When connections backfire: Rethinking board networks and ESG in Vietnam

When connections backfire: Rethinking board networks and ESG in Vietnam

As Vietnam accelerates its net-zero ambitions, new research reveals that corporate board connections may hinder - rather than help - ESG outcomes.

In the global race toward sustainability, corporate boards are expected to be the compass guiding firms through the ESG (Environmental, Social, and Governance) landscape. Vietnam is no exception. With growing regulatory interest and investor demand for ESG transparency, the composition and behaviour of corporate boards are coming under closer scrutiny.

But new research published in Finance Research Letters, with contributions from RMIT Vietnam, raises a critical red flag: directors with expansive boardroom networks, once seen as sources of strength and expertise, may in fact fuel ESG controversies. The study, titled “Do board networks fuel ESG controversies?”, analysed over 15,000 US firm-year observations from 2004 to 2013 and found a consistent pattern: firms with more connected boards experience significantly more ESG controversies, such as environmental violations, labour disputes, and governance scandals.

“The findings challenge the long-held belief that more connections mean better governance,” says Dr Irfan Haider Shakri, lead author and Finance lecturer at RMIT Vietnam. “In reality, over-connected boards can become echo chambers where critical oversight is weakened, and directors are stretched too thin.”

Implications for Vietnam’s ESG journey 

Vietnam’s growing integration into global supply chains and its 2050 net-zero commitment mean that ESG practices are no longer optional, they are a prerequisite for access to capital and markets. Yet, Vietnamese firms often see board interlocks as a sign of influence and prestige.

“This research should be a wake-up call,” says Dr Pham Nguyen Anh Huy, senior lecturer in Finance at RMIT Vietnam. “Vietnamese companies must balance board connectivity with independence and engagement. Too many cross-board seats can reduce the ability of directors to challenge poor ESG practices, especially when reputational risks are high.”

Dr Pham Nguyen Anh Huy (left) and Dr Irfan Haider Shakri (right) Dr Pham Nguyen Anh Huy (left) and Dr Irfan Haider Shakri (right)

Indeed, the study suggests that these ‘busy’ directors may prioritise loyalty and image management over challenging unethical behaviour, particularly in markets where stakeholder pressure and regulatory enforcement are still maturing.

Policy gaps and practical reforms

While countries like the US and those in the EU are tightening disclosure rules and limiting over-boarding, Vietnam still lacks clear regulations on board interlocks and ESG governance quality.

The researchers offer key recommendations that could guide local reform: (1) mandate public disclosure of board interlocks and director networks, (2) set a cap on the number of boards a director can serve on to ensure sufficient oversight capacity and (3) shift the focus from board composition alone to board behaviour—asking not just who is on the board, but how they engage.  

These reforms could potentially strengthen trust in Vietnamese firms as they compete in ESG-conscious global markets and navigate carbon transition risks.

Certain approaches should be considered to improve the quality of ESG governance. (Photo: Unsplash) Certain approaches should be considered to improve the quality of ESG governance. (Photo: Unsplash)

The road ahead

Vietnam’s green transition is gathering pace, with government initiatives promoting sustainable finance and ESG integration across industries. Yet, if boardroom dynamics are not addressed, even the most well-intentioned ESG strategies risk being undermined from within.

“Board composition must evolve alongside corporate ESG commitments,” says Dr Huy. “Vietnamese firms need more than symbolic compliance - they need engaged governance.”

As Vietnam eyes sustainable development, the quality, not just the quantity, of board connections may define whether ESG ambitions become ESG achievements. 

02 July 2025

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