Dear Clients and Partners,
As we move closer to the fiscal year 2026, the landscape of corporate governance in Vietnam is undergoing its most significant transformation in a decade. For years, many enterprises operated under a "best effort" basis regarding governance standards, often viewing compliance as a secondary administrative task. However, the introduction of the mandatory "Comply or Explain" reporting framework, set to take full effect in 2026, marks the end of the "tick-box" era.
At BLaw Vietnam, we have been closely monitoring the State Securities Commission (SSC) and the Ministry of Finance's move toward international OECD standards. This new regime doesn't just ask if you followed the rules; it demands to know why you didn't, and how your alternative approach protects your shareholders.
In this article, we will explore the nuances of this shift, the specific reporting requirements your business will face, and how you can turn this regulatory hurdle into a competitive advantage for investor relations.
Understanding the "Comply or Explain" Philosophy
The "Comply or Explain" rule is a regulatory approach that recognizes that one size does not fit all in the corporate world. Instead of a rigid, "one-rule-for-everyone" mandate, the government provides a Code of Corporate Governance. Companies are expected to comply with these provisions. However, if a company feels that a specific provision is not suitable for its current stage of growth, industry, or internal structure, it can choose not to comply: provided it offers a transparent, clear, and persuasive explanation for that departure.
In the past, many Vietnamese firms treated governance reports as a formality. By 2026, the "Explanation" part of the report will become the primary focus of regulators and institutional investors alike.
Why the Shift is Happening Now
Vietnam’s capital markets are maturing. To attract high-quality Foreign Direct Investment (FDI) and to see our local exchanges upgraded to "Emerging Market" status, transparency is non-negotiable. The 2026 deadline aligns with the government’s broader strategy to align local business practices with global standards, such as those seen in the UK, Singapore, and Australia.
Through this transition, the burden of proof shifts from the regulator to the corporation. You are now responsible for proving that your governance structure: even if it deviates from the standard: is robust and prevents the misuse of corporate assets.
The Three Pillars of 2026 Reporting
To prepare for the 2026 reporting cycle, your management and board of directors must understand the three core elements that regulators will be looking for: Transparency, Clarity, and Meaningful Rationales.
1. Absolute Transparency regarding Departures
The days of hiding non-compliance in the footnotes are over. Under the "Comply or Explain" rule, companies must explicitly list every instance where they have deviated from the Governance Code. This includes board composition, the independence of directors, and the frequency of audit committee meetings.
2. Clarity in Communication
Your reports must be understandable to a third-party reader. You cannot simply state, "We did not comply because it was not practical." You must name the specific provision, describe what you did instead, and explain how that alternative serves the company's best interests. This level of clarity is designed to prevent "boilerplate" language: generic, copy-pasted sentences that provide no real information.
3. Meaningful and Persuasive Explanations
This is the most challenging part of the 2026 requirement. A "meaningful" explanation sets the context, outlines the risks of the departure, and describes the mitigating actions taken. For example, if your Board Chair is also the CEO (a common departure from independence standards), you must explain why this dual role is beneficial for your current strategic phase and what checks and balances are in place to prevent a concentration of power.
Critical Areas Under the Microscope in 2026
Based on the latest guidance and our experience at BLaw Vietnam, we anticipate that regulators will focus heavily on several key areas during the first wave of 2026 audits:
- Board Independence: Are at least one-third of your board members truly independent? If not, how are you ensuring that minority shareholder interests are protected?
- Audit Committee Standards: Companies are now expected to adhere to specific minimum standards for audit oversight. Any deviation here will be flagged as a high-risk area for financial integrity.
- ESG Integration: For the first time, "Comply or Explain" will likely extend into Environmental, Social, and Governance (ESG) disclosures. Businesses will need to report on their carbon footprint or labor practices or explain why they lack the data to do so.
- Beneficial Ownership: Closely linked to our recent discussions on Beneficial Owner record-keeping, the governance reports must show a clear line of sight to who truly controls the entity.
The Risks of "Boilerplate" Explanations
One of the biggest mistakes a business can make in 2026 is treating the "Explain" portion as a nuisance. Vague or generic explanations are now being viewed by the SSC as a red flag for poor governance.
If your explanation is deemed "unpersuasive," it can lead to:
- Lower ESG and Governance Ratings: This directly impacts your ability to secure low-interest financing from international banks.
- Increased Regulatory Scrutiny: An inadequate report often triggers a more detailed audit by state authorities.
- Shareholder Activism: Investors are becoming more vocal in Vietnam. A lack of transparency provides the perfect ammunition for disgruntled minority shareholders to challenge board decisions.
How Your Business Can Prepare for 2026
Preparation should not start in December 2025. It needs to start now. At BLaw Vietnam, we recommend a three-step approach to ensure you are ready for the 2026 shift:
Step 1: Conduct a Governance Gap Analysis
Evaluate your current practices against the latest Code of Corporate Governance. Identify every area where you are currently non-compliant. Don't be afraid of these gaps; the goal is to identify them so they can be managed.
Step 2: Formalize the "Alternative" Frameworks
For every area of non-compliance, document the internal controls you have in place. If you are departing from a rule, what is the "substance" of your governance? As we discussed in our recent piece on substance over form in labor rules, the Vietnamese government is increasingly looking at the reality of your operations, not just the paperwork.
Step 3: Train Your Reporting Team
The legal and financial teams responsible for drafting your annual report need to move away from "legal-speak" and toward "strategic narrative." They must be able to write explanations that are both legally sound and investor-friendly.
BLaw Vietnam: Your Partner in Governance Excellence
Navigating the complexities of the 2026 "Comply or Explain" rule requires a blend of legal expertise and strategic insight. At BLaw Vietnam, we don't just help you check boxes; we help you build a governance framework that drives business value.
Our team, led by experts like Long Hoang and Ha Tran, specializes in bridging the gap between local Vietnamese regulations and international expectations. We provide:
- Comprehensive Governance Audits: Identifying your compliance gaps before the regulators do.
- Narrative Drafting: Helping your team craft persuasive, evidence-based "Explanations" for departures from the Code.
- Director Training: Educating your board on their explicit responsibilities under the new regime.
In addition to our governance advisory, we continue to support our clients through the July 2026 Tax Countdown and the complexities of IRC/ERC simplification.
Conclusion
The 2026 "Comply or Explain" rule is more than a change in paperwork; it is a shift in the corporate culture of Vietnam. It demands higher levels of accountability and rewards those who are brave enough to be transparent about their business models. By embracing this change early, your business can enhance its reputation, attract better investment, and streamline its operations for long-term success.
Through the above article, we hope you have a clearer vision of the road ahead. The transition may seem daunting, but with the right legal partner, it is an opportunity to shine in an increasingly competitive market.
If you are concerned about your current governance reporting or want to ensure your 2026 disclosures are bulletproof, we invite you to reach out to our team at BLaw Vietnam. Let us help you navigate the future of Vietnamese corporate law with confidence and precision.
Contact us today to schedule a consultation with our governance specialists.