Corporate Governance of Listed Companies in Vietnam

Bond Law Review
Volume 20 | Issue 2 Article 6
12-1-2008
Corporate Governance of Listed Companies in Vietnam

Toan Le Minh Gordon Walker
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Le Minh, Toan and Walker, Gordon (2008) "Corporate Governance of Listed Companies in Vietnam," Bond Law Review: Vol. 20: Iss. 2, Article 6. Available at: http://epublications.bond.edu.au/blr/vol20/iss2/6
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Corporate Governance of Listed Companies in Vietnam

Abstract
The framework for corporate governance in Vietnam, especially for listed companies, is in the early stages of development. This study examines the corporate governance of Vietnamese listed companies. Some case studies of the corporate governance of listed companies are provided. The study concludes that listed companies need to improve their corporate governance to ensure market transparency, investor protection and effective management in order to ensure better development of the securities market.
This article is available in Bond Law Review: http://epublications.bond.edu.au/blr/vol20/iss2/6
Le Minh and Walker: Corporate Governance of Listed Companies in Vietnam
CORPORATEGOVERNANCEOFLISTEDCOMPANIESIN VIETNAM
TOANLEMINH*ANDGORDONWALKER**
Abstract: TheframeworkforcorporategovernanceinVietnam,especiallyforlistedcompanies,isinthe early stages of development. This study examines the corporate governance of Vietnamese listed companies. Some case studies of the corporate governance of listed companies are provided. The study concludes that listed companies need to improve their corporate governancetoensuremarkettransparency,investorprotectionandeffectivemanagementin ordertoensurebetterdevelopmentofthesecuritiesmarket.
Introduction
Corporate governance refers to the structures and processes for the direction and control of companies. It defines the role of the management, board of directors, controlling shareholders, minority shareholders and other stakeholders. Effective corporate governance enhances the performance of companies, increases access to outsidecapitalandcontributestosustainableeconomicdevelopment.1 Foremergingmarketcountries,theenhancementofcorporategovernancecanservea number of important public policy objectives. Good corporate governance reduces emergingmarketvulnerabilitytofinancialcrises,reinforcespropertyrights,reduces transactioncostsandthecostofcapital,andleadstocapitalmarketdevelopment.In contrast, weak corporate governance reduces investor confidence and discourages outside investment. Also, as pension funds continue to invest more in equity markets, good corporate governance is crucial for preserving retirement savings.2 Overrecentyears,theimportanceofcorporategovernancehasbeenhighlightedby
* ToanLeMinh(PhDstudent);**GordonWalker(Professor),LaTrobeUniversity,Schoolof Law. 1 Seefurther,WorldBankRepresentativeinVietnam(WBVN),CorporateGovernanceCountry Assessment:Vietnam(2006)15;OrganisationforEconomicCooperationandDevelopment (OECD),TheOECDPrinciplesofCorporateGovernance(2004)914;Organisationfor EconomicCooperationandDevelopment(OECD),WhitePaperonCorporateGovernance inAsia(2003)510. 2 Ibid.
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Bond Law Review, Vol. 20 [2008], Iss. 2, Art. 6
academic research which links good corporate governance practices to significant increasesinafirmsEVA(economicvalueadded),aswellashigherproductivityand alowerriskofsystemicfinancialfailures.3 TheframeworkforcorporategovernanceinVietnam,especiallyforlistedcompanies, isintheearlystagesofdevelopment.Ahighdegreeofinformalitystillexistsinthe corporate sector. The unofficial securities market is significantly larger than the formalmarketandthereremainsalargepresenceofstateownershipinenterprises. Institutions responsible for the regulation, enforcement and development of the capitalmarkethavelimitedcapacityandresources.Amongotherkeyissues:investor protectionisinadequate,relatedpartytransactionsarepervasive,compliancewithaccounting standardsisinsufficientanddisclosuresofqualityinformationarelimited. This study examines the corporate governance of listed companies. This study proceeds in three parts. Part I provides a background to the corporate governance. Part II outlines the current legal framework relating to the corporate governance of listed companies. Part III assesses the corporate governance of listed companies in thelightoftheimplementationprinciplesidentifiedbyOECDinrelationtoinvestor protection, relatedparty transactions, accounting standards and disclosure of information.Some case studies of thecorporate governance of listed companies are provided.Thestudyconcludesthatlistedcompaniesneedtoimprovetheircorporate governance to ensure market transparency, investor protection and effective managementinordertoensurebetterdevelopmentofthesecuritiesmarket.
LegalBackgroundtoCorporateGovernance
1.ThedevelopmentofalegalframeworkforcorporategovernanceinVietnam Under the Doi Moi policy, a multisectored market economy (nen kinh te thi truong nhieu thanh phan) and business freedom rights (quyen tu do kinh doanh) were two objectives in the Constitution 1992.4A variety of laws were promulgated after 1986 suchastheLawonForeignDirectInvestmentinVietnam1987(LuatDautunuocngoaitai Vietnam), the Company Law 1990 (Luat cong ty), the Private Enterprise Law 1990 (Luat
3 Seefurthergenerally,ThomasClarke(ed),TheoriesofCorporateGovernance:thePhilosophical FoundationofCorporateGovernance(2004);JeffreyNGordonandMarkJRoe(eds), CorvergenceandPersistenceinCorporateGovernance(2004);JeanJacquesduPlessis,James McConvillandMirkoBagaric,PrinciplesofContemporaryCorporateGovernance(2005);John Farrar,CorporateGovernance:Theories,Principles,andPractice(2ed,2005);JohnFarrar(ed), ComparativeCorporateGovernance(2003);JohnFarrar,CorporateGovernanceinAustraliaand NewZealand(2001);LowCheeKeong(ed),CorporateGovernance:AnAsiaPacificPerspective (2002). 4 SeeArticles15,16,21,25,27,and58oftheConstitution1992.
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doanh nghiep tu nhan), the Law on Encouragement of Domestic Investment 1994 (Luat Khuyen khich Dau tu trong nuoc), the StateOwned Enterprises Law 1996 (Luat doanh nghiepNhanuoc) and the LawonCooperatives1996 (LuatHoptacxa). These provided domestic and foreign investors with the right to operate a business under various forms such as limited liability companies, shareholding companies, proprietors, privateenterprises,partnerships,cooperatives,andjointventurecompanies.5 In 1999, the Enterprises Law 1999 (Luat doanh nghiep) was enacted to replace the Company Law 1990 and the Private Enterprise Law 1990. Relying on the previous company statutes and increasingly borrowing corporate legal rules from Western jurisdictions, especially AngloAmerican law, the EnterprisesLaw1999 provided for the formation of various types of business associations. Besides the two company types provided for by the Company Law1990 (the LLC and the SC), the Enterprises Law1999providedfortwoadditionalbusinessassociationforms:(i)oneorganization owned LLCs (cong ty trach nhiem huu han mot thanh vien la to chuc) and (ii) partnerships(congtyhopdanh).IncontrasttotheCompanyLaw1990,thecompulsory governance structure of a multiple shareholder LLC was required to have: (i) a memberscouncil(MCHoidongthanhvien)consistingofallcompanyshareholders; (ii)achairpersonoftheMC(ChutichHoidongthanhvien);(iii)themanagingdirector (GiamdocorTonggiamdoc)(MD);andaboardofsupervisors(Bankiemsoat)(where therearemorethan11shareholders).6ThisLawprovidedthataSCmusthave(i)a shareholders meeting (Daihoidongcodong) which comprised all shareholders who have voting rights; (ii) a board of management (Hoi dong quan tri) led by a chairperson; (iii) a CEO(Giamdoc or Tonggiamdoc); and (iv) a board of supervisors
5 TheCompanyLaw1990providedfortwopopularentities:limitedliabilitycompanies(LLC) andshareholdingcompanies(SC).ThegovernancestructureofaSCconsistedofa shareholdersmeeting(daihoidongcodong),aboardofmanagement(hoidongquantri),and twosupervisors(kiemsoatvien).ThemanagementboardofaSCselectedthemanaging director(giamdocortonggiamdoc)ofthecompany.AccordingtothisLaw,anLLCwith morethan11shareholdersmusthaveaninternalgovernancestructurelikeaSC.Forother LLCs,governancestructuresweremuchsimpler,requiringonlyamanagingdirectorwith neitherashareholdersmeetingnoramanagementboard.AlthoughtheCompanyLaw1990 hadshortcomings(forexample,anirrationalfocusonadministration,alackofbusiness freedom,andpoorcorporategovernancerules),itwassignificantasitsawthere emergenceofcompanylawandbusinessfreedominVietnamafteralongperiodofits absence.Seefurther,Articles37,38,and40oftheCompanyLaw1990;CentralInstitutefor EconomicManagement(CIEM),DanhgiaLuatCongTy,LuatDoanhNghiepTuNhan,va Nghidinh66/HDBT(Transl.AssessmentreviewoftheCompanyLaw,PrivateEnterprise Law,andDecree66/HDBT)(CentralInstituteforEconomicManagement(CIEM),1998)16 28. 6 SeeArticle34,theEnterprisesLaw1999.
(Ban kiem soat) (where there are more than 11 shareholders). 7 In this governance structure, the shareholders meeting is the supreme decisionmaking body of the company and elects the board of management and the board of supervisors. There were,however,certainproblemswiththecorporategovernanceregimeprovidedby thisLaw,suchasinflexiblecorporategovernancestructures,unclearfunctionsofthe management board and the managing directors and poor investor protections mechanisms.8Accordingly, the EnterprisesLaw1999 was replaced by EnterprisesLaw 2005 after just six years. The Enterprises Law 2005 is the most important corporate legislation in Vietnam and it forms the foundation for the Vietnamese corporate governancesystem.9 According to the Enterprises Law 2005, a company can take one of the following forms:

Singlememberlimitedliabilitycompany(Congtytrachnhiemhuuhanmotthanh vienSLLC); Multiplememberlimitedliabilitycompanywithtwoormoremembers(Congty trachnhiemhuuhanhaithanhvientrolenMLLC); Shareholdingcompany(CongtycophanSC);and Partnership(Congtyhopdanh).
Ingeneral,anLLCundertheEnterprisesLaw2005issimilartoaproprietarycompany under the CorporationsAct2001(Cth) of Australia and the GMbH of Germany. It is alsosimilartoaclosecorporationinUScompanylawandaprivatecompanyinthe law of the UK.10Under the EnterprisesLaw2005, a MLLC is a business organisation
7 Ibid,Articles6985. 8 Seefurther,CentralInstituteforEconomicManagement(CIEM),GTZandUNDPVietnam, Thoidiemchosuthaydoi:DanhgiaLuatdoanhnghiepvaKiennghisuadoi(Trans.High TimeforanotherBreakthrough:ReviewoftheEnterpriseLawandRecommendationsfor Change)(2004)125;VienQuanlyKinhTeTrungUong(CIEM)andTohoptackythuat Duc(GTZ),TheSixyearReportontheImplementationoftheEnterprisesLaw:Highlight IssuesandExperiencedLessons(6namthihanhLuatdoanhnghiep:Nhungvandenoibat vabaihockinhnghiem)(2006)1015. 9 TheEnterprisesLaw2005passedon29November2005.ThisLawcameinforceon1July 2006.AlthoughtheEnterprisesLaw2005islargelybasedontheEnterprisesLaw1999,italso containsotherlegalprinciplesborrowedfromAngloAmericanlaw. 10 Forexample,aproprietarycompanyunderAustraliancompanylawisacompanythat must(i)havenomorethan50nonemployeeshareholders;(ii)notengageanyactivities thatwouldrequiredisclosuretoinvestors(suchasissuingsharesordebenturesunder Chapter6DoftheCorporationsAct),and,(iii)havetheabbreviationPtyinitname.Seess 113(1),113(3),148(2),149(1)coftheCorporationsAct2001(Cth).
that(i)isaseparatelegalentity;(ii)hasnomorethan50memberswhoseliabilityis limited to the amount they undertake to contribute to the companys share capital, and,(iii)hasnorighttoissuesharestothepublic.11 Regarding its management structure, an MLLC must have (i) a Members Council (MC) consisting of all members; (ii) a Chairman of the MC appointed by the MembersCouncil,and(iii)aDirectororGeneralDirectorappointedbytheMC,and, (iv) a Control Board (only compulsory where the are more than 11 members). The managementstructureofaMLLCcanbedepictedasfollows(seeFigure1).12 Figure1:ManagementstructureofaMLLC
Members
MembersCouncil
Chairmanofthe MembersCouncil
ControlBoard
GeneralDirector
InVietnam,aSCissimilartoapubliccompanyinthecompanylawofAustraliaand the UK, a shareholding company in Chinese company law and an AG in German companylaw.Accordingly,aSCisabusinessorganizationthat(i)isaseparatelegal entity; (ii) the share capital is divided into equal parts as shares; (iii) must have at least three shareholders whose liability is limited to the amount contributed to the companys share capital; and (iv) has a right to issue securities to the public.13In
11 SeeArticle38,theEnterprisesLaw2005.WhereaSLLCisownedbyoneinstitutionorone naturalperson,liabilityislimitedtotheamounttheyundertaketocontributetothe companyssharecapital.ASLLCmaynotalsoissueshares.Ibid,Article63. 12 Ibid,Article46. 13 Ibid,Article77.
addition, a SCs shares may be listed on the securities market if it meets certain requirementsprovidedforbytheSecuritiesLaw2006anditssubordinatelegislation. The management structure of a SC must have: (i) a GMS (GMS) consisting of all shareholders who have the right to vote; (ii) a Board of Management (BOM) consistingofbetween3to11personsappointedbytheGMS;(iii)aChairmanofthe BOM appointed either by the GMS or BOM; (iv) a Director of General Director ( CEO) appointed by the BOM; and (v) a Control Board of a SC has 11 or more individualshareholdersoracorporateshareholdingmorethan50percentshare(see Figure2).14 Figure2:ThemanagementstructureofaSC
Members
GeneralMeetingofShareholders (GMS)
BoardofManagement (BOM)
ChairmanofBOM
ControlBoard
GeneralDirector (CEO)
AlthoughtheframeworkforcorporategovernanceinVietnamespeciallyasregards listedcompanies,isintheearlystagesofdevelopment,theEnterpriseLaw2005andits regulationsprovidethefundamentalregulatoryframeworkforcorporategovernance oflistedcompanies.
14 Ibid,Article95.
2. What constitutes the regulatory framework for corporate governance in Vietnam? 2.1.TheEnterprisesLaw2005:themostfundamentalofcorporategovernanceregulation The main sources of corporate governance in Vietnam are legislation and the company Charter (Dieu le Cong ty). However, the main problems of corporate governanceinVietnamarisefromrelianceonsubordinatelegislation,theinefficiency ofthecompanyconstitutionandlackofjudicialtransparency. Corporate governance rules come from statutes enacted by the Parliament and subordinate legislation as promulgated by governmental bodies under the Law on Promulgation of Legislation 1996 (as amended). Among the pieces of legislation that provide rules for governing companies, the Enterprises Law 2005 is the most fundamentalcorporategovernanceregulationforVietnamesecompanies. Besides the Enterprises Law 2005, other statutes also provide a few additional rules governing companies, especially for particular business areas such as banking, auditing, insurance and securities. In this way, corporate governance rules can be foundintheLawonCreditOrganization1997(asamended)(Luatcactochuctindung), and the Law in Insurance Business 2000 (Luat kinh doanh bao hiem), the Law on Accounting2003(LuatKeToan),andtheSecuritiesLaw2006.Forexample,althoughthe Securities Law 2006 provides that Vietnams listed companies must be governed in accordancewiththeEnterprisesLaw2005,italsoprescribesadditionalrulesforlisting stocks,transparencyandthedisclosureofinformationbypubliccompanies(Congty daichung).15 ThecompanyCharterisbuiltonlegalrulesprovidedforbytheEnterprisesLaw2005 andasdecidedattheshareholdersmeeting.Itmustconsistofrulesinrelationtothe internal governance structure; the power, functions and tasks of each corporate governance body, and, other important matters of the company. Under the EnterprisesLaw2005,acompanyhasmorepoweranddiscretiontodecideitsinternal corporate governance matters through a constitution. 16 More particularly, many
15 SeeArticles25,28theSecuritiesLaw2006.Apubliccompanymeansashareholding companywhichbelongstooneofthefollowingthreecategories:(a)acompanywhichhas madeapublicofferofshares;(b)acompanywhichhasshareslistedontheStockExchange oraSecuritiesTradingCentre;(c)acompanywhichhassharesownedbyatleastone hundred(100)investorsexcludingprofessionalsecuritiesinvestorsandwhichhasapaid upchartercapitaloften(10)billionVietnamesedongormore. 16 Suchasrightsandobligationsofshareholders;managementandorganizationalstructure; proceduresforpassingresolutionsofthecompany;rulesforresolutionofinternaldisputes; basesandmethodofcalculatingremuneration,wagesandbonusesofmanagersand
articles of the Enterprises Law 2005 enable a company to selfregulate via its constitutioninamannersimilartothereplaceablerulesinAustraliasCorporationAct 2001(Cth).17Anycorporategovernanceissuesthatarenotprovidedforbycompany legislationcanbedecidedbyshareholdersinthecompanyconstitution.18Inthisway, for example, a company Charter can set down voting requirements to enhance minority investor protection and supervise related party transactions. Besides the mandatoryrulesprescribedbytheEnterprisesLaw2005,acompanyconstitutioncan also distribute more power to specificgovernance bodies ofa company suchas the shareholders meeting and the board of management. However, in practice, VietnameseinvestorsdonotappeartopaymuchattentiontoacompanysCharter. Inpractice,mostVietnamesecompanieshaveaCharterwiththesamerequirements, quorumandratiosasprescribedbytheEnterprisesLaw2005.19Therearetwopossible reasons. Firstly, majority shareholders of a company may not favour provisions in the Charter that provide rules for stronger minority shareholder protection. This appears to be consistent with Backmans findings that sharing power through a constitution appears to be avoided in Asian companies. 20 Secondly, most private companiesarefamilycontrolledandtendtorelyonpersonalrelationshipsconsistent with the notion that internal management is a matter for personal relationships
membersoftheinspectioncommitteeorofinspectors.SeeArticle22,theEnterprisesLaw 2005. 17 UndertheEnterprisesLaw2005,manycorporategovernancemattersofacompanycanbe decidedbyshareholdersunderthecompanysCharter.See,e.g.,Articles41,51,52,64,65, 70,71,74,79,102,104oftheLaw.ForreplaceablerulesinAustraliancompanylaw,seess 140,141theCorporationAct2001(Cth). 18 Forexample,theEnterprisesLaw2005providesthataresolutiononamendmentofthe constitutionmustbeapprovedbyatleast75percentoftotalvotesofparticipating shareholders.Thisrequirementcanbeprescribedbytheconstitutionatahigherlevelsuch asat80percentormore. 19 Forlistedcompanies,theChartermustusedistheModelCharter2007.Seefurther,Decision 15/2007/QDBTCoftheFinanceMinisterdated19March2007ontheModelCharterof listedcompanies(ModelCharter2007).SomeprovisionsoftheModelCharter2007metwith protestsfromlawyerssuchasart40.1vsart96.1oftheEnterpriseLaw2005;art19.10vs79.1 oftheEnterpriseLaw2005,art16.1vs104.3.(a,b)oftheEnterpriseLaw2005.Seefurther,Bao Duy,Rcriiulmuchocngtynimyt(AComplicatedModelCharterforListed Companies),DauTuChungKhoan(Hanoi),16April2007,availableat http://www.vir.com.vn/CLIENT/DautuChungkhoan/content.asp?CatID=30&DocID=12813; http://www.tinnhanhchungkhoan.vn/tintuc.php?nid=363; http://www.tincp.com/view.php?t=716527;alllastvisited10July2008. 20 SeeMichaelBackman,AsianEclipse:ExposingtheDarkSideofBusinessinAsia(1999)21.
