’s decision causes FPT, a public company, to lose 1,772.8 billion in value. Right now, the stock price has not shown this, but next year when the market forgets this charity story, 80 billion will be missing from the profit and loss report. (Actually, since the announcement, FPT stock has dropped, going up for 1 day from September 17, 2021, and falling afterward).
If this had been approved by FPT’s BOD, it would be great; that would be an extremely good thing not only for the 1,000 orphans sponsored by them, but also for society.
But I dare not believe that in the 24 hours from when the idea popped up to when it was announced to the press, Mr. Truong Gia Binh had time to convene a BOD meeting and receive BOD approval for this decision, unless FPT’s BOD already had a budget for that called the corporate social responsibility fund. If this was an abrupt decision, not passed through the BOD, it would easily create an unfavorable image regarding FPT’s governance story.
(And actually, this should be the decision of the Chief Executive Officer (CEO), rather than the decision of the Chairman of the BOD. However, the BOD can delegate the Chairman of the BOD to decide on this (if any). Otherwise, it is another case of abuse of power in the name of the founder. My apologies to Mr. Binh ?)
So no matter how meaningful this decision of Mr. Truong Gia Binh is to society, no matter how positive FPT’s image is thanks to this decision, there is still an instability when international modern governance principles are not respected here.
Thinking of that, and then thinking further in Vietnam, there are quite a few CEOs and founding Chairmen acting like that. That is truly not a good precedent for the Vietnamese financial market, nor a good habit that a large enterprise should have, because in principle, shareholders can request the Chairman of the BOD to explain this decision, and even sue, in case they believe this causes loss of company assets.
So from a corporate governance perspective, Mr. Truong Gia Binh’s decision was not a wise decision.
World billionaires do a lot of charity, but they mostly do charity in a personal capacity rather than under the name of the company they founded; that is very distinct. If their companies have charitable activities, I believe those activities have been permitted by the BOD, whereas when doing charity in a personal capacity, they can use the stock they own to donate.
Billionaire Bill Gates used his personal assets to set up the Bill & Melinda Gates Foundation. Mr. Warren Buffett contributed $2.9 billion to charities using the very Berkshire stock he personally owned in 2020. Indian billionaire Azim Premji in 2019 pledged to transfer $7.5 billion worth of stock he owned to the foundation he established.
I do not doubt the benevolence of Mr. Truong Gia Binh—the teacher, brother, and idol of so many young leaders of Vietnamese enterprises, the founder and leader of FPT for the past 33 years. But if Mr. Binh learns the way billionaires around the world have been doing it, that would be the most complete.
With 55 million shares of FPT, Mr. Binh currently holds assets worth over 5,100 billion. Mr. Binh could sell a portion of the shares he owns, while calling on other FPT shareholders to do the same, and then put it into a trust fund dedicated to taking care of those 1,000 orphans. If carried out this way, surely no one could find fault.
As for representing FPT, slowing down for a period to get BOD approval is what needs to be done to demonstrate respect for shareholders and global corporate governance standards.
This way of doing things is not only transparent, but also avoids many corporate leaders using public money to fulfill their charitable commitments or “impulsive” moments.
I share this not to criticize my idol, but to contribute another perspective on governance and management. And especially to warn leaders to avoid doing charity and announcing “non-profit” activities in the name of the company, something happening at many public enterprises in Vietnam.
Nguyen Quoc Toan
