Why Are Corporate Governance And Legal Compliance Especially Important For Businesses?

During the business activities of an enterprise, profit is one of the key motivations for the proliferation and development of the enterprise. However, in order to achieve the profit target, “legal compliance” is always a chief factor a leader of an enterprise must pay much attention to.

It is clear that “laws” have a great influence on the operation as well as business and manufacturing activities of an enterprise. “Laws” such as the establishment of an enterprise, corporate governance, manufacture and circulation of products, provision of service, entry into labour relationship, partnership, and purchase and sale agreements. Therefore, in order to (i) ensure the transparency, fairness, and accountability in the internal relationship (among the owner/members/shareholders of the enterprise and between those people with the managers/directors or with employees) as well as (ii) ensure the compliance of the enterprise with the laws in business while entering into the relationship with customers. For the purpose of maximising profits and achieving a sustainable development, an enterprise needs to pay proper attention to corporate governance and legal compliance.

Corporate governance is a combination of rules and practices that enable the system of corporate governance to ensure accountability, fairness and transparency in the relationship of the company with all relevant parties (including customers, managers, employees, competent authorities and the community). In addition to having an effective system of corporate governance, compliance with the laws to prevent and limit legal risks causing civil, criminal, administrative liabilities are also a concern for any business.

Constructing and developing a plan or a system of internal management as well as developing programs to monitor the legal compliance, which are appropriate to the structure/organisation, culture and demand of the business shall support the business to achieve an effective management of legal risks, and internal or external disputes, while creating the grounds for a stable and sustainable development for an enterprise.

In Vietnam, penalties imposed by the competent authorities to deal with businesses’ violations have pushed the businesses to seek appropriate solutions for legal compliance to reduce or prevent legal risks that may have an adverse influence on their operation, reputation, and image. However, the constant changes in the laws of Vietnam also create many challenges with respect to establishing and maintaining legal compliance for all managers of enterprises in internal management.