guided by morality and sentiment and the state law should not intrude.21In 2004, researchbytheCIEM,theGTZandUNDPVietnamfoundthatveryfewVietnamese shareholders used their statutory rights to make a quorum and shareholders were more inclined to use the company charter than the Enterprise Law. 22 The benefits provided by the legislative provisions and the enabling statutory rules of the EnterprisesLaw2005arenotusedinpractice. ItshouldbenotedthatincommonlawcountriesliketheUS,theUKandAustralia, judges have an important role in interpreting statutory principles and providing, additionalrulesforcorporategovernance.Unlikemanyotherjurisdictions,however, judgemade law is not a source of law and corporate governance regulation in Vietnam. Further, the lack of full judicial transparency does not assist corporate governanceinVietnam. 2.2.Listingrulesbysecuritiesregulators,accountingandauditingstandards In Vietnam, the SecuritiesLaw2006 provides that the SE and STCs can issue listing rulesoncetheyobtaintheapprovaloftheSSC.However,despitetherapidexpansion of the securities market, the Vietnamese stock regulators have not promulgated listing rules until very recently. It is suggested that Vietnams stock should adopt appropriate regulations from their counterparts in advanced and other transitional economiestoprovidelistingrulesforthecorporategovernanceoflistedcompanies. Auditing and accounting standards also have a role in the corporate governance regulatory framework. However, it is argued that (i) professional associations of accountants and auditors in Vietnam have a relatively trivial role in promoting effective accounting and auditing regimes; and (ii) Vietnams accounting and auditing standards promulgated by the Ministry of Finance (MOF) need to be improved. First, unlike some other economies, where auditing and accounting standards are often prescribed by professional associations of accountants and auditors, Vietnamese auditing and accounting standards are promulgated by the MOF. In contrast, the Vietnam Association of Accountants (Hoi Ke toan Vietnam VAA) and theVietnamAssociationofCertifiedPublicAccountants(Hoikiemtoanvienhanhnghe Vietnam ACPA) have a trivial role in administering accounting and auditing
21 SeeJohnStanleyGillespie,TransplantingCommercialLawReform:developingaruleoflawin Vietnam(2006)272. 22 SeeCentralInstituteforEconomicManagement(CIEM),GTZandUNDPVietnam,Thoi diemchosuthaydoi:DanhgiaLuatdoanhnghiepvaKiennghisuadoi(Trans.HighTime foranotherBreakthrough:ReviewoftheEnterpriseLawandRecommendationsfor Change)(2004)37.
standards and are relatively dependent on the MOF, which administers these matters.23However,inthenextfewyears,theMOFaimstotransfersomefunctions of administering auditing and accounting practice from the MOF to these associations.24 Second,Vietnamdoesnothaveauditingandaccountingstandardsastheyappearin advanced economies. The existing 26 accounting standards and 38 auditing standards promulgated by the MOF are incomplete. Further, some of the contemporary accounting and auditing standards of Vietnam do not meet international standards and do not promote good corporate governance of companies.25 2.3.Corporategovernancestandards In many economies, codes of corporate governance and best practice have been promoted by various agencies including stock regulators or professional agencies. Nevertheless,amongcodesofcorporategovernanceonaworldwideperspective,the OECD Principles of Corporate Governance is most significant, and undoubtedly had keyimpactonthedevelopmentofcorporategovernanceglobally.26Aswillbeseen, itwillbeimportantforVietnamtoadopttheOECDprinciplesifitistodevelopits economicinfrastructure. a.TheOECDPrinciplesofCorporateGovernance ThelatestrevisedversionofOECDPrinciplesofCorporateGovernancewasreleasedin 2004 in response to a number of concerns about corporate governance in advanced economies. The Principles have been supported by major international institutions liketheWorldBank,theGlobalGovernanceForum,andtheInternationalCorporate GovernanceNetwork.TheyhavealsobeenwidelyadoptedbybothOECDandnon OECDjurisdictionssuchasGreece,Czech,PolandandChina.Corporategovernance has been adopted as oneof twelve core bestpractice standards by theinternational financialcommunity.TheWorldBankistheassessorfortheapplicationoftheOECD Principles of Corporate Governance and its assessments are part of the International
23 Forethicsstandardsinauditingandaccountingpractice,seegenerally,DecisionNo. 87/2005/QDBTCoftheMOF.Forissuingregulationsontheselectionofauditing enterprisesforaccreditationtoauditissuingorganizations,listedorganizationsand securitiesbusinessorganizations,seeDecision89/2007/QDBTCdated24October2007. 24 Seefurther,DecisionNo.47/2005/QDBTCdated14July2005oftheMOF. 25 SeeDecision38/2000/QDBTCdated14March2000oftheMOFandDecree105/2004/ND CPdated30March2004oftheGovernment. 26 SeeMallin,n31above,26.
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Monetary Fund (IMF) program on Reports on the Observance of Standards and Codes(ROSC).27 ThePrinciplesareintendedtoassisttheOECDandnonOECDcountriestoevaluate and improve the legal, institutional and regulatory framework for corporate governance, and to provide guidance and suggestions for stock exchanges, investors, corporations, and other parties that have a role in the corporate governance process. The Principles cover broad areas of corporate governance (see Figure5.8):
(i) (ii) ensuringthebasisforaneffectivecorporategovernanceframework; therightsofshareholdersandkeyownershipfunctions;
(iii) theequitabletreatmentofshareholders; (iv) theroleofstakeholdersincorporategovernance; (v) disclosureandtransparency;and
(vi) theresponsibilitiesoftheboard.28
Although the OECD Principles focus on corporate governance matters of publicly traded companies on the basis of the separation of ownership and control, to some extent they are also useful for the improvement of corporate governance in non traded companies, including privately held and stateowned enterprises. More importantly,akeyreasonwhythePrincipleshavebeenwidelyacceptedisthatthey are based on common elements of corporate governance, embracing different corporategovernancemodelsfoundintheOECDandnonOECDeconomies. b.TheCodeofCorporateGovernanceinVietnam. Codes of corporate governance are important sources for corporate governance in manyeconomiesrangingfromadvancedeconomiestotransitionaleconomies.Until March2007,Vietnamlackedthissourceofcorporategovernanceregulation.29On13
27 ThegoaloftheROSCinitiativeistoidentifyweaknessesthatmaycontributetoacountrys economicandfinancialvulnerability.EachcorporategovernanceROSCassessment reviewsthelegalandregulatoryframework,aswellaspracticesandcomplianceoflisted firms,andassessestheframeworkrelativetoaninternationallyacceptedbenchmark.Asof June2005,40assessmentshadbeencompletedin40countriesaroundtheworld.Seethe WorldBankwebsiteavailableatwww.worldbank.org. 28 SeeOrganisationforEconomicCooperationandDevelopment(OECD),TheOECD PrinciplesofCorporateGovernance(2004)11. 29 BeforeMarch2007,noneofthegovernmentalagenciessuchastheSSC,stockregulatoryor businessorganizationslikeVietnamChamberofCommerceandIndustry(VCCI)had
11
March 2007, the MOF issued the Code of Corporate Governance for Listed Companies (hereinafterCode).ThisCodewasdevelopedundertheEnterprisesLaw2005andthe Securities Law 2006. It intended to implement the best international practice on corporate management suitable to the conditions of Vietnam to ensure a stable developmentofstockmarketandatransparenteconomyinVietnam.30ThisCodeis, in fact, a piece of subordinate legislation (with mandatory rules) and is therefore differentfromavoluntarycodeofcorporategovernanceinadvancedeconomiessuch astheOECDPrinciplesofCorporateGovernance,theGermanCorporateGovernanceCode, andtheChineseCodeofCorporateGovernanceforListedCompanies. Under the Code, the term corporate governance refers to the systemic principles which ensure a listed company is managed in a way that respects the rights of shareholders and related persons. More specifically, rules of corporate governance shall:
Ensureaneffectivemanagerialstructure; Ensuretherightsofshareholders; Ensurefairandimpartialtreatmentasbetweenshareholders; Ensurerolesofpersonswithrelatedinterests; Ensuretransparencyduringthecompanysactivities; Ensurethattheboardofmanagementandtheboardofcontrollersleadand managethecompanyeffectively.31
The main principles of corporate governance applicable to a listed company under theCodeinclude:(i)Rightsofshareholders;(ii)Generalmeetingofshareholders;(iii)
introducedacodeofcorporategovernanceorcodeofconducttopromotegoodcorporate governance.Additionally,Vietnamhasnoworkingcommitteeoncorporategovernance.It isnoteworthythatMekongCapitalaprivateinstitutionintroducedtheRecommendations onCorporateGovernancePractices2003,theIntroductiontoInternalControls2004,andthe GuidelinesforConductingaMeetingoftheBoardofDirectorsoraMeetingofShareholders2005. Theseguidelineswerelargelytransplantsfromcorporategovernancestandardsin advancedeconomies,buttheirqualitywasfarfromthoseinWesternjurisdictions. However,mostVietnamesecompaniesignoredtherecommendationsbyMekongCapital. SeefurthertheMekongCapitalwebsiteat http://www.mekongcapital.com/downloads.htm,lastvisited10July2007. 30 SeeDecision12/2007/QDBTCdated13March2007oftheMOFonCodeofCorporate GovernanceforListedCompaniesonStockExchange/SecuritiesTradingCenters(Quyche QuantriCongtyapdungchocacCongtyNiemyettrenSogiaodichchungkhoan/Trungtamgiao dichchungkhoan). 31 Ibid,Article1.1.a.
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BoardofManagement;(iv)ControlBoard;(v)Conflictsofinterestandrelatedparty transactionsand(vi)Informationdisclosureandtransparency.
Thecurrentcorporategovernanceoflistedcompanies
ThelegalframeworkandinstitutionalfoundationforthecapitalmarketsinVietnam areinanearlystageofdevelopment.Asmentionedabove,thelegalframeworkfor corporate governance consistsofin theEnterprisesLaw2005, theSecuritiesLaw2006, theCodeofCorporateGovernanceofListedCompanies2007(Code)andtheModelCharter 2007.However,Vietnamfacessignificantchallengesinimplementingtheselawsand strengthening the institutions responsible for the regulation, enforcement and development of good corporate governance. This section discusses some aspects of the current framework of corporate governance and its implementation in Vietnameselistedcompanies. 1.Thetermspubliccompanyandlistedcompany The Enterprises Law 2005 offers no definition of a public company and a listed company;theseareprovidedforinSecuritiesLaw2006.UndertheSecuritiesLaw2006, thetermpubliccompanyreferstoashareholdingcompanywhichbelongstooneof thefollowingthreecategories:
(i) Acompanywhichhasmadeapublicofferofshares; (ii) AcompanywhichhasshareslistedontheStockExchangeoraSecurities TradingCentre; (iii) A company which has shares owned by at least one hundred (100) investorsexcludingprofessionalsecuritiesinvestors,andwhichhaspaid upchartercapitalofVNDten(10)billionormore.32
A public company has the rights stipulatedin the EnterprisesLaw2005andinother laws. Public companies also have the following obligations: (i) information disclosure; (ii) complying with corporate governance principles; (iii) operating a
32 SeeArticles2526,SecuritiesLaw2006.Theshareholdingcompaniesdefinedinthiscategory mustlodgepubliccompanyfilerequiredbytheSSCwithinatimelimitofninety(90)days fromthedatesuchshareholdingcompanybecomesapubliccompany.Apubliccompany filemustcontainthefollowingdocuments:(a)Charterofthecompany;(b)Copybusiness registrationcertificateofthecompany;(c)Summarizedinformationaboutthebusiness operationalscale,managerialorganizationandshareholdingstructure;(d)Financial statementsforthemostrecentyear.Withinatimelimitofseven(7)daysfromthedateof receiptofavalidfile,theSSCshallberesponsibletoannouncethename,businesscontents andotherrelevantinformationaboutthepubliccompanyontheinformationnetworkof theSSC.
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register and securities depository at a Securities Depository Centre; and (iv) other obligationsasstipulatedintheEnterprisesLaw2005andinotherlaws.33 The Securities Law 2006 states that, public companies must comply with the provisions of corporate governance in the Enterprises Law 2005. 34 Moreover, any organisationorindividualwhichbecomesamajorshareholderofapubliccompany (owning from 5 per cent or more of the voting shares) must notify to the public company,theSSCandtheSEorSTCwherethesharesofsuchpubliccompanyare listed within a timelimit of seven (7) days from the date of becoming a major shareholder.35 Under theCode, the term listed company means any shareholding company with its shares listed on the Stock Exchange or a STC.36A listed company is a public companywhichisobligedtoabidebytheEnterprisesLaw2005andtheSecuritiesLaw 2006.InaccordancewiththeCode,alistedcompanymusthaveacompanycharterin the standard Model Charter 2007 issued by the MOF. In addition to the Charter, a listed company must also pass internal regulations on corporate governance includingthemattersstipulatedinArticle4oftheCode.37 2.Currentlegislationoncorporategovernanceoflistedcompanies Under the Code, the main principles of corporate governance applicable to a listed company include the following: (i) internal governance structures of a listed company; (ii) rights of shareholders; (iii) conflict interest and related party transaction; and (iv) information disclosure and transparency. This subsection discusses current corporate governance of listed companies. It argues that current
33 Ibid,Article27. 34 Ibid,Article28. 35 Ibid,Article29.Areportonownershipbyamajorshareholdercontainsthefollowing particulars: (i) Inthecaseofamajorshareholderbeinganorganization,thename,addressand businesslineofthemajorshareholder;inthecaseofamajorshareholderbeingan individual,thefullname,age,nationality,permanentresidenceandprofessionofthe majorshareholder; (ii)Thenumberofsharesandthepercentageofshareswhichsuchorganizationor individualowns,orownsjointlywithotherorganizationsandindividuals,comparedto thetotalnumberofcurrentlycirculatingshares. 36 SeeArticle2.1.b,theCodeofCorporateGovernanceofListedCompany. 37 Suchasruleandproceduresfor(i)conveningandvotingatthegeneralmeetingof shareholders;(ii)nominating,standingforelection,electinganddismissingmembersofthe boardofmanagement;(iii)holdingmeetingsoftheboardofmanagement;(iv)selecting, appointinganddismissingseniormanagers;(v)coordinationbetweentheboardof management,theboardofcontrollersandtheboardofdirectors.
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corporate governance of Vietnamese listed companies shows a lack of flexibility, accountability and efficiency. It doesnot meet the requirements of good corporate governanceforlistedcompaniesonthesecuritiesmarketinVietnam. 2.1.InternalgovernancestructuresofVietnameselistedcompanies 2.1.1.Internalgovernancestructureoflistedcompanies The internal governance structure of Vietnamese listed companies applies to companies listed on the Stock Exchange or a STC within the territory of Vietnam. These companies, at first, are shareholding companies operating under the provisions of the Enterprises Law 2005.38However, listed companies are also public companiesthatmustabidebytheprovisionsoftheSecuritiesLaw2006.Theinternal governance structure of Vietnamese listed companies is built on the EnterprisesLaw 2005,SecuritiesLaw2006,ModelCharter2007and,especially,theCode.39 AccordingtotheCode,theinternalstructureofVietnameselistedcompanyincludes aGMS(GMS),aBoardofManagement(BOM),aDirectororGeneralDirector(CEO) and a Control Board. The BOM may set up subcommittees to assist its activities (suchasdevelopmentpolicy,internalaudit,humanresources,salaryandbonus).The BOMmustappointatleastonepersontoactasacompanysecretary(seeFigure3).
38 Article2,theCodeofCorporateGovernanceforListedCompanies. 39 Ibid,Article1.
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Figure.3:TheInternalGovernanceStructureofaListedCompany
Members
GeneralMeetingof Shareholders(GMS)
Chairmanof BOM
BoardofManagement (BOM)
ControlBoard
Secretary
SubCommittees
GeneralDirector (CEO)
Notes:AppointmentandRemoval:Supervision: 2.1.1.1.GeneralMeetingofShareholders(GMS) TheEnterprisesLaw2005setsoutindetailtheregulationsregardingtheproceduresof the GMS. 40 Accordingly, the GMS must include all shareholders holding voting shares and it constitutes the highest management body of a SC. 41 Ordinary shareholders (codongphothong) and voting preference shareholders (codonguudai bieuquyet)canattendtheGMS.42Ifashareholderisacorporateentity,itmustappoint one or more authorised representative(s) to participate in the GMS. 43 The list of shareholders entitled to attend the GMS is determined by the register of company shareholderswhichmustbesettlednolaterthanthirty(30)dayspriortotheopening dateoftheGMS.44
40 Seegenerally,Articles96107,theEnterprisesLaw2005. 41 Ibid,section1,Article96. 42 Ibid,Articles78,8183. 43 Ibid,section3,Article96. 44 Ibid,Article98.
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TheGMSmustholdameetingatleastonceayear.Extraordinarymeetingsmaybe convenedbytheBOMincertainprescribedcircumstances.45Theseincludeinteralia (i) requests of the Control Board46and (ii) a shareholder or group of shareholders holdingmorethan10percentofthetotalordinarysharesforaconsecutiveperiodof 6 months or more. 47 The location of a meeting of the GMS must be within the territoryofVietnam.48TheGMSmustholdanannualmeetingwithinatimelimitof four months from the end of the financial year. At the request of the BOM, the businessregistrationofficemayextendthattimelimit,butnotbeyondsix(6)months fromtheendofthefinancialyear.49 A regular meeting of the GMS considers the following matters: (a) annual financial statements; (b) the report of the BOM assessing the efficiency of the companys
45 Undersection3,Article97oftheEnterprisesLaw2005,theBOMmustconveneanadhoc meetingoftheGMSinthefollowingcases:(a)TheBOMconsidersitnecessarytodosoin theinterestsofthecompany;(b)ThenumberoftheremainingmembersoftheBOMisless thanthenumberofmembersrequiredbylaw;(c)Uponrequestbyashareholderora groupofshareholdersholdingmorethanten(10)percentofthetotalordinarysharesfora consecutiveperiodofsixmonthsormore,orholdingasmallerpercentageasstipulatedin thecharterofthecompany;(d)UpondemandbytheControlBoard;(e)Inothercases stipulatedbylawandthecharterofthecompany.Ifthecharterofthecompanydoesnot stipulateatimelimit,thentheBOMmustconveneaGMSwithinatimelimitofthirty(30) daysasfromthedateonwhichthenumberofremainingmembersoftheBOMislessthan thenumberofmembersrequiredbylaworfromthedateofreceiptoftherequestbya shareholderoragroupofshareholdersholdingmorethanten(10)percentofthetotal ordinarysharesforaconsecutiveperiodofsixmonthsormore,orholdingasmaller percentageasstipulatedinthecharterofthecompany.IftheBOMfailstoconveneaGMS asstipulated,thechairmanoftheBOMmustberesponsiblebeforethelawandmust compensateforanydamagearisingtothecompany. 46 Ibid.WheretheBOMfailstoconveneameetingoftheGMS,thenwithinthefollowing thirty(30)daystheControlBoardreplacestheBOMinconveningtheGMS. 47 Ibid.WheretheControlBoardfailstoconveneameeting,therequestingshareholderor groupofshareholdersholdingmorethanten(10)percentofthetotalordinarysharesfora consecutiveperiodofsixmonthsormore,orholdingasmallerpercentageasstipulatedin thecharterofthecompanyhavetherighttoreplacetheBOMandtheControlBoardin conveningtheGMS.Inthiscase,theshareholderorgroupofshareholdersconveningthe GMSmayrequestthebusinessregistrationofficetosupervisetheconveningandconduct ofthemeetingiftheyconsideritnecessary.Theconvenormustpreparealistof shareholdersentitledtoattendtheGMS,provideinformationanddealwithcomplaints relatingtothelistofshareholders,preparetheprogramandagendaofthemeeting, preparedocuments,determinethetimeandvenueofthemeeting,andsendaninvitation tothemeetingtoeachshareholderentitledtoattendthemeeting. 48 Ibid,section1. 49 Ibid,section2.
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business management; (c) the report of the Control Board regarding company managementbytheBOMandtheCEO;(d)theamountofdividendspayableoneach classofshare;and(e)othermatterswithinitsauthority.50 The GMS is conducted where the number of attending shareholders represents at leastsixtyfive(65)percentofthevotingshares.Wherethefirstmeetingcannottake place because the condition is not satisfied, the meeting may be convened for a second time within thirty (30) days of the intended opening of the first meeting. When a GMS convened for a second time is conducted, the number of attending shareholdersmustrepresentatleastfiftyone(51)percentofthevotingshares.The specific percentage in the first and second meetings are stipulated in the charter of thecompany.Whereameetingconvenedforasecondtimecannottakeplacebecause a condition is not satisfied, it may be convened for a third time within twenty (20) daysfrom the dateof theintended opening of the second meeting. In this case, the GMS is convened irrespective of the number of attending shareholders, and irrespectiveofthepercentageofshareholderswithvotingrightsattendthemeeting. OnlytheGMSmaymakechangestotheagendaaccompanyingtheinvitationtothe meeting.51 TheGMSmaypassresolutionswhichfallwithinitspowerbywayofvotinginthe meetingorcollectingwrittenopinions.IfnotregulatedbythecompanysCharter,a resolution of the GMS on certain matters needs to be passed by way a vote. These include:
(a) Amendmentoforadditiontothecharterofthecompany; (b) Approvalofthedevelopmentdirectionofthecompany; (c) Decisiononclassesofsharesandthetotalnumberofsharesofeachclass whichmaybeofferedforsale; (d) Appointment, discharge or removal members of the Board of ManagementandControlBoard; (e) Decisionsoninvestmentsorthesaleofassetsvaluedatequaltoormore than fifty (50) per cent of the total value of assets recorded in the most recentfinancialstatementofthecompany,ifthecharterofthecompany doesnotstipulateanotherpercentage; (f) Approvaloftheannualfinancialstatements; (g) Reorganisationordissolutionofthecompany.52 50 Ibid. 51 Ibid,Article102,sections14. 52 Ibid,Article104.2.
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AresolutionoftheGMSispassedinameetingwhenallthefollowingconditionsare satisfied:
(i) Itisapprovedbyanumberofshareholdersrepresentingatleastsixtyfive (65)percentofthetotalvotingsharesofallattendingshareholders;the specificpercentageshallbestipulatedinthecharterofthecompany. (ii) Unless otherwise provided by the charter of the company, the approval by a number of shareholders representing at least seventy five (75) per cent of the total voting shares of all attending shareholders shall be required;thespecificpercentageshallbestipulatedinthecharterofthe company. This requirement is in respect of resolutions on classes of sharesandtotalnumberofsharesofeachclasswhichmaybeoffered;on amendments of and additions to the charter of the company; on re organisationordissolutionofthecompany;inrespectofinvestmentsor saleofassetsequaltoormorethanfifty(50)percentofthetotalvalueof assetsrecordedinthemostrecentfinancialstatementofthecompany. (iii) Voting to elect members to the BOM and the Control Board are implemented by the method of cumulative voting, whereby each shareholder shall have as his total number of votes the total number of sharesheownsmultipliedbythenumberofmemberstobeelectedtothe BOMorControlBoardandwhereeachshareholdershallhavetheright toaccumulateallhisvotesforoneormorecandidates.53
However, these requirements are in conflict with Vietnamese commitments to the WTOinsomecases.Forexample,underResolution71/2006/QH11onApprovingthe Protocol of Accession of Viet Nam dated 29 November 2006 (Resolution 71), a resolution of the GMS is passed in a meeting when it is approved by a number of shareholdersrepresentingamajority(includingamajorityoffiftyonepercent)ofthe total voting shares of all attending shareholders.54Further, the Enterprise Law 2005 states that If an international treaty ofwhich theSocialist Republic ofVietnam isa membercontainsprovisionswhicharedifferentfromtheprovisionsinthisLaw,the provisionsofsuchinternationaltreatyshallapply(article3.3).Acomplicatedmatter iswhetheralistedcompanycanapplyResolution71togivea51percentmajorityat the GMS to pass a resolution instead of these conditions as mentioned above. By application Article 3.3 of the Enterprise Law 2005, a listed company can apply Resolution71above.However,ifalistedcompanysetsaratioof51percentor60per centofthetotalvotingsharesofallattendingshareholderstopassaresolutionofthe
53 Ibid,Article104.3. 54 Seefurther,WorldTradeOrganization,TheReportoftheWorkingPartyontheAccession ofVietnamintotheWTO(WorkingPartyontheAccessionofVietNam,2007).
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GMS, the GMSs resolution is invalid. This means that the shareholders need to amendtheircompanysCharter. Resolutions passed at the GMS by shareholders or authorised persons representing one hundred (100) per cent of the total number voting shares are legal and immediatelyeffective.Thisissoeveniftheorderandproceduresforconveningthe meeting were not implemented in accordance with the regulations and even if the contentsofthemeetingagendaandtheproceduresforconductingthemeetingwere not duly disclosed. 55 Where a resolution is passed by the collection of written documentsoropinions,aresolutionoftheGMSispassedwhenitisapprovedbya number of shareholders representing at least seventy five (75) per cent of the total voting shares. The specific percentageis stipulated in the charter of the company.56 ResolutionsoftheGMSmustbenotifiedtoshareholdersentitledtoattendtheGMS withinfifteen(15)daysfromthedateofapprovalthereof.57 Within ninety (90) days from the date the minutes of the GMS are received or the minutesoftheresultsofthecountingofvotesorwrittenopinionsfromtheGMSare received, shareholders, members of the Board of Management, the director (or general director) and the Control Board have the right to request a court or an arbitratortoconsiderandcancelaresolutionoftheGMSinthefollowingcases:
(i) the order and procedures for convening the GMS did not comply with thisLawandthecharterofthecompany;or (ii) theorderandproceduresforissuingaresolutionandthecontentofthe resolutionbreachthelaworthecharterofthecompany.Theserulesmay helptoprotectinvestorsandkeepthecompanyoperatinglawfully.58
Moreover, the Code stipulates that, at the annual and extraordinary sessions of the GMS, a listed company must regulate the order and procedures for convening and voting at the GMS.59The BOM arranges the agenda for the GMS and allows for a reasonabletimeofdiscussionandvotingoneachissue.Shareholdersareentitledto
55 Ibid,Article104.4. 56 Ibid,Article104.5. 57 Ibid,Article104.6.Fortheauthorityandproceduresforcollectingwrittenopinionsin ordertopassaresolutionoftheGMS,seeIbid,Article105. 58 Ibid,Article107. 59 Article6oftheCode.Suchas:(a)NoticeofconveningtheGMS;(b)Methodofregistering forattendingtheGMS;(c)Methodofvoting;(d)Methodofcountingvotes;inthecaseof sensitivemattersorattherequestofshareholders,alistedcompanyshallappointaneutral organizationtocollectandcountvotes;(e)Announcingvotingresults;(f)Methodof opposingresolutionsoftheGMS;(g)RecordingminutesoftheGMS;(h)Takingminutesof theGMS;(i)PublishingresolutionsoftheGMS;(j)Otherissues.
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participateintheGMSdirectlyorindirectlyviaaproxyandmayauthorizetheBOM or some other depository organization to be their representative at the GMS. If a depository organization is authorised to be a shareholders representative, it must showthecontentsofitsvotingauthorisation.Alistedcompanyguidesshareholders ontheprocedurestoauthorise,andonpreparationofapowerofattorney.Auditors orrepresentativesofanauditingcompanymaybeinvitedtoattendtheGMSinorder to state their opinion on auditing issues at such meeting. In order to increase the efficiencyoftheGMS,alistedcompanymustdoitsbesttoapplythemostadvanced informationtechnologysothatshareholdersmayattendtheGMSinthebestmanner. A nonlisted company must actually convene the annual GMS: the collection of shareholders opinions in writing does not constitute the convening of a GMS. In contrast, a listed company can stipulate in its Charter the principles, order and proceduresforcollectingshareholdersopinionsinwritingsoastoapprovedecisions oftheGMS.60ThislawiffurtherdiscussedinVIPCOandVinaconexcases. 2.1.1.2.TheBoardofManagement(BOM)andmembersofBOM Except for issues which fall within the authority of the GMS, the BOM is the body managingthecompanyandhasfullauthoritytomakedecisionsinthenameofthe companyand to exercisethe rightsand discharge the obligations of the company.61 The powers and duties of the BOM are specifically regulated by the law and as agreed by the partiesin the charter. Those specified bylaw includedecisions on or approval of: (i) medium term development strategies and annual business plans of theSC;(ii)marketing,technologytransfer;loanagreementsandcontractsforsaleof assets valued at 50 per cent or more of the total assets; and (iii) appointment/dismissaloftheGeneralDirectorandotherkeymanagers.62Inaddition, the BOM is authorised to make recommendations to the SC in relation to certain specifiedmatters.Inthisway,theBOMhasamoredirectroleintheoperationsofthe company (daily management) than the supervisory board of the German twotier board structure (discussed above). The BOM comprises 3 to 11 members and members are appointed and dismissed by the GSM. A member need not also be a shareholderoftheSC.BOMmembersareappointedforamaximum5yearterm,but maybereappointedforadditionalterms.63 UndertheEnterpriseLaw2005provisions,themembersoftheBOMofashareholding companymustsatisfythefollowingcriteriaandconditions:(i)havefullcapacityfor
60 Ibid,Article6,sections27. 61 Article108,theEnterprisesLaw2005. 62 Ibid,Article108.2. 63 Ibid,Article109.ForstandardsandconditionsforactingasamemberoftheBOM,see Article110.
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civil acts and not be prohibited from establishing and managing an enterprise as stipulated in article 13.2 of the Enterprise Law 2005; (ii) a shareholder being an individual must own at least five (5) per cent of the total ordinary shares; or a shareholdermustownatleastfive(5)percentofthetotalsharesorinthecaseofa person not a shareholder then he or she must have expert qualifications or actual experience in business management or in the principal line of business of the company. If the company charter stipulates different criteria and conditions from thoseinthisclause,thentheprovisionsofthecompanychartershallapply.64 The BOM passes resolutions by way of voting at meetings, obtaining written opinions,orotherwiseasstipulatedinthecharterofthecompany.Eachmemberof the BOM has one vote. The BOM must hold at least one ordinary meeting per quarter.65Extraordinarymeetingsmustbeconvenedattherequestof(i)theControl Board, (ii) the General Director (CEO) or five (5) other management personnel, (iii) two(2)BOMmembersormore,or(iv)anycircumstancestipulatedinthecharter.66 ThechairmanmustconveneameetingoftheBOMwithinatimelimitoffifteen(15) daysfromthedateofreceiptofarequest.Ifthechairmanfailstoconveneameeting oftheBOMpursuanttoarequest,thechairmanisresponsibleforanydamagetothe company;andtherequesterhastherighttoreplacetheBOMinconveningameeting oftheBOM.67AmeetingoftheBOMisconductedwheretherearethreequartersor more of the total members attending. A resolution of the BOM is adopted if it is approvedbythemajorityoftheattendingmembers;inthecaseofanequalvote,the voteofthechairmaniseffective.68ThisissueisfurtherdiscussedinFPTandVIPCO cases. TheEnterprisesLaw2005 provides that the CEO and members of the Control Board havetherighttoattendanddiscuss,butnottovote,atallmeetingsoftheBOM.This isa significant way for supervisors to monitor the board,andfor the CEO to make proposals and obtain opinions of the board on running the company. On the other hand, a board member has the right to request the CEO and other managers to
64 Seesection3,Article13ofDecree139/2007/NDCPdated5September,2007(hereinafter, Decree139). 65 SeeArticle112oftheEnterpriseLaw2005. 66 Ibid,section4 67 Ibid,section5. 68 Ibid,Article112.8.Membersnotdirectlyattendingameetingshallhavetherighttovoteby sendingawrittenvote.Thewrittenvotemustbeenclosedinasealedenvelopeand deliveredtothechairmanoftheBoardofManagementatleastonehourpriortothe openingofthemeeting.Writtenvotesshallonlybeopenedinthepresenceofallthepeople attendingthemeeting.
