Dear Clients and Partners,
If you are operating a business in Vietnam in 2026, the regulatory landscape probably feels like it is moving at light speed. Between the updated disclosure rules and the push for ESG (Environmental, Social, and Governance) transparency, there is a lot to keep track of.
One phrase you’ve likely heard echoing in boardrooms from Hanoi to Ho Chi Minh City is "Comply or Explain." It sounds simple, but for many businesses, it represents a fundamental shift in how corporate governance Vietnam is handled.
At BLaw Vietnam, we believe that staying compliant shouldn't be a headache. We’ve broken down this essential rule into a quick, three-minute guide to help you protect your business and enhance your reputation in the market.
What Exactly is 'Comply or Explain'?
The "Comply or Explain" principle is a regulatory approach used in corporate governance. Instead of a rigid "one-size-fits-all" law that forces every company to act exactly the same, this rule provides a set of best-practice standards.
Your business has two choices:
- Comply: Follow the specific governance recommendations (such as board diversity or independent audit committees).
- Explain: If you choose not to follow a recommendation, you must provide a clear, detailed, and transparent explanation as to why you haven't and what alternative measures you are taking to ensure good governance.
In the context of 2026, this isn't just a suggestion; it’s becoming the gold standard for how the State Securities Commission (SSC) and international investors evaluate Vietnamese enterprises.
Why Vietnam is Adopting This Now
Vietnam is no longer just a manufacturing hub; it is a sophisticated destination for high-value foreign direct investment (FDI). To keep that momentum going, the government is aligning our local standards with global benchmarks.
By moving toward a "Comply or Explain" model, Vietnam is signaling to the world that our market is mature, transparent, and investor-friendly. For your business, this means that having a "check-the-box" mentality is no longer enough. Investors want to see the logic behind your decisions.
If you are just starting your journey, you might find our guide on starting your FDI business helpful to set a strong foundation.
The 'Comply' Side: What is Expected?
Under the current 2026 guidelines for corporate governance Vietnam, "complying" usually involves adhering to several key pillars:
- Board Independence: Ensuring that at least one-third of your board consists of independent directors who can provide unbiased oversight.
- Separation of Roles: Clearly defining the roles of the Chairman and the CEO to prevent a concentration of power.
- Audit Committees: Establishing a functional committee to oversee financial reporting and internal controls.
- Risk Management: Implementing a framework that identifies and mitigates potential threats to the business.
- Sustainable Practices: Disclosing how your company impacts the environment and society.
When you comply, you streamline your path to capital. Banks and private equity firms are increasingly looking at these metrics before approving loans or investments.
The 'Explain' Side: It’s Not an Escape Clause
Many business owners mistakenly think "Explain" is a "Get Out of Jail Free" card. It isn't.
An "explanation" must be meaningful. Simply saying "we are too small" or "we aren't ready yet" won't satisfy regulators or shareholders. A high-quality explanation should:
- State the specific provision that isn't being followed.
- Explain the reasons for the departure (e.g., specific industry challenges or a transitional phase).
- Describe the alternative practice that achieves the same objective.
- Provide a timeline for when the company intends to comply in the future.
This transparency actually builds trust. It shows that you understand the rules and have a logical reason for your current strategy.
How This Rule Enhances Your Business Value
You might be wondering, "Why should I bother with all this extra paperwork?" The answer lies in your bottom line. Proper corporate governance is a value-driver, not just a cost center.
- Attract Top Talent: The best executives want to work for companies that are transparent and well-governed.
- Lower Cost of Debt: Lenders view well-governed firms as lower risk, often leading to better interest rates.
- Market Resilience: Companies with strong internal controls are better equipped to handle economic downturns.
- Enhanced Reputation: In a competitive market, being known as a "clean" and transparent company is a massive competitive advantage.
3 Steps to Master 'Comply or Explain' in 2026
To help you optimize your approach, we recommend this three-step cycle:
1. The Governance Audit
Conduct a thorough review of your current board structure and internal policies. Compare them against the latest Vietnam Corporate Governance Code of Best Practices. Don't wait for a regulatory audit to find the gaps.
2. Strategic Decision Making
Determine which rules you can easily comply with and which ones would genuinely hinder your operations if implemented today. For the latter, begin drafting your "Explanation" with the help of legal experts to ensure it meets regulatory standards.
3. Transparent Disclosure
Ensure your annual reports and website disclosures are clear and accessible. Your legal-blog or investor relations page should reflect your commitment to these standards.
Common Pitfalls to Avoid
Even with the best intentions, businesses often stumble. Here are a few things to watch out for:
- Boilerplate Explanations: Using the exact same text year after year without updates will raise red flags.
- Ignoring ESG: In 2026, governance is inextricably linked to sustainability. If you ignore the 'E' and 'S', your 'G' will be seen as incomplete.
- Lack of Evidence: If you say you have an internal audit process, make sure there is a paper trail to prove it. As we've noted in our previous briefings, Vietnam's regulators are increasingly focused on operational proof, not just policy statements.
In Addition to Compliance…
While the "Comply or Explain" rule is a major focus, it is just one piece of the puzzle. Managing a successful business in Vietnam requires a holistic approach to our services, from tax optimization to labor relations.
Through the above sections, we hope you see that this rule is designed to be flexible. It respects the unique nature of your business while holding you to a standard of excellence that the global market expects.
How BLaw Vietnam Can Help
Navigating the complexities of corporate governance Vietnam doesn't have to be a solo mission. Our team of highly qualified legal professionals has a proven track record of helping both domestic firms and international investors optimize their governance frameworks.
Whether you need a full governance audit or assistance in drafting robust "explanations" for the SSC, we are here to provide actionable, logical, and expert advice. We are thrilled to see the direction the Vietnamese market is taking and are excited to help your business lead the way.
For more information or to discuss your specific needs, please feel free to browse our FAQ or visit our contact page to schedule a consultation.
We look forward to partnering with you to enhance your business's integrity and success in 2026.
Sincerely,
The BLaw Vietnam Team
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