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provide information and materials related to the operation of the company; 69 for example, information on the companies financial situation and business operations. Thismayassisttheboardtooverseethedailymanagement. Forlistedcompanies,theCodealsoprovidesthatareportonactivitiesoftheboardof managementsubmitted tothe GMS must containatleast the following contents: (i) Assessment of the companys activities during the fiscal year; (ii) Activities of the boardofmanagement;(iii)Summarisedcontentsofmeetingsofanddecisionsofthe board of management; (iv) Result of supervision of the director or general director; (v)Resultofsupervisionofmanagers;and(vi)Proposedplanforthefuture.70 TheheadoftheBOMisachairpersonwhoisappointedbytheGSMortheBOMin accordancewiththecharter.ThechairpersonoftheboardcanalsobetheCEOofthe company,unlessotherwiseprovidedforbythecharter.ThechairpersonoftheBOM is responsible for, inter alia, convening and chairing meetings and monitoring the executionofBOMresolutions.71 Under the Code, shareholders or a group of shareholders holding less than 10 per centofthevotingsharesforaconsecutiveperiodofatleast6monthsareentitledto nominateonemember;shareholdersholdingfrom10percenttolessthan30percent areentitledtonominatetwomembers;shareholdersholdingfrom30percenttoless than50percentareentitledtonominatethreemembers;shareholdersholdingfrom 50 per cent to less than 65 per cent are entitled to nominate four members; and shareholders holding from 65 per cent upwards shall be entitled to nominate all candidates.72
69 Ibid,Article114.1 70 SeetheCode,Article7. 71 Sections1and2,Article111oftheEnterpriseLaw2005.ThechairmanoftheBOMhasthe followingrightsandduties:(a)toprepareworkingplansandprogramsoftheBOM;(b)to prepare,ororganizethepreparationofagenda,contentanddocumentsformeetingsofthe BOM;toconveneandpresideovermeetingsoftheBOM;(c)toorganizeforresolutionsof theBOMtobepassed;(d)tomonitortheimplementationofresolutionsoftheBOM;(e)to chairtheGMS;(f)OtherrightsanddutiesstipulatedinthisLawandthecharterofthe company.Seefurther,Articles112115. 72 Seesections35,Article9,theCode.Ifthenumberofcandidateswhoarenominatedand whostandforelectionisstillinsufficient,theincumbent[currentlyinoffice]BOMmay nominatemorecandidatesororganizefornominationinaccordancewithamechanism stipulatedbythecompany.Thenominationmechanismorthemethodbywhichthe incumbentBOMnominatescandidatesfortheBOMareclearlyannouncedandapproved bytheGMSbeforenominationsarecommenced.Alistedcompanyregulatesandgives detailedinstructionstoshareholdersonvotingonmembershipoftheBOMbythemethod ofcumulativevoting.
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Inordertoensureaseparationbetweenthesupervisoryandmanagerialrolesofthe company,alistedcompanyisrequiredtolimitthenumberofmembersoftheBOM who may concurrently hold other positions in the managerial apparatus of the company. However, a member of the BOM of a listed company must not concurrently be a member of the BOM of more than five other companies. The chairman of the BOM must not concurrently hold the position of the CEO, unless approvedattheannualGMS.73 Itisnoteworthythat,inalistedcompany,onethirdofthemembersoftheBOMmust be nonexecutive independent members. 74 Moreover, members of the BOM must attend all meetings of the board of management and state their opinions on issues raisedfordiscussion.Whensellingorpurchasingsharesofthecompany,membersof the BOM and affiliated persons must report to the SSC, SE or STC and disclose information about matters such as purchases and sales in accordance with law. A listed company may purchase liability insurance for members of the BOM after obtainingapprovalfromtheGMS;however,theymaynotpurchaseinsuranceforthe liabilityofmembersoftheBOMforbreachofthelaworthecompanyCharter.75The Enterprise Law 2005, the Code and the Model Charter 2007 applicable to listed companies do not provide guidelines with regard to nonexecutive independent membersqualificationsandnominationprocedures.Alternatively,onlyafewlisted companieshavenonexecutiveindependentmembersintheirBOM.76 UndertheCode,theBOMisaccountabletoshareholdersforthecompanysactivities. A listed company formulates a corporate governance mechanism to ensure that the BOM implements its obligations in compliance with the law and the company Charter. The BOM is responsible for ensuring that the companys activities comply withthelawandthecompanyCharter,ensuringequaltreatmenttoallshareholders and consideration of persons with interests related to the company. The BOM formulates provisions on the order and procedures for nominating, standing for election, voting for and dismissing members of the BOM. The order and procedure forholdingmeetingsoftheBOMmustincludethefollowingcontents:
73 Ibid,Article10. 74 Ibid,section1,Article11.Ifamemberlosesmembershipstatuspursuanttolawandthe companyCharter,isdismissedorcannotcontinuetobeamemberforsomereason,the BOMmayappointanotherpersonasareplacement.Inthiscase,thereplacingmemberof theBOMmustbevotedforandapprovedatthenextGMS. 75 Ibid,Article12. 76 SuchasRangDongJSC,SacombankasofJuly2008.SeefurtherstatisticsatSSCwebsiteat www.ssc.gov.vn;HOSEwebsiteatwww.hsx.vnandHASTCwebsiteatwww.hastc.org.vn.
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(i) Orderandprocedurefornominating,standingforelection,electionand dismissalofmembersoftheboardofmanagement:77 (ii) Order and procedure for holding meetings of the board of management;78 TheBOMformulatesprovisionsontheorderandprocedureforselecting,appointing and dismissing senior managers and the order and procedures for coordination of activitiesbetweentheboardofmanagement,theboardofdirectorsandtheboardof controllers.Theseinclude:
(i) Order and procedures for selecting, appointing and dismissing senior managers. (ii) Orderandproceduresforcoordinationofactivitiesbetweentheboardof management,theboardofcontrollersandtheboardofdirectors.79
The BOM is responsible for formulating a mechanism for assessing the activities of thecompany,andforrewardinganddiscipliningmembersoftheBOM,theboardof controllers, the board of directors and other managers. The BOM is responsible for preparingthereportandprovidingittotheGMS.80 TheCodealsostipulatesthattheBOMmaysetupsubcommitteestoassistitinits activities.Subcommitteesmaybeformedforpolicydevelopment,internalaudits,to manage and recruit personnel, to administer salary and bonuses and to undertake otherspecialtasksinaccordwithresolutionsoftheGMS.81Thesubcommitteeforan internal audit must have at least one member who specialises in accounting and is
77 Article13.3oftheCode.Suchascriteriaformembershipoftheboard;methodfor nominatingand/orstandingforthepostofmemberoftheboardofmanagementbya nomineeofagroupofshareholderssoqualifiedbylawandthecompanyCharter;method ofelectionofmembersoftheboardofmanagement;circumstancesinwhichmemberswill bedismissed;notificationofelectionanddismissalofmembersoftheboardof management. 78 Ibid,Article13suchasnotificationofameetingoftheboardofmanagement(includingthe agenda,time,venue,relevantdocuments,andvotingslipsformemberswhocannotattend ameeting);conditionsforvalidityofthemeeting;methodofvoting;methodofapproving resolutionsoftheboardofmanagement;takingminutesofthemeetingoftheboardof management;approvingminutes;announcingresolutionsoftheboardofmanagement. 79 Ibid,section4,Article13. 80 SeeArticle7,theCode.Areportonactivitiesoftheboardofmanagementsubmittedtothe GMSmustcontainatleastthefollowingcontents:Assessmentofthecompanysactivities duringthefiscalyear;activitiesoftheboardofmanagement;summarizedcontentsof meetingsofanddecisionsoftheboardofmanagement;resultofsupervisionofthedirector orgeneraldirector;resultofsupervisionofmanagers;proposedplanforthefuture. 81 Ibid,Article15.
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not a person working in the accounting/financial department of the company. The BOM provides detailed rules on the establishment of subcommittees, and on the responsibility of subcommittees and of each member of a subcommittee. Where a company does not set up subcommittees, the BOM nominates the person(s) in chargeofeachtasksuchasauditing,salaryandbonusesandpersonnel.82 Inordertoassistthecompanysactivitiestobeconductedeffectively,theBOMmust appoint at least one person to act as secretary of the company. The secretaryof the company must have a good knowledge of law, and may not concurrently work for theauditingcompanywhichcurrentlyauditsthecompany.83 2.1.1.3.DirectororGeneralDirectorofthecompany Afundamentalprincipleofcorporategovernanceisthatgoodcorporategovernance requires the responsibility and accountability of company directors. However, the provisions of the Enterprise Law 2005 on company directors do not ensure accountability and responsibility of persons who direct/manage a company. In particular,thelawsdefinitionofdirectorisnotcomprehensive,theappointmentand officetermofdirectorsareinappropriateandtheprovisionsondirectorsdutiesare inadequate. a.ThedefinitionofdirectorsinVietnameseEnterprisesLaw Under the Enterprise Law 2005, the legal term for persons who are responsible for directing and managing a company is nguoiquanlydoanhnghiep (literally, persons who direct/manage an enterprise). Accordingly, nguoi quan ly doanh nghiep means the owner or director of a private enterprise, unlimited liability partner of a partnership,chairmanoftheMembersCouncil,chairmanofacompany,amember oftheBOM,directororgeneraldirectorandothermanagerialpositionsasstipulated inthecharterofacompany.84Asexplainedbelow,thisdefinitionrevealssomeofthe shortcomingsoftheEnterpriseLaw2005.
82 Ibid,sections25,Article15. 83 Ibid,sections13,Article16.Theroleanddutiesofthesecretaryofthecompanycomprise: (i)OrganizingmeetingsoftheBOMandoftheboardofcontrollersandtheGMSatthe requestofthechairmanoftheboardofmanagementortheboardofcontrollers;(ii) Advisingonproceduresformeetings;(iii)Takingminutesofmeetings;(iv)Ensuringthat resolutionsoftheBOMcomplywithlaw;(v)Providinginformationrelatingtofinanceand copiesofminutesofmeetingsoftheboardofmanagementandotherinformationto membersoftheBOMandtheboardofcontrollers.Thesecretaryofthecompanyis responsibleformaintainingconfidentialityofinformationinaccordancewithlawandthe companyCharter. 84 Article4.13oftheEnterpriseLaw2005.
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First, unlike the company laws of AngloAmerican jurisdictions, the Enterprise Law 2005 identifies the nguoiquanlydoanhnghiep of a company (hereinafter, company director/manager)accordingtotheirjobtitlesorformalmanagerialposition(emphasis added). Particularly, company directors under the Enterprise Law 2005 include two groups (i) those defined by the Law (such as chairperson of members council, companypresident,memberoftheBOM,andchiefexecutiveofficer),and(ii)other formal managerial positions as determined by the companys constitution. Thus, a companydirector/managerundertheEnterpriseLaw2005isdifferentfromadirector andmanagerinthecompanylawofAngloAmericanjurisdictions. Second,unlikethecompanylawsofcertaincommonlawjurisdictions,theEnterprise Law2005doesnotdistinguishbetweenthetermsdirector,managerandofficer.85 Vietnamese law in general as well as the EnterpriseLaw2005 in particular does not differentiate between the managing director, executive director, nonexecutive director and independent directors as understood in Western jurisdictions. Further, thecompanylawsofsomejurisdictionssuchasAustralia,theUK,theUSandChina define the position of secretary who has an administrative role in the corporate governance process. By contrast, the Enterprise Law2005 is silent on the scope and definition of the position of the secretary of the company. However, it should be noted that the model charters for Vietnamese listed companies and joint stock commercial banks provide that each listed company and bank should have secretaries who are responsiblefor the administrative work of the board. The Code alsorequiresthateachlistedcompanyhaveatleastonesecretary.86 Third,unlikethecompanylawsofadvancedeconomies,thedefinitionofcompany directors/managers in the Enterprise Law 2005 does not include persons who direct/manage a company asa shadow or de facto director. In the WhitePaperon Corporate Governance in Asia, the OECD suggests that the attribution rules should
85 SeeduPlessisetal,aboven3,7083;DavidA.Skeel,CorporateAnatomyLessons(2004) 113TheYaleLawJournal151925.ThecompanystatutesofmostAngloAmerican jurisdictionsprovideadefinitionofdirector,andusuallydistinguishbetweendirector, manager,andofficerofacompany.Whiledirectoristhetermthatusuallyreferstoa memberoftheboardofdirectors,managerusuallyreferstoanofficerwhoisinvolvedin dailymanagement.Inaddition,officerisrelativelybroaddefinitionpossibly encompassingadirector,secretary,receiverandmanager,administrator,employee,and liquidator.Seealso,ss9,82AoftheCorporationsAct2001(Cth)ofAustralia;AmericanLaw Institute(ALI),PrinciplesofCorporateGovernance:AnalysisandRecommendations(1994)s. 1.27.TheALIsPrinciplesalsoprovidedefinitionsofprincipalmanager,senior executive,andprincipalseniorexecutive;seess1.29,1.33,and1.30. 86 SeeArticle16oftheCode.
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imposefiduciarydutiesandliabilitiesonshadowdirectorsasawaytodiscourage theirexistence.87 In short, the Enterprise Law 2005 does not provide for an appropriate definition of company directors or managers. Unlike advanced economies, particularly those of AngloAmerican jurisdictions, the statutory definition of directors does not cover shadow and de facto directors. This can result in a lack of accountability and responsibility on the part of persons who run/manage a Vietnamese company as shadowanddefactodirectors/managersandisunhelpfulforinvestorprotection. b.Appointment,removal,andremunerationofdirectors b.1.Appointmentofdirectors Appointment rights are key strategies for controlling the company and addressing theagencyproblem.88IntheUS,thequalificationsofdirectorsaredecidedbythelaw and the companys charter. 89 In China, the Company Law 2005 provides a list of persons who are disqualified to be a director, senior officer, and supervisor; hence, any appointment of such persons is considered void.90Under the Corporations Act 2001(Cth)ofAustralia,acompanydirectormust(i)beanaturalpersonofatleast18 yearsold;(ii)notbedisqualified,and,(iii)giveconsentinwriting.91 AccordingtotheEnterpriseLaw2005,thefollowingpeoplecannotbeappointedasa companydirector/manager:(i)Stateofficialsandemployees;(ii)peoplewhowork inmilitaryandpoliceforces;(iii)leadingofficers,managersofSOEs(exceptforthose whoareappointedasrepresentativesofstatecapitalincompanies);(iv)minorsand incapablepersons,and,(v)prisonersandthosewhoareprohibitedfromconducting business pursuant to a court order. 92 Further, a manager/director of a insolvent company may be prohibited from being a company director/manager for a period pursuanttoacourtsdecision.93
87 SeeOrganisationforEconomicCooperationandDevelopment(OECD),WhitePaperon CorporateGovernanceinAsia(2003)14,53. 88 Seegenerally,HenryHansmannandReinierKraakman,AgencyProblemsandLegal StrategiesinReinierRKraakmanetal(ed),TheAnatomyofCorporateLaw:AComparative andFunctionalApproach(2004)2126. 89 See,e.g.s8.02ofMBCA. 90 Article147oftheChineseCompanyLaw2005. 91 SeeFarrar,n103above,99;seess201B,201DoftheCorporationsAct2001(Cth)of Australian. 92 Astodetails,seesection2ofArticle13oftheEnterpriseLaw2005. 93 SeeArticle94oftheBankruptcyLaw2004.
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Under the Enterprise Law 2005 provisions, the director (general director) of a shareholdingcompanymustsatisfythefollowingcriteriaandconditions:
(i) have full capacity for civil acts and not be prohibited from establishing andmanaginganenterpriseasstipulatedinarticle13.2oftheEnterprise Law2005;
(ii) beashareholderowningatleastfive(5)percentoftheordinaryshares, or otherwise have expert qualifications or actual experience in business management or in the principal line of business of the company. If the company charter stipulates different criteria and conditions from the above,thentheprovisionsofthecompanychartershallapply; (iii) in the case of a subsidiary company which contributes capital or has shareholdingownedbytheStateofmorethan50%ofthechartercapital, inadditiontothecriteriaandconditionsstipulatedinsubclauses(i)and (ii) above, the director (general director) of such a subsidiary company may not be the spouse, parent or foster parent, child, adopted child or sibling of a manager of the parent company or of the authorized representativeoftheStateownedcapitalportionintheparentcompany.94
Further, the Enterprise Law 2005 stipulates the qualifications of the CEO of a company. The CEO of a SC must (i) not be prohibited from managing/directing a companyasstatedabove,and,(ii)beeitherashareholderwithatleast10percentof the share capital or nonshareholder who has professional qualification and experience in company management or majority business lines of the company or otherqualificationsandconditionsasprescribedinthecompanysconstitution.95The Enterprises Law 2005 provides that the CEO must not concurrently be the CEO of another company; this is designed to reduce conflicts of interests.96In addition, a memberoftheBOMofaSCmusteitherbeanindividualshareholderholdingatleast five per cent of ordinary shares or a nonshareholder who has professional qualificationsandexperienceincompanymanagementormajorbusinesslinesofthe companyorotherqualificationsasprescribedinthecompanysconstitution.97Inthis way, the Enterprise Law 2005 prefers a manager being a shareholder rather than a nonshareholder. However, a shareholder who lacks management experience and qualificationscanstillmeetthestatutoryrequirementsforaboardmemberorCEO. ThislawisfurtherdiscussedinTACcase.
94 SeeSection1,Article13ofDecree139. 95 Seesection2,ofArticle116oftheEnterpriseLaw2005. 96 Ibid. 97 Ibid,Article110.
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Under the Enterprise Law 2005, only a shareholders meeting has the powers to appoint a board member, and Vietnamese courts have no power to appoint a director/managertoacompany.UnderAustraliancompanylawapersonmustgivea companyasignedconsenttoactasadirectorbeforebeingappointed.TheEnterprise Law 2005 does not require a written consent from a company director/manager.98 Since the Enterprise Law 2005 does not require a signed consent of the person appointed as a director, a person can effectively be appointed without his/her consent. b.2.Removalofdirectors The EnterpriseLaw2005 provides that a member of the BOM as well as the Control Board of a SC may be removed in one of the following circumstances: (i) disqualification; (ii) not participating in activities of the BOM for (6) consecutive months; (iii) resigning; (iv) by a resolution of shareholders meeting, and, (v) other casesstipulatedinthecompanyscharter.99Accordingly,shareholderscanremovea member of the BOM and Control Board with or without cause. Other officer/managers can be removed in accordance with the companys charter or a decisionofthegovernancebodywhichappointedher/him.ABOMmembercanbe dismissedatanytimepursuanttoaresolutionoftheshareholders.100 Thelengthofadirectorialterminotherjurisdictionsrangefromalowoftwoyears (suchas inJapan), to nostatutory termlimits(for example,in the UK). In theUSa oneyear term is the default rule and ordinarily there is a maximum term of three years. 101 The company law of AngloAmerican jurisdictions does not stipulate an officetermfortheCEO;however,theservicecontractoftheCEOisdecidedbythe board of directors. If a CEO is appointed by contract for a fixed term, then if the companyremovestheCEObeforethetermexpirythecompanycanbeheldliablein damages.102However,adirectorwhodoesnothaveaseparateservicecontractandis appointedunderthecompanysconstitutioncanberemovedatanytimeandhe/she cannotrecoveranydamages.103
98 See,e.g.,s201DoftheCorporationsAct2001(Cth)ofAustralian. 99 Articles115and127oftheEnterpriseLaw2005. 100 Ibid,Article115.2. 101 HenryHansmannandReinierRKraakman,n125above,37.Seealso,s8.06ofMBCA. 102 SeeJohnHFarrarandBrendaHannigan,FarrarsCompanyLaw(4ed,1998)343. 103 Ibid.
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The EnterpriseLaw2005stipulates that the officeterm for members of the BOM, the ControlBoard,andtheCEOofaSCshouldbenomorethanfiveyears.104TheLaw doesnotprovideservicetermsforothergovernancepositions. TheprovisionsrelatingtoofficetermsandremovalofdirectorsundertheEnterprise Law2005 are inappropriate for at least two reasons. First, Article 109.1 of the Law provides that a member of the BOM has five years officeterm but Article 115.2 prescribes that a board member can be removed at any time. Second, the Enterprise Law2005doesnotprescribethecircumstancesinwhichtheCEOofcompanycanbe removedordismissed.ItalsodoesnotstatewhethertheCEOcanberemovedwith orwithoutacause.ThisraisesquestionsabouttheremovaloftheCEObeforehis/her officeterm expires. The Enterprise Law 2005 requires the CEO of each company to haveaservicecontractwiththecompany.SuchcontractsaresubjecttotheEnterprise Law2005andtheLabourCode1994(asamended)asatermdeterminedemployment contract.105Accordingly,thereareveryfewopportunitiesforthecompanytodismiss the CEO before the expiration of theservice contract. If the company finds a cause, theobligationofadvancenoticeofatleast30or45daysappliestotheemployer.106In case breach of the term ofthe service contract, the company must pay damages for theCEO.107 In short, the statutory officeterm for company directors/managers under the EnterpriseLaw2005lacksflexibilityintermsofcorporategovernance:acompanymay finditdifficulttoremovedirectorsbeforetheexpirationofatermofoffice.Further, the Law prescribes inconsistent provisions on the officeterm of the CEO and the proceedingsforthedismissalofaboardmember. b.3.Directorsremuneration Directors remuneration is a significant issue in corporate governance. The remuneration of directors and executives should be transparent, fair, and reasonable.108In US firms, unless the companys constitution or the law provides otherwise,theboardofdirectorsmaydecideonthecompensationofdirectors.109In Germany, the remuneration of board members must be approved by shareholders and must be reasonable and in conformity with the financial situation of a
104 SeeArticles109(1);116(2);121(1)oftheEnterpriseLaw2005. 105 SeeArticle27oftheLabourCode1994(asamended). 106 Ibid,Article38. 107 Ibid. 108 SeeNewZealandPrinciplesofCorporateGovernance,Principle5;citedinJohnFarrar, CorporateGovernance:Theories,Principles,andPractice(2ed,2005)521. 109 See,eg,section8.11ofMBCA.
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company. 110 In France, the remuneration of directors is also decided by annual shareholders meeting; nevertheless, the board of directors may also decide to compensatedirectorsforanyspecialtasksorassignmentgiventothem.111Ingeneral, thedirectorsofacompanyhavenoauthoritytopaythemselvesfromthecompanys moneyunlesstheyaregivenauthoritybythecompanysconstitutionorthepayment isapprovedbytheshareholders. Under the Enterprise Law 2005, the remuneration, salary, and bonus of company managers/directors and supervisors are decided by the company based on the business results of the company. 112 In a SC, the total remuneration of the board membersisdecidedbytheshareholdersmeetingandtheremunerationoftheCEO is decided by the board. 113 Unless the constitution provides otherwise, the remunerationofaboardmemberofaSCisdeterminedbyworkingtimeandother reasonable expenses, and decided by the boards unanimous decision. The total annualremunerationoftheBOSofaSCisalsodecidedbytheshareholdersmeeting, andsupervisorsarepaidaccordingtotheirwork.114TheCEOofaSChasthepower to decide the remuneration of managers/officers whom they have appointed. 115 However, the remuneration of managers must be disclosed and reported to the annualshareholdersmeeting. b.4.Directorsduties The law governing the duties of directors and officers is a fundamental area of company law. 116 Directors duties are derived from two distinct functions of the director;theentrepreneurialfunctiontomaximizetheprofitsofthecompanyandthe agentfunctiontoprotecttheassetsoftheprincipal.Oneaspectofdirectorsdutiesis to ensure the loyalty of directors to their company. In general, as the OECD has stated, members of the board should act on a fully informed basis, in good faith,
110 SeeMichaelBradleyetal,ThePurposesandAccountabilityoftheCorporationin ContemporarySociety:CorporateGovernanceataCrossroads(1999)63(2)Lawand ContemporaryProblems53. 111 SeeJeanPierreLeGallandPaulMorel,FrenchCompanyLaw(2ed,1992)104. 112 Article117oftheEnterpriseLaw2005. 113 Ibid. 114 Ibid,section2(c)ofArticle117;Article125. 115 Ibid,section3(e)ofArticle116. 116 SeealsoRomanTomasic,StephenBottomleyandRobMcQueen,CorporationsLawin Australia(2ed,2002)316;R.P.Austin,HAJFordandI.M.Ramsay,CompanyDirectors: PrinciplesofLawandCorporateGovernance(2005)5.
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with due diligence and care, and in the best interests of the company and the shareholders.117 Among corporate law regimes around the world, the laws governing directors duties of AngloAmerican jurisdictions are the most significant. In common law jurisdictions, a director is considered as a fiduciary of the company, and fiduciary dutiesareacorepartofinAngloAmericancorporationlawfordelineatingtherights andresponsibilitiesofdirectorsandmanagers.118Inequity,officersanddirectorsowe fiduciarydutiestothecompanybecausetheyareinapositionoftrust.119 TheconceptofdirectorsdutiesiscomparativelynewinVietnam.Whilesomebasic dutiesofdirectorsappearedintheEnterpriseLaw2005,itcanbearguedthatexisting Vietnamese company law, particularly the Enterprise Law 2005, does not provide satisfactory provisions regarding the duties of company directors. Notions of a directors legal duties are not as developed as they are in, for example, Anglo Americancompanylaw. The terms nghiavu (obligation) and nhiemvu (duty) are used interchangeably in theEnterpriseLaw2005.Nevertheless,thesocallednghiavu(obligation)ofdirectors appearstobesimilartothedutyofdirectorsincommonlawcountries.According to the Enterprise Law 2005, directors/mangers of Vietnamese companies have the followingnghiavu(obligationsorduties):
(i) To exercise their delegated powers and perform their delegated duties strictly in accordance with this Law, relevant legislation, the charter of thecompany,resolutionsoftheGMS;
(ii) To exercise their delegated powers and perform their delegated duties honestly,diligentlytotheirbestabilityinthebestlawfulinterestsofthe companyandoftheshareholdersofthecompany; (iii) To be loyal to the interests of the company and shareholders of the company;tonotuseinformation,secretsorthebusinessopportunitiesof thecompanytotheirpersonaladvantage;nottoabusetheirpositionand 117 SeeOrganisationforEconomicCooperationandDevelopment(OECD),TheOECD PrinciplesofCorporateGovernance(2004),(PrincipleVI.A). 118 KatharinaPistorandChenggangXu,FiduciaryDutyinTransitionalCivilLaw Jurisdictions:LessonsfromtheIncompleteLawTheory(2002)1LawWorkingPaper, EuropeanCorporateGovernanceInstitute(ECGI)3.SeealsoCheeKeongLow,ARoadMap forCorporateGovernanceinEastAsia(2004)25NorthwesternJournalofInternationalLaw andBusiness1659. 119 SeeRPAustin,HAJFordandIMRamsay,aboven.147,211;MichaelAAdams,Essential CorporateLaw(2005)468;JonathanCLipson,DirectorsDutiestoCreditors:Power ImbalanceandtheFinanciallyDistressedCorporation(2003)50UCLALawReview118995.
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powersandassetsofthecompanyfortheirownpersonalbenefitsorfor thebenefitofotherorganisationsorindividuals; (iv) To fully and accurately and in a timely fashion notify the company of enterprises which they or related persons have contributed capital or controlling shares; this notice shall be displayed at the head office and branchesofthecompany. (v) Other obligations in accordance with this Law and the charter of the company.120
Accordingly,theEnterpriseLaw2005imposesstatutorydutiesofloyalty,goodfaith, care, and diligence on company directors/managers that appear similar to those of thejurisdictionsdiscussedabove.Directors/managershavetoactinthebestinterests ofthecompanyandforproperpurposes,andtheymustdisclosepersonalintereststo avoid conflicts of interests. However, the provisions regarding the directors/managersdutiesundertheEnterpriseLaw2005alsohaveshortcomings. First,unlikethelawsofotherjurisdictions,theEnterpriseLaw2005doesnotprescribe a duty to prevent insolvent trading. In addition, the Enterprise Law 2005 does not require directors/managers to notify creditors when the company cannot pay debts dueandpayableinfull.TheLawmerelyrequiresdirectors/managersnottoincrease salaries and pay bonuses while the company has not paid in full all debts due and payable.Inthisway,creditorprotectionappearstobeundermined.121 Secondly,AngloAmericancorporatelawprovidessanctionsfordirectorswhoarein breachofduties.Thesemayincludedamages(basedonprinciplesofcontractortort), compensation,injunctionsanddeclarations.Theoffendermaybepunishedbystrict civilorcriminalpenalties.Australiancompanylaw,forexample,providessanctions or remedies for breaches of directors duties such as civil or criminal penalties. ExaminingcorporategovernanceinAsia,theOECDrecommendsthatsanctionsfor violations of fiduciary duty should be sufficiently severe and likely to deter wrongdoing. 122However, the Enterprise Law 2005 lacks the necessary penalties to forcedirectorstofulfiltheirduties.123
120 SeeArticle119,theEnterpriseLaw2005. 121 Ibid,Articles116,117. 122 OrganisationforEconomicCooperationandDevelopment(OECD),WhitePaperon CorporateGovernanceinAsia(2003)53. 123 ItisnoteworthythatinarecentsurveybyMinistryofPlanningandInvestment(MPI)of nearly63,000enterprisesin36provincesitwasfoundthatonly2.99percentofenterprises directors/managershadanadvancedlevelofeducation(masterdegreesorhigher),43.3per centhadprimarylevelofeducation(graduatedfromhighschoolsorlower),and53.71per centhadeducationfromuniversities,collegesorlower.AsimilarsurveybytheInstituteof
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2.1.1.4.TheControlBoard UndertheEnterprisesLaw2005,aControlBoard(BanKiemSoat)mustbeestablished inaSCwithmorethan11naturalshareholdersorhavingorganizationsowningmore thanfifty(50)percentofthetotalsharesofthecompany.AControlBoardhasfrom three(3)tofive(5)membersonthetermoftheControlBoardcanbenomorethan five (5) years. Members of the Control Board may, however, be reappointed for additional terms. 124 Unlike AngloAmerican jurisdictions, where a Control Board oftenbelongstoaboardofdirectors,theControlBoardofaVietnameseSCisabody electedbyshareholdersanddistinctfromtheBOM.125 The members of the Control Board elect one member to be the head of the Control Board. The rights and duties of the head of the Control Board are stipulated in the company Charter. More than half of the members of the Control Board must permanently reside in Vietnam and at least one member of them must be an accountant or auditor. Interestingly, in order to assure the independence of the ControlBoard,companymanagersandtheirrelativescannotbecomeasupervisorof the company. Moreover, members of the Control Board may not hold managerial positionsofthecompany.MembersoftheControlBoardneednotbeashareholder or the employee of the company.126The Code also requires that a member of the Control Board must have specialized qualifications and experience and the head of theControlBoardmusthavespecializedaccountingqualificationsbutmustnotwork intheaccounting/financialdepartmentandmustnotbethefinancialdirectorofthe company.127Similarly, the Control Board must have at least one member who is an independent accountant or auditor. This member must not be a member of staff of the accounting/financial department of the company,and must not bea member of staff of an auditing company which currently audits the companys financial statements.128
DevelopmentResearch(IDR)inHoChiMinhCity(HCMC)alsoshowedthatthe VietnameseCEOcompaniesarenotonlyweakregardingcapitalandtechnology,butalso shortofknowledge,managementskills,visibilityandmanagementability.Seefurther,Ho Van,TheVietnameseCOE:MajoritySelftaught(CEOViet:Tuhoclachinh),TuoiTre (YouthNewspaper)28thAugust2007,availableat http://www3.tuoitre.com.vn/Vieclam/Index.aspx?ArticleID=217421&ChannelID=269,last visited28August2007. 124 Ibid,Article121. 125 Ibid,Article96.2;Article121. 126 Ibid,Article122. 127 SeeArticle18,theCode. 128 Ibid,Article19.
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A main function of the Control Board is to supervise the BOM and the CEO in managing and running the company.129In particular, the Control Board (i) inspects the reasonableness, legality, truthfulness and prudence in management and administrationofbusinessactivities,intheorganizationofstatisticalandaccounting work and the preparation of financial statements; (ii) evaluates reports on the business, including semiannual or annual financial statements and reports on evaluation of the management of the Board of Management; (iii) reviews books of accountsandotherdocumentsofthecompany,themanagementandadministration of the activities of the company at any time deemed necessary or pursuant to a resolution of the GMS or as requested by a shareholder or group of shareholders holdingmorethan10percentofthetotalordinarysharesforaconsecutiveperiodof 6monthsormore;130(iv)recommendstotheBOMortheGMSregardingchangesand improvements of the organizational structure, management and administration of thebusinessoperationsofthecompany.Interestingly,theControlBoardmayusean independent consultant to perform the assigned duties. The Control Board may consult the BOM prior to the submission of reports, conclusions and recommendationstotheGMS.131ThisissueisfurtherdiscussedinFPT,TACandBBT cases. The Enterprises Law 2005 also ensures that controllers have access to management information.Forexample,acontrollerhasthestatutoryrighttoattendthemeetings of the BOM, and the CEO has to report to the BOM and the Control Board at the sametimeandinthesamemanner.MembersoftheControlBoardhavetherightto accessthefilesanddocumentsofthecompanyretainedintheheadoffice,branches andotherlocations;theyalsohavetherighttoaccesslocationswheremanagersand employeesofthecompanywork.Further,theBOM,membersoftheBOM,theCEO andothermanagersmustprovideinfull,accuratelyandontimeallinformationand documentsrelatingtothemanagement,administrationandbusinessoperationofthe companyupondemandbytheControlBoard.132Additionally,theCodestatesthata listedcompanymustformulateamechanismtoensurethatmembersoftheControl
129 Article123,theEnterprisesLaw2005. 130 Ibid,section5.TheControlBoardshallcarryoutaninspectionwithinaperiodofseven workingdaysforthedateofreceiptoftherequest.TheControlBoardmustsubmitareport onresultsoftheinspectionoftheissuesrequiredtobeinspectedtotheBOMandthe requestingshareholderorthegroupofshareholderswithinaperiodoffifteen(15)days fromthedateofcompletionoftheinspection. 131 Ibid,sections8and9. 132 Ibid,Article124.
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Boardareindependenttheiractivities,andimplementtheirdutiesinaccordancewith lawandthecompanyCharter.133 UndertheCode,theControlBoardhasatleastsixresponsibilitiesandobligations.134 First, the Control Boardisaccountable toshareholdersfor its supervisoryactivities. TheControlBoardisresponsibleforsupervisingthefinancialstatusofthecompany; thelegalityofactionsofthemembersoftheBOM,ofactionsoftheboardofdirectors and managers; coordination between the Control Board with the board of management,theboardofdirectorsandshareholders;andotherdutiesstipulatedby lawandthecompanyCharterwithaviewtoprotectingthelegitimateinterestsofthe company and its shareholders. Second, the Control Board must meet at least twice each year, and the number of attendees must be at least twothirds of the total numberofmembersoftheboard.MinutesofameetingoftheControlBoardmustbe prepared clearly. The secretary and members of the Control Board attending the meetingmustsigntheminutes.MinutesofameetingoftheControlBoardmustbe filed as important documents of the company in order to clarify liability of each memberoftheControlBoardforresolutionsoftheboard.Third,theControlBoard has the right to request members of the BOM or of the board of directors, internal auditors and independent auditors to attend a meeting of the Control Board and answerquestionsonissueswhichconcerntheboard.Fourth,theControlBoardmay report directly to the SSC or other State administrative bodies if it discovers acts committed by a member of the BOM or of the board of directors or by a manager whichitconsidersbreachthelaworthecompanysCharter.Fifth,theControlBoard is entitled to select an independent auditing organisation to audit the financial statements of the listed company, and to request the GMS to approve its selection. Sixth,theControlBoardisresponsibleformakingthereportattheGMS.Thereport on activities of the Control Board submitted to the GMS must contain at least the following contents: (i) activities of the Control Board; (ii) summarized contents of meetingsofanddecisionsoftheControlBoard;(iii)resultofsupervisionofactivities and financial status of the company; (iv) result of supervision of members of the BOM, the CEO; and (v) report of assessment of coordination between the Control Board,theBOM,theCEO.135 The Enterprises Law 2005, the Securities Law 2006 and the Code have enhanced the supervisory mechanisms in SCs. However, the law does not (i) provide for the operation of the Control Board as a collective corporate body, and (ii) specify how this body adopts a decision. Further, the efficiency of a Control Boards operation
133 Article20,theCode. 134 Ibid,Article21. 135 SeeArticle8,theCode.
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depends on various factors. A survey by MPDF in 2004 showed that 36 per cent of therespondentsbelievedthattheControlBoardjustexistsonpaper(chitontaitren giay)becauseitisrequiredbylaw.136 Insummary,themandatoryinternalgovernancestructureofalistedcompanyunder the provisions of the Enterprises Law 2005, Securities Law 2006, and the Code comprises four bodies: the GMS, a BOM, a CEO and a Control Board, each with certainstatutorypowersandfunctions.However,inadditiontothestatutorypowers prescribed by law, the companys constitution can expand but not decrease the powersoftheabovecorporategovernancebodies. 2.1.2.Dotheinternalgovernancestructuressupportthegoodcorporategovernanceoflisted companies? 2.1.2.1. The internal governance structures of listed companies show a lack of flexibility, efficiency,andaccountability. UndertheOECDPrinciples,thecorporategovernanceframeworkshouldensurethe strategic guidance of the company, the effective monitoring of management by the board, and the boards accountability to the company and the shareholders.137The first working postulate presumes that good corporate governance requires the efficiency and accountability of the board (or internal governance structure). However, the internal governance structures of listed companies under the EnterprisesLaw2005,SecuritiesLaw2006andtheCodelackflexibility,efficiency,and accountability.Thereasonsaretwofold. First, unlike the US, Germany and Australia, the internal governance structure of a Vietnamesecompanyisdependentonthenumberofshareholdersatthetimewhen the Control Board is set up. For example, if a SC has more than 11 natural shareholdersoratleastoneorganizationshareholderholdingmorethan50percent oftheequitycapital,theyarerequiredtohaveaControlBoard. Second, compared to the US and Germany, the internal governance structures of Vietnamese companies are more complex. The mandatory internal governance structures under the EnterprisesLaw2005 are evenmore problematicas they do not allowacompanytoformanappropriategovernancestructure.Bycontrast,common
136 SeeNguyenVanLan,CorporateGovernanceinVietnam:InitialResearchResults(Thuc tienQuantridoanhnghiepoVietnam:Motsoketquanghiencuubandau)(Paper presentedattheIFC/OECDInternationalCorporateGovernanceMeeting:WhyCorporate GovernanceMattersforVietnam,Hanoi,Vietnam(6December),2004)58. 137 SeeOrganisationforEconomicCooperationandDevelopment(OECD),TheOECD PrinciplesofCorporateGovernance(2004)24.
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lawjurisdictionsoftenallowshareholderstodecideinternalgovernancestructures.138 Moreover,theAmericanLawInstituteidentifiestwogoalsofgovernancestructures: managerialflexibilityandaccountabilitytoshareholders,andproposesflexiblerules ofgovernancestructurestopermitacompanytorespondrapidlytothosegoalsina changing business and social environment. 139 The flexible regulatory approach of corporate law of common law jurisdictions offers the possibility for substantially more experimentation in company structure and appears to provide more flexible andefficientincorporategovernancepractices.140 2.1.2.2.Inappropriateallocationofcontrolrightsinlistedcompanies The division of powers between the corporate bodies in an internal governance structureisdesignedtoachievegoodcorporategovernance.Asstatedbefore,under the company law of AngloAmerican jurisdictions, the powers of a company are vestedinaboardofdirectors(exceptasmaybeotherwiseprovidedforbythelawor the companys constitution), and, a company is managed by, or under the directorshipofa board of directors.141The division ofpowers between thedirectors (the board) and the shareholders (the GMS) can also be found in some leading commonlawcases.142Thelegislatureincivillawcountriesusuallydistributespowers between corporate governance bodies, whereas common law jurisdictions are more flexibleinthattheyoftenleavetheallocationofcontrolrightstoshareholders.143The flexible allocation of power between the decisionmaking bodies of a company, particularlybetweenshareholdersanddirectors,enablesgreaterflexibility,whichin turn enables the company to react quickly to a changing environment and to
138 SeeKatharinaPistoretal,TheEvolutionofCorporateLaw:ACrossCountryComparison (2003)23(4)UniversityofPennsylvania,JournalofInternationalEconomicLaw791,19,available atthewebsiteofSSRNathttp://ssrn.com/abstract=419881,lastvisited25July2007. 139 Seegenerally,AmericanLawInstitute,PrinciplesofCorporateGovernance:Analysisand Recommendations(Vol1,1994)778. 140 SeeKatharinaPistoretal,op.cit,29. 141 Seesection198AoftheCorporationAct2001(Cth)ofAustralia;s128oftheCompaniesAct 1993ofNewZealand;s8.01ofMBCA,and,s141ofDelawareGeneralCorporationLawofthe US. 142 SuchasAutomaticSelfCleaningFilterSyndicateCoLtdvCunninghame[1906]2Ch34;Quin& AxtensLtdvSalmon[1909]AC442;HowardSmithLtdvAmpolPetroleumLtd[1974]AC821; JohnShaw&Sons(Salford)LtdvShaw[1935]2KB113;andMendesvCmrofProbateDuties (Vic)(1967)122CLR152at160.Seefurther,RPAustin,HAJFordandIMRamsay, CompanyDirectors:PrinciplesofLawandCorporateGovernance(2005)704. 143 SeePistoretal,opcit,29.
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implementstrategicmoveswithoutgoingthroughcumbersomeprocedurestoensure shareholdersrights.144 The company law of some AngloAmerican jurisdictions often allows a board of directors to delegate their powers to a subcommittee (such as a committee of auditing, nominating, and remuneration), or otherwise to a director or any other person.145Thisappearsflexibleandefficientwhendealingwithparticularmattersof thecompany,especiallyinlargepubliccompanies.146 Under the Enterprises Law 2005, these powers of decisionmaking bodies of each company type can be expanded, but not decreased, by the companys constitution. Vietnamese Law has no provisions permitting a board, or any other corporate governance body, to set up and delegate its powers to other bodies. It should be notedthatalthoughtheCodestatesthattheBOMofalistedcompanymayestablish subcommittees in order to assist the BOM in its operation, the Code does not provide for the delegation of powers of the BOM to these subcommittees. The law does not enable the shareholders meeting to delegate its statutory powers to the BOM or to the CEO. The mandatory divisions of powers between fixed corporate decisionmakingbodieswithoutdelegationofpowersunderthelegalframeworkof listed companies implies a lack of flexibility and efficiency. In this way, the legal framework restricts a companys capacity to set up a flexible internal governance structure and does not support good corporate governance practices in the listed companies. The OECD Principles of Corporate Governance and the company law of Anglo American jurisdictions favour the role of the board of directors in the supervision andguidanceofdailymanagementtasks.However,undertheEnterprisesLaw2005, the BOM has the power to be involved directly in the company management. The LawprovidesthattheboarddirectsandsupervisestheCEOandothermanagersin running the daily operation of the company.147Further, the Law provides that the BOM has the power to decide on any matters that are not within the scope of the shareholdersmeeting.ThismeansthattheboardcanoverruletheCEOwhoisalso mandatedasthedecisionmakingindividualwithstatutorypowerstorunthedaily operation of the company. 148 In this way, the statutory division of powers and
144 Ibid,30. 145 See,eg,ss198C(1),198D(1)oftheCorporationAct2001(Cth)ofAustralia. 146 See,e.g.AmericanLawInstitute,PrinciplesofCorporateGovernance:Analysisand Recommendations(Vol.1,1994)s.305,PartIIIA(ss3A.013A.05). 147 See108.2.(i)oftheEnterprisesLaw2005. 148 Ibid,Articles95,116.
40
functionsbetweentheBOMandtheCEOinSCsisunclearandmayresultinalackof accountability.149 2.1.2.3.Theproblemofthelegalrepresentativeofcompanies A company is an artificial legal person and must have people to act on its behalf. Unlike the corporation law of Australia and some other countries,150the Enterprises Law2005requiresthecompanysconstitutiontodecideuponthelegalrepresentative of the company. For example, the Enterprises Law 2005 stipulates that the legal representativeofaSCiseitherthechairpersonoftheBOMortheCEO.Whilethese provisions appear to be flexible, they are inappropriate because the powers of the CEO are restricted by the chairperson and the CEO may have no authority to approvecontractsandsigndocumentsonbehalfofthecompany.Thiscanadversely affectthecompanysbusinessandmaypresentdifficultiesindailymanagement.151 2.1.2.4.Theproblemofmandatorysupervision Efficient supervisory mechanisms are important for good corporate governance. TheEnterprisesLaw2005requiresthataControlBoardmustbeestablishedwhenaSC hasmorethan11naturalshareholdersorone(ormore)organisationshareholder(s) holdingmorethan50percentoftheequitycapital.Thus,itcouldbeassumedthata SC that has 10 natural shareholders holding 51 per cent and 490 organisation shareholders holding 49 per cent of the share capital would have no mandatory supervisor. In public companies with a large number of shareholders, mandatory supervisory mechanisms are necessary to protect minority investors. Thus, it is inappropriatethataSChaving500shareholdershasnosupervisor.Thisisagapin theEnterprisesLaw2005. In summary, the current legal framework for corporate governance of Vietnamese listed companies is ineffective because of a lack of flexibility, accountability and
149 Ibid,Article108.2;Article116.3. 150 FordiscussionoftheauthoritytoactforacompanyunderthecompanylawofAustralia andNewZealand,seegenerally,PRAustinandIMRamsay,FordsPrinciplesof CorporationsLaw(13ed,2007)75863;GordonWalkeretal,CommercialApplicationsof CompanyLawinNewZealand(2ed,2005)41828. 151 Bycontrast,theCorporationsAct2001(Cth)ofAustraliastipulatesthatany2directorsofa companythathas2ormoredirectors,orthedirectorofaproprietarycompanythathas only1director,maysign,draw,accept,endorse,orotherwiseexecuteanegotiable instrument(section198B(1)).UnderAustraliancorporationslaw,acompanycanexecutea documentwithoutusingacommonsealwhenitissignedbytwodirectors,oradirector andacompanysecretary,orthesoledirectorofthecompany.Seefurther,subsection 127(1)and127(2)oftheCorporationsAct2001(Cth).
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efficiency. The mandatory approach that has been adopted regarding company structuredoesnotpromotegoodcorporategovernance. 2.2.Therightsofshareholders According to Hansmann and Kaakman, there are three possible principal conflicts withinthecompany:(i)thosebetweenmanagersandshareholders;(ii)thosebetween controlling and minority shareholders, and, (iii) those between shareholders and othercorporatestakeholderssuchasemployeesandcreditors.152Theseissuesrelating totherightsofshareholdersarealsoaddressedintheOECDPrinciples.Accordingly, thecorporategovernanceframeworkshould:
(i) (ii) protectandfacilitatetheexerciseofshareholdersrights(PrincipleII); ensure the equitable treatment of all shareholders, including minority andforeignshareholders.Allshareholdersshouldhavetheopportunity toobtaineffectiveredressforviolationoftheirrights(PrincipleIII);
(iii) recognisetherightsofstakeholdersestablishedbylaworthroughmutual agreementsandencourageactivecooperationbetweencorporationsand stakeholders in creating wealth, jobs, and the sustainability of financial soundenterprises(PrincipleIV).153
TherightsofshareholdersorinvestorprotectionwereaconcernforVietnameselaw makers when introducingthe EnterprisesLaw2005.Accordingly, stronger minority shareholderprotectionis,interalia,amainobjectiveoftheEnterprisesLaw2005.154In general, the Enterprises Law 2005 enhances investor protection mechanisms, and providesforbasicrightsofshareholderssuchasattendingtheGMS,votingdirectly (or via proxy) on the basis of one share one vote; selecting senior managers and supervisors; receiving dividends; being given priority in making additional capital contributions; assigning his/her shares to others; getting information of the
152 SeeHenryHansmannandReinierKraakman,WhatisCorporateLawinReinierR. Kraakmanetal(ed),TheAnatomyofCorporateLaw:AComparativeandFunctionalApproach (2004)12. 153 SeeOrganisationforEconomicCooperationandDevelopment(OECD),TheOECD PrinciplesofCorporateGovernance(2004)1821. 154 SeeReportNo.444/BCUBTVQH11dated19November2005byStandingCommitteeofthe NationalAssembly(UybanThuongVuQuochoi)at7.Itisnoteworthythatunderthe SecuritiesLaw2006,amajorityshareholderisashareholderthatholdsdirectlyorindirectly atleast5percentofsharesthatareentitledtovote(Article6.9).Bycontrast,theEnterprises Law2005doesnotprovideadefinitionofamajoritynorminorityshareholder.
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companysbusiness,andreceivingapartoftheremainingassetsupondissolutionor bankruptcyofthecompany.155 2.2.1.Meetingsanddecisionsofshareholders. In general, the Enterprises Law 2005 provides detailed provisions for procedures, agendas, and other matters concerning meetings of shareholders. Compared to the Enterprises Law 1999, the Enterprises Law 2005 enhances investor protection mechanisms, especially minority shareholder protection, via provisions on meeting agendas,conveningameeting,andquorumsforshareholdersmeetingandpassinga resolution.However,theLawalsohasshortcomingsinthisarea.Thesearediscussed below. 2.2.1.1.RighttorequireaGMSbyminorityshareholders In order to enhance minority shareholder protection, the Enterprises Law 2005 provides for smaller statutory proportions of the equity capital in order for shareholders to require a general meeting. This may help minority shareholders to challenge the management and discuss related issues under the shareholders powers.Accordingly,ashareholderofagroupofshareholdersofaSCholdingover 10percentofordinarysharesofthecompanyforatleastsixconsecutivemonths(or a smaller proportion as prescribed in the companys constitution) has the right to require the BOM to convene a shareholders meeting in certain circumstances as providedforbythelawandthecompanysconstitution.156IftheBOMdoesnotcalla shareholdersmeetingwithin30daysafterreceivingtherequest,thechairpersonof theBOMisresponsibletothecompanyforanydamage,andtheControlBoardmust convene a shareholders meeting. If the Control Board also fails to convene a shareholdersmeeting,theheadoftheControlBoardisresponsibletothecompany for any damage, and the shareholders who put the request have the right to call a shareholders meeting where the expenses are paid by the company. 157 These provisionsmayhelptoconveneaGMStodealwithmattersofthecompanysuchas challengingthemanagement,directors,andsupervisorsofthecompany. However, the provisions on convening a GMS of the Enterprises Law 2005 have certain shortcomings. First, the EnterprisesLaw2005 provides limited circumstances forshareholdersofaSCtorequireameeting.ThisLawstipulatesthatashareholder oragroupofshareholdersofaSConlyhastherighttorequiretheBOMtoconvenea GMSinthefollowingcircumstances:
155 SeeArticles7980oftheEnterprisesLaw2005. 156 Seeart79.2;art97.3oftheEnterprisesLaw2005. 157 Ibid,art97.36.
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(i)
theBOMmakesaseriousbreachofrightsofshareholders,obligationsof managersormakesadecisionwhichfallsoutsideitsdelegatedauthority; thetermoftheBOMhasexpiredformorethansixmonthsandnonew BOMhasbeenelectedtoreplaceit;
(ii)
(iii) othercircumstancesasprescribedinthecompanysconstitution.158
In addition, the requester(s) has to show evidence of the above circumstances. 159 Therefore,shareholdersofaSChavelimitedopportunitiestorequireaGMS,andit maybehardforthemtoobtainadequateevidencetosupportarequest. Inshort,comparedtothecompanylawofsomeotherjurisdictionslikeChina,Spain, Ireland, Italy, Australia, Germany, and New Zealand, shareholders of Vietnamese companiesoperatingundertheEnterprisesLaw2005finditmoredifficulttorequesta GMS due to higher shareholding requirements, the limited circumstances in which such a meeting can be called and the need to show evidence. Additionally, Vietnameseshareholdersanddirectors/managershavenorighttorequestacourtto orderaGMStobeconvened. 2.2.1.2.Requirementformeetingandpassingaresolution Vietnamese lawmakers contend that the higher the requirement for passing a resolution on matters raised at the meeting is require, the more minority shareholders may be protected. 160 Thus, so as to enhance mechanisms to protect minority investors, the Enterprises Law 2005 increased the requirements (example, quorum)forameetingandthepassingofaresolutionoftheGMS.Accordingly,the GMS is conducted when the number of attending shareholders represents at least
158 Ibid,art79.3. 159 Section4ofArticle79stipulatesthat[T]herequestmustbeinwriting,mustcontainfull name,permanentaddress,nationality,numberofpeoplesidentitycard,passportorother lawfulpersonalidentificationinrespectofashareholderbeinganindividual;name, permanentaddress,nationality,numberofdecisiononestablishmentornumberof businessregistrationinrespectofashareholderbeinganorganization;numberofshares andtimeofregistrationofsharesofeachshareholder,totalnumberofsharesofthegroup ofshareholdersandthepercentageofownershipinthetotalnumberofsharesofthe company;andgroundsandreasonsfortherequesttoconveneameetingoftheGMS.The requestmustbeaccompaniedbydocumentsandevidenceonthebreachesoftheBOM,the seriousnessofsuchbreaches,oronthedecisionwhichfallsoutsideitsauthority. 160 SeeReportNo.444/BCUBTVQH11ofStandingCommitteeofNationalAssembly(UyBan ThuongVuQuocHoi)dated19November2005at67.
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sixty five (65) per cent of the voting shares.161In addition, shareholders can decide higherrequirementsforaGMSinthecompanysconstitution. Furthermore,topassaresolutionattheshareholdersmeeting,therequirementsare also higher. The requirement to adopt an ordinary resolution is 65 per cent of the total voting shares of all attending shareholders.162Where a resolution is passed by collectingwrittenopinions,aresolutionoftheGMSispassedwhenitisapprovedby anumberofshareholdersrepresentingatleastseventyfive(75)percentofthetotal voting shares. Further, the company Charter can prescribe higher quorums for adoptingaresolutionofshareholderscomparedtotheabovestatutoryrequirements under the Enterprises Law 2005. This issues is further discussed in Vinaconex and Vietcombankcases. Under the above mentioned requirements, minority shareholders of Vietnamese companies have a stronger voice in the corporate governance process and controlling shareholders also have to consider interests of minority investors in the decisionmaking process. These statutory requirements are higher than those of many other jurisdictions such as Australia, New Zealand, numerous US states (includingDelaware),andChina,wheretheaffirmativevoteofthemajorityofvoting rights(asimplemajority)iseffectiveonnormalmattersofthecompany.163 However, the higher statutory requirements for passing a resolution under the Enterprises Law 2005 are still problematic. The reasons are twofold. First, the requirements for adopting a resolution of GMS as discussed above are higher than those in company law of the number of other jurisdictionsand this may negatively affect foreign direct investment in Vietnam. 164 Second, when Vietnam negotiated withmembersoftheWorldTradeOrganisation(WTO)inthecourseofitsaccession, the WTO members discussed these requirements. The Vietnamese Government has toacceptthatforeignshareholdershavetherighttoagreewithothershareholdersto adopt a constitution with lower requirements for passing a resolution of the GMS
161 Seeart102.1oftheEnterprisesLaw2005. 162 Ibid,art104.3. 163 See,eg,s216oftheDelawareGeneralofCorporationLaw;Article104oftheCompanyLaw2005 ofChina;GordonWalkeretal,CommercialApplicationsofCompanyLawinNewZealand(2 ed,2005)198;RomanTomasic,StephenBottomleyandRobMcQueen,CorporationsLawin Australia(2ed,2002)309. 164 SeeMinistryofTrade(BoThuongMai),BriefReportonResultsofNegotiationson AccessiontotheWTOandApprovaloftheProtocolofAccessiontotheAgreement EstablishingtheWTO(BaocaotomtatketquadamphangianhapTochucThuongMai ThegioivaPhechuanNghidinhthugianhapTochucThuongMaiThegioi)(24 November2006)6.
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comparedtostatutoryquorumsasprovidedforbytheEnterprisesLaw2005.165Inthe result,acompanywithonlyVietnameseshareholdersistreatedindifferentwaytoa companyhavingforeignequityinvestors. 2.2.2.Largeandrelatedpartytransactions The provisions to control and approve large and relatedparty transactions in the EnterprisesLaw2005areimprovementscomparedtothepreviouslaw.Nevertheless, thequestioniswhethertheLawhasshortcomingsinthisarea. First,undertheEnterprisesLaw2005,aloanagreementoracontractthathasavalue of at least 50 per cent of the total assets of the company (or smaller percentage as prescribedinthecompanysconstitution),excludingrelatedpartytransactions,must be approved by the BOM of the SC.166However, the Enterprises Law 2005 does not provide legal mechanisms to monitor such transactions. This absence is not helpful forprotectinginvestors. Second,thetermrelatedpartytransactions(cacgiaodichcoloiichlienquan)isanew concept.167Nevertheless, the definition of related person (nguoicolienquan) under theEnterprisesLaw2005andtheSecuritiesLaw2006hasbeenwidenedincomparison withthe1999companystatute,and,tosomeextent,iscomparabletothedefinitionin ModelBusinessCorporationAct(MBCA)oftheUSandtheCorporationsAct2001(Cth) ofAustralia.168 According to theEnterprisesLaw2005, related person (nguoicolienquan)means an organizationorpersonsrelateddirectlyorindirectlytoanenterpriseinthefollowing cases:
165 Ibid. 166 Seesection2,Article108oftheEnterprisesLaw2005. 167 SeeCIEM(VienQuanLyKinhTeTrungUong),GTZ(GesellschaflfurTechnische Zusammenarbeit)andUNDPVN(UnitedNationsDevelopmentProgramme),HighTime foranotherBreakthrough:ReviewoftheEnterprisesLawandRecommendationsfor Change(Thoidiemchosuthaydoi:DanhgiaLuatdoanhnghiepvakiennghisuadoi) (2004)5. 168 Seesection17ofArticle4oftheEnterprisesLaw2005;section34ofArticle6oftheSecurities Law2006.Seeandcompare,s8.60(3)ofMBCAoftheUS;ss9,228oftheCorporationsAct 2001(Cth)ofAustralia.MBCA(subs8.60(3))providesthatrelatedpersonofadirector means(i)thespouse(oraparentorsiblingthereof)ofthedirector,orachild,grandchild, sibling,parent(orspouseofanythereof)ofthedirector,oranindividualhavingthesame homeasthedirector,oratrustorestateofwhichanindividualspecifiedinthisclause(i)is asubstantialbeneficiary;or(ii)atrust,estate,incompetent,conservative,orminorofwhich thedirectorisafiduciary.
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a)
Aparentcompany,themanagersoftheparentcompanyandtheperson whohasthepowertoappointsuchmanagers,andasubsidiarycompany; Asubsidiarycompanyandaparentcompany; Apersonoragroupofpersonsbeingabletocontrolthedecisionmaking process and operations of such enterprise through the management bodiesoftheenterprise; Amanageroftheenterprise; Husband, wife, father, adoptive father, mother, adoptive mother, children,adoptedchildren,siblingsofanymanagerofanenterprise,any member, or any shareholder holding a share of capital contribution or controllingshare; An individual who is authorized to act as the representative of the personsstipulatedinparagraphs(a),(b),(c),(d)and(e)ofthisclause; An enterprise in which the persons as stipulated in paragraphs (a), (b), (c),(d),(e),and(f)ofthisclauseholdingsharestothelevelthattheycan control the decisionmaking process of the management bodies of such enterprise; Any group of persons who agree to coordinate to take over shares of capital contribution, shares or interests in the company or control the decisionmakingprocessofthecompany.169
b) c)
d) e)
f)
g)
h)
As discussed above, in SCs, company directors/managers have to disclose their personalinterests,and,allrelatedpartytransactionsmustbeapprovedbyeitherthe shareholders or the BOM. This is an important means of preventing the managers and controlling shareholders from pursuing personal interests. In particular, contracts between a SC with the following parties must be approved by either the shareholdersmeetingortheBOM(iffewerthan50percentofthetotalassetsofthe companyorasmallerpercentageprescribedinthecompanysconstitution):
(i) Shareholders, authorised representative of shareholders holding more thanthirtyfive(35)percentoftheordinarysharesofthecompanyand theirrelatedpersons; MembersoftheBOM;directororgeneraldirector(CEO);and
(ii)
(iii) Enterprises where BOM members, members of Control Board, the generalorgeneraldirector(CEO)andothermanagersofthecompanyor relatedpersonholdmorethan35percentoftheequitycapital.170 169 Ibid,art14.17. 170 Ibid,art120.
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In addition, the shareholders or director/manager who is related to the transaction hasnorighttovote.Ifsuchadealisnotapprovedasstated,itisinvalid.Therelated shareholders or managers/directors concerned are liable to compensate for any damage caused and must return to the company any benefits gained from the performance of such contract and transaction.171This issue if further discussed in TACcase. However, the EnterprisesLaw2005 does not provide an external review mechanism for relatedparty transactions approved by the BOM of a SC. In addition, the Law does not (i) gave shareholders of a SC the right to challenge the board and board membersortorequireacourttodeclareanunfairrelatedpartytransactionapproved by the BOM to be invalid; (ii) provide legal rules to impose responsibilities on the boardanditsmembersinunfairrelatedpartytransactionsofmajorityshareholders. Director liability was used as a criterion to assess investor protection in various countriesinthe2006researchconductedbytheWorldBank.172Theresearchshowed a lack of director liability in contemporary company law in Vietnam with score of zero(0)comparedtoanaverageof4.4forEastAsiaandPacificeconomies,and9for Cambodia,Singapore,theUS,andMalaysia(seeTable1).173 Table1:ProtectingInvestors(2006) Indicator DisclosureIndex DirectorLiabilityIndex ShareholderSuitsIndex InvestorProtectionIndex Vietnam 4 0 2 2.0 Region 5.2 4.4 6.1 5.2 OECD 6.3 5.0 6.6 6.0
Source:WorldBank,DoingBusiness2007HowtoReform.174
171 Ibid,art120.4. 172 Seegenerally,WorldBank,DoingBusiness2007:HowtoReform(2006)(2007),availableat http://www.doingbusiness.org/,lastvisited28July2007. 173 Ibid. 174 Notes:Theindicatorsdescribethreedimensionsofinvestorprotection:transparencyof transactions(ExtentofDisclosureIndex),liabilityforselfdealing(ExtentofDirector LiabilityIndex),shareholdersabilitytosueofficersanddirectorsformisconduct(Easeof ShareholderSuitsIndex)andStrengthofInvestorProtectionIndex.Theindexesvary between0and10,withhighervaluesindicatinggreaterdisclosure,greaterliabilityof directors,greaterpowersofshareholderstochallengethetransaction,andbetterinvestor
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2.2.3.Shareholderssuit(AntiDirectorRights) Antidirector rights, a basic right of equity investors, were an indicator used by La Porta et al in their research into corporate governance and investor protection.175 Generally speaking, in AngloAmerican jurisdictions, a shareholder can take legal action in their own name or on behalf of the company.176The Enterprises Law 2005 provides that a shareholder of a multipleshareholder limited liability company (MLLC)hastherighttosuetheCEOofthecompanyifhe/shefailstoperformfully his/her obligations and duties, and causes damage to such a shareholder or the company(emphasisadded).177However,withaSC,theEnterprisesLaw2005doesnot providetherightforshareholders,eitherintheirnamesoronthecompanysbehalf, to take legal action against the CEO, directors/managers, and supervisors of the company. In this way, the Enterprises Law 2005 does not recognize antidirector rights, a basic right of equity investors as previous stated, of SCs shareholders. Consequently,directors/managersofaSCcannotbechallengedbyshareholders.This may result in oppression of shareholders, and in a lack of legal mechanisms to protect shareholders and force the directors/managers to exercise their duties and obligations.ThislawisfurtherdiscussedinVIPCOcase. InWhitePaperonCorporateGovernanceinAsia,theOECDsuggeststhatcompanylaw should provide provisions for classaction suits for equity investors. 178 In 2006, shareholdersabilitytosueofficersanddirectorsformisconduct(easeofshareholder suits index) was used as an indicator by the World Bank to assess investor
protection.Source:WorldBank,DoingBusiness2007HowtoReformat http://www.doingbusiness.org/ExploreEconomies/Default.aspx?economyid=202,last visited10May2007. 175 SeeRafaelLaPortaetal,InvestorProtectionandCorporateGovernance(2000)58(12) JournalofFinancialEconomics3,5.AvailableatthewebsiteofSSRNat http://ssrn.com/abstract=183908,lastvisited28July2007.Theyaresixantidirectorrights including:(i)thecountryallowsshareholderstomailtheirproxyvotetothecompany;(ii) shareholdersarenotrequiredtodeposittheirsharespriortoaGeneralShareholders Meeting;(iii)cumulativevotingorproportionalrepresentationofminoritiesintheboardof directorsisallowed;(iv)anoppressedminoritiesmechanismisinplace;(v)thenminimum percentageofsharecapitalthatentitlesashareholdertocallanExtraordinary ShareholdersMeetingislessthanorequalto10%;(vi)shareholdershavepreemptive rightsthatcanonlybeawavedbyashareholdersvote. 176 Seefurther,StephenMBainbridge,CorporationLawandEconomics(2002)3625. 177 Seesection1(g)ofArticle41oftheEnterprisesLaw2005. 178 Seegenerally,OrganisationforEconomicCooperationandDevelopment(OECD),White PaperonCorporateGovernanceinAsia(2003)50.
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protection.179When suggesting a model of company law for transition economies, Avilov et al contend that company law should give shareholders the right to sue directors in the courts whereby the shareholder(s) seeks damages on behalf of the companyforviolationsofthedirector(s),andhavetherighttoreceivecompensation forhis/herexpensesifsuccessfulinrecoveringdamagesonbehalfonthecompany.180 ThelackofantidirectorrightsofshareholdersinVietnamesecompanylawisnoted in the 2006 research by World Bank. Vietnam ranked 170 among 174 economies in investorprotectionwithashareholdersuitsindexof2comparedtoanaverageof6.1 for East Asia & Pacific jurisdictions and 6.6 for the OECD members (see Table 1 above). In Doing Business 2008 by the World Bank, Vietnam has improved its investor protection compared with 2007. Accordingly, three dimensions of investor protection: transparency of transactions (Extent of Disclosure Index), liability for self dealing (Extent of Director Liability Index), shareholders ability to sue officers and directors for misconduct (Ease of Shareholder Suits Index) and Strength of Investor Protection Index ranked Vietnam at 165 among 178 economies with a remaining shareholder suits index of 2 (see Table 2). In the reported period, Vietnam adopted theSecuritiesLaw2006andtheEnterpriseLaw2005,whichhelpedstrengtheninvestor protection. The SecuritiesLaw2006sets up a new exchange and trading centre. The Enterprise Law 2005 mandates investor involvement in major company actions. The two laws also increase reporting requirements and disclosure for relatedparty transactions. However, Vietnam remains among those countries which protect investors theleast. The new lawsintroducefiduciary dutiesfordirectors butfail to provide a way to enforce those duties. No commercial tribunals in Vietnam have jurisdictionoverinvestorsuitsagainstdirectors.Consequentlytheextentofdirector liability is among the lowest in the world. Clearly, there is still room for improvement in this area. More reform is required to all dimensions of investor protection181
179 Seegenerally,WorldBank,DoingBusiness2007:HowtoReform(2007),at http://www.doingbusiness.org/ExploreTopics/ProtectingInvestors/,lastvisited28July 2007. 180 SeeGainanAvilovetal,GeneralPrinciplesforCompanylawforTransitionEconomies (1999)24JournalofCorporationLaw401,availableatthewebsiteofSSRNat http://ssrn.com/abstract=126539,lastvisited28July2007. 181 Itisnoteworthythat,theWorldBanksDoingBusiness2008reportconductedfrom1April 2006to31June2007.Duringthisperiod,theVietnameseGovernmentcontinuedto improvebusinessenvironmentwithEnterpriseLaw2005andtheSecuritiesLaw2006were enforcement.FormorecommentsaboutVietnam,seeWorldBankinVietnamat
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Table2:ProtectingInvestors(2008) Indicator ExtentofdisclosureIndex ExtentofdirectorLiabilityIndex EaseofshareholderSuitsIndex InvestorProtectionIndex Source:WorldBank,DoingBusiness2008. 2.2.4.Mandatorydisclosureandtransparency UndertheEnterprisesLaw2005,mandatorycorporatedisclosureisenhancedthrough the imposition of disclosure obligations on directors/managers and the company. First, the Enterprises Law 2005 imposes further disclosure obligations on company directors/managers.Accordingly,membersoftheBOM,theControlBoard,theCEO, andotherdirectors/managersofaSCarerequiredtodiscloseinterestssuchasdetails ofenterpriseswheretheyareshareholdersorwherearelatedpersonholdsmorethan 35 per cent of the equity capital. 182 This must be disclosed at the shareholders meetings, the head office and branches of company. Every shareholder, supervisor, andmanagerhastherighttoaccessinformationdisclosedbydirectors/managersand supervisors.Informationonrelatedpartytransactionsmustalsobedisplayedatthe companys office and branches.183Further, the remuneration of directors/managers mustbedisplayedinaseparatesectionoftheannualfinancialreportandreportedto theshareholdersmeeting.Suchprovisionsareanimportantonthepreviouslaw. Second, the Enterprises Law 2005 requires a company to retain documents of the company such as the constitution, registers, certificates, minutes of meeting, resolutionsanddecisionsofthecompany,report,booksofaccounts,accountrecords, annualfinancialstatements.184Beforetheshareholdersmeeting,theconvenerhasto sendtheagendaandrelatedinformationtoshareholders.Ashareholderoragroup ofshareholdersofaSCholdingmorethan10percentoftheordinarysharesforat leastsixmonthshastherighttorequesttheControlBoardtocheckaccountingfiles andothermaterialsofthecompany.Insuchacase,withinsevendaysafterreceiving Vietnam2008 6 0 2 2.7
www.worldbank.org.vn.SeemoreinDoingBusiness2008at http://www.doingbusiness.org,lastvisited27September2007. 182 Seesections14ofArticle118oftheEnterprisesLaw2005. 183 Ibid,Article120. 184 Ibid,Article12.
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therequest,theControlBoardhastocheckthecompanyfilesandsubmitareportto therequester(s)andtheBOM.185 Shareholders of a SC also have the right to access the register of shareholders, the constitution, and the minutes of the shareholders meeting and its resolution.186A shareholderoragroupofshareholdersofaSCholdingmorethan10percentofthe ordinary shares for at least six months or more can access resolutions and the minutes of the BOM, reports of the Control Board, midyear and annual financial reportsofthecompany.187TheEnterprisesLaw2005alsoprovidesthatthepublicalso has the right to access the annual financial report of a SC that is submitted to the businessregistrationauthority.188Inthisway,asinmanyotherjurisdictions,creditors canaccessinformationaboutcapitalandassetsofacompany.189 However, the Enterprises Law 2005 lacks legal rules to deal with violations of disclosure obligations of the company and directors/managers. Lack of appropriate legal rules to enforce a company and directors/managers to comply with their disclosurerequirementsmayresultinpoordisclosure.Thislawiffurtherdiscussed inFPT,BIBICA,TAC,Vietcombank,VinaconexandBBTcases. 2.2.5.Cumulativevotingrules So as to enhance the representation of minority shareholders on the BOM and Control Board, the EnterprisesLaw2005 introduced a mandatory cumulative voting rule for SCs. Accordingly, voting to elect members of the BOM and of the Control Board must be implemented by the method of cumulative voting, whereby each shareholder shall have as his total number of votes the total number of shares he owns multiplied by the number of members to be elected to the BOM or Control Board,andeachshareholdershallhavetherighttoaccumulateallhisvotesforone or more candidates.190Under the Enterprises Law 2005, the voting rule applies not only to members of the BOM, but also supervisors in order to enhance the representationofminorityshareholdersonthesegovernancebodies. Thevalueofthecumulativevotingrulehasnotbeenfullydeterminedinpracticeor theliterature.ThisvotingsystemhasjustbeenadoptedinVietnambytheEnterprises Law2005.Itmaybehelpfulforprovidingrepresentativesofminorityshareholderson
185 Ibid,sections45,Article123. 186 Ibid,section1,Article79. 187 Ibid,section2,Article79. 188 Ibid,section3,Article129. 189 See,egGerardHertigandHidekiKanda,CreditorProtectioninReinierRKraakmanetal (ed),TheAnatomyofCorporateLaw:AComparativeandFunctionalApproach(2004)719. 190 Seesection3(c)ofArticle104oftheEnterprisesLaw2005.
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theBOMandControlBoard,butthemandatoryapplicationofthisvotingruletoall SCsmaynotbehelpfulforeffectivecorporategovernance. ThemethodofcumulativevotingstipulatedinArticle104.3(c)oftheEnterpriseLaw 2005 applies to all shareholding companies including listed companies, unless the law on securities otherwise provides.191Before and during the GMS, shareholders have the joint right to form a group in order to nominate a candidate/s and to cast cumulativevotesfortheircandidates.192Thenumberofcandidateswhicheachgroup has the right to nominate depends on the number of candidates decided by the general meeting and the share ownership ratio of each group. Unless the company charter stipulates otherwise and unless the GMS decides otherwise, the number of candidateswhichagroupcantherighttonominateisregulatedasfollows:
(i) Ashareholderoragroupofshareholdersholdingfromten(10)tobelow twenty (20) per cent of the total voting shares shall have the right to nominateamaximumofonecandidate; A shareholder or a group of shareholders holding from twenty (20) to belowthirty(30)percentofthetotalvotingsharesshallhavetherightto nominateamaximumoftwocandidates;
(ii)
(iii) A shareholder or a group of shareholders holding from thirty (30) to belowforty(40)percentofthetotalvotingsharesshallhavetherightto nominateamaximumofthreecandidates; (iv) A shareholder or a group of shareholders holding from forty (40) to belowfifty(50)percentofthetotalvotingsharesshallhavetherightto nominateamaximumoffourcandidates; (v) Ashareholderoragroupofshareholdersholdingfromfifty(50)tobelow sixty (60) per cent of the total voting shares shall have the right to nominateamaximumoffivecandidates;
(vi) A shareholder or a group of shareholders holding from sixty (60) to belowseventy(70)percentofthetotalvotingsharesshallhavetheright tonominateamaximumofsixcandidates; (vii) A shareholder or a group of shareholders holding from seventy (70) to beloweighty(80)percentofthetotalvotingsharesshallhavetherightto nominateamaximumofsevencandidates;
191 SeeSection1,Article17ofDecree139. 192 Ibid,section2.
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(viii) A shareholder or a group of shareholders holding from eighty (80) to belowninety(90)percentofthetotalvotingsharesshallhavetherightto nominateamaximumofeightcandidates. (ix) Wherethenumberofcandidatesnominatedbyashareholderorgroupof shareholdersislowerthanthenumberofcandidatestheyareentitledto nominate, then the remaining candidates shall be nominated by the board of management or by the inspection committee or by other shareholders.193
Persons elected to be members of the board of management or of the inspection committeeareverifiedonthebasisofacountfromthehighestnumberdowntothe lowestnumberofvotes,startingwiththecandidatewiththehighestnumberofvotes andthenmovingtothecandidatewiththenexthighestnumberuntilallthenumber ofmembersasrequiredbythecompanycharterhavebeenelected.194 Insummary,thissectiondiscussedtherightsofshareholdersundertheprovisionsof the Enterprises Law 2005, the Securities Law 2006 and the Code. It finds that the Enterprises Law 2005 has shortcomings. First, the Enterprises Law 2005 limits opportunities for shareholders to request a meeting. Second, the Law does not impose legal responsibilities on the board members when they approve unfair relatedpartytransactions.Third,theEnterprisesLaw2005doesnotprovidearightfor shareholders to sue the CEO, directors/managers, and supervisors of SCs. Fourth, there is a shortage of provisions to enforce disclosure obligations and to require directorstoavoidinsolventtrading.Fifth,thehigherstatutoryquorumsformeeting andforpassingaresolutionofshareholdersandthecumulativevotingsystemcanbe helpful for minority shareholder protection but these mechanisms may be unsupportiveforgoodcorporategovernancepractices. 2.3.Conflictsofinterestandrelatedpartytransactions In addition to provisions regarding large and relatedparty transactions under the Enterprises Law 2005 as discussed above, the Code also provides detailed rules to controlconflictsofinterestsandrelatedpartytransactionsinlistedcompanies.195 Firstly, the Code stipulates that the members of the BOM and of the board of directors must act honestly and avoid conflicts of interest.196Accordingly, members of the BOM, the CEO, managers and affiliated persons are not permitted to take advantage of business opportunities for their own personal purposes. They are not
193 Ibid,section3. 194 Ibid,section4. 195 SeeArticles2325oftheCode. 196 Ibid,Article23.
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permittedtouseinformationobtainedbyvirtueoftheirpositioninordertogainany personalbenefitorabenefitforotherindividualsandorganizations.197Furthermore, amemberoftheBOM,theCEOandamanagermustnotifytheBOMofanycontract between the company with such member or with an affiliated person of such member. Such entities (the member or manager and any affiliated person) are permitted to continue to perform such contract when members of the board of management who do not have a related interest (to the contract) decide not to investigatethematter.198Thecompanyisnotpermittedtomakealoanorprovidea guarantee to a member of the BOM or of the board of controllers, to the CEO, to a manageroraffiliatedpersonortoanyotherlegalentitywithwhichtheabovenamed haveafinancialinterest,unlessotherwisedecidedbytheGMS.199Itisnotablethata memberoftheBOMisnotpermittedtovoteonatransactioninwhichsuchmember oranaffiliatedpersonparticipates,includingacasewheretheinterestofthemember of the board in the transaction has not been confirmed and irrespective of whether the interest is material or nonmaterial. The abovementioned transactions must be presented in the financial statements for the relevant period and announced in the annual financial statements.200Members of the BOM, the CEO, managers and their affiliated persons are not permitted to use information which has not yet been announcedinordertorevealittoothersortocarryouttherelevanttransactionon theirownbehalf.201TheCodealsorequiresthatalistedcompanyprovidesruleson rewardinganddiscipliningmembersoftheBOM,oftheboardofcontrollersandof theboardofdirectors,andofmanagersincludingthefollowingmatters:
(i) (ii) Formulatingtheassessmentcriteria; Formulatingtherewardanddisciplinesystem;
197 Ibid,section1,Article23.Itisnoteworthythatthetermaffiliatedpersonmeansan individualororganizationwithinteractiverelationsinthefollowingcircumstances:(a) Parents,adoptedparents,spouses,children,adoptedchildrenandsiblingsofanysuch individual;(b)Organizationsinwhichthereareindividualswhoarestaff,thedirectoror generaldirector,ortheownerofmorethanfifteen(15)percentofthevotingsharesin circulation;(c)Membersoftheboardofmanagementorboardofcontrollers,thedirectoror generaldirectorandthedeputydirectorordeputygeneraldirectorandothermanagerial personnelofsuchorganization;(d)Peoplewhoinarelationshipwithanotherperson directlyorindirectlycontrolorarejointlycontrolledbysuchotherperson,orwhojointly withanotherpersonaresubjecttothesamecontrol;(e)Aparentcompanyandits subsidiaries;(f)Acontractualrelationshipinwhichonepersonistherepresentativeofthe other(Seesection34,Article6oftheSecuritiesLaw2006). 198 Seesection2,Article23oftheCode. 199 Ibid,section3. 200 Ibid,section4. 201 Ibid,section5.
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(iii) Organizingtheapparatusmakingassessmentsand[deciding]toreward ordiscipline; (iv) Organizationofimplementation.202
Secondly,whenconductingatransactionwithanaffiliatedperson,alistedcompany mustsignacontractundertheCodeprovisions.Thecontentsofthecontractmustbe clear, and the terms and conditions on execution, supplements, amendments, validity,priceandbasisfordeterminingthecontractualpriceconstituteinformation to be disclosed in accordance with law.203Furthermore, a listed company must take measurestoprevent(i)affiliatedpersonsfrominterferinginthecompanysactivities andcausinglosstothecompanysinterestsbymonopolisingsellingandpurchasing channelsandbyriggingprices;(ii)shareholdersandaffiliatedpersonsfromcarrying out transactions which may cause a loss of capital, assets or other resources of the company.Alistedcompanymustnotprovidefinancialguaranteesforshareholders andaffiliatedpersons.204 Thirdly,theCodestipulatesthatalistedcompanymustrespectthelegitimaterights of persons with interests related to the company including banks, creditors, employees,consumers,suppliers,thecommunityandothers.205 2.4.Informationdisclosureandtransparency First,alistedcompanyisobligedtoannouncepromptly,completelyandaccurately bothperiodicalandextraordinaryinformationaboutitsbusiness,financialstatusand corporate governance status to shareholders and the public. Information and the methodofannouncinginformationareimplementedinaccordancewithlawandthe companyCharter.Inaddition,alistedcompanymustannounceotherinformationin a prompt and complete manner if such information could affect the value of securities and could affect decisionmaking by shareholders and investors. 206 Furthermore, the announcement of information must be implemented by a method which ensures that shareholders and the investing public may access it simultaneouslyandequally.Thewordingofanannouncementneedstobeclearand easytounderstand,andshouldavoidlanguagewhichcouldcausemisunderstanding byshareholdersandtheinvestingpublic.207
202 Ibid,section6. 203 Ibid,section1ofArticle24. 204 Ibid,sections2,3. 205 Ibid,section1,Article25. 206 Ibid,section1,Article27. 207 Ibid,section2,Article27.
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Second, a listed company must announce information on its corporate governance status at the annual GMS and in annual reports of the company. Such information mustatleastconsistof:
(i) (ii) MembersandstructureoftheBOMandoftheboardofcontrollers; Activitiesoftheboardofmanagementandoftheboardofcontrollers;
(iii) Activities of independent nonexecutive members of the board of management; (iv) Activitiesofsubcommitteesoftheboardofmanagement; (v) Aplantoincreasetheefficiencyofthecompanysactivities;
(vi) Remuneration and expenses for members of the board of management, theboardofdirectorsandtheboardofcontrollers; (vii) Information about transactions of the companys shares by members of theboardofmanagement,theboardofdirectors,theboardofcontrollers andmajorshareholders;andaboutothertransactionsbymembersofthe boardofmanagement,theboardofdirectors,theboardofcontrollersand theiraffiliatedpersons; (viii) The number of members of the board of management, of the board of directors and of the board of controllers attending training courses on corporategovernance;and (ix) Actions not yet undertaken [but required by] these Codes, the reasons and[proposed]solutions.208
Inaddition,alistedcompanyisobligedtoreportonaquarterlyandannualbasisand to announce information about its corporate governance status in accordance with regulations of the SSC to the SSC and to the Stock Exchange or Securities Trading Centre.209 Third, a listed company must regularly announce information about each major shareholder, including: (i) full name and date of birth (individual shareholder); (ii) contact address; (iii) occupation (individual shareholder), or scope of business (institutional shareholder); (iv) number and ratio of shares owned in the company; (v)statusoffluctuationinownershipbymajorshareholders;(vi)informationwhich may lead to a major change in the companys shareholders; and (vii) status of increase or decrease in shares, and pledge or mortgage of shares of major
208 Ibid,section1,Article28.TheseissuesarefurtherdiscussedinFPT,VIPCO,TACand Vietcombankcases. 209 Ibid,section2,Article28.
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shareholders.210Alistedcompanyisobligedtoreportonaquarterlyandannualbasis andtoannounceinformationaboutfluctuationsinownershipbymajorshareholders totheSSCandtotheSEorSTC.211 Fourth,alistedcompanymustorganizeinformationdisclosuretheannouncementof information to include the following: (i) formulating and promulgating rules on announcing information as stipulated in the Securities Law 2006 and its guiding documents; (ii) appointing at least one staff member in charge of announcing information.212The staff member in charge of announcing information may be the secretary of the company or another officer. The staff member in charge of announcinginformationmust:
(i) haveknowledgeofaccountingandfinanceandhavespecifiedcomputer skills; publishhisorhernameandtelephonenumbersothatshareholdersmay readilycontacthimorher;
(ii)
(iii) havesufficienttimetoimplementhisorherduties,especiallycontacting shareholders, receiving shareholders opinions, periodically publicly answering shareholders opinions and matters relating to corporate managementasstipulatedinregulations;and (iv) be responsible for announcing information of the company to the investingpublicinaccordancewithlawandthecompanyCharter.213
3. Observations on a principlebyprinciple assessment of Vietnams compliance withtheOECDPrinciplesofCorporateGovernance The discussion and analysis above related to corporate governance of Vietnamese listedcompanies.InJune2006,theWorldBankRepresentativeinVietnam(WBVN) completed a report which made key observations on a principlebyprinciple assessment of Vietnams compliance with the OECD Principles of Corporate Governance. 214 This report provided a benchmark for Vietnams observance of corporate governance practices against the OECD Principles of Corporate Governance. It described current practice and provided policy recommendations in six areas: (i) corporate governance framework; (ii) rights of shareholders; (iii)
210 Ibid,section1,Article29. 211 Ibid,section2. 212 Ibid,section1,Article30. 213 Ibid,sections2and3,Article30.ThislawisfurtherdiscussedinBIBICA,VIPCO,BBTand TACcases. 214 SeemorecommentsinWorldBankRepresentativeinVietnam(WBVN),Corporate GovernanceCountryAssessment:Vietnam(2006),24.
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equitable treatment of shareholders; (iv) role of stakeholders in corporate governance;(v)disclosureandtransparency;and(vi)responsibilitiesoftheBoard. ThereportshowedthatVietnamhastakensignificantstepstoestablishacorporate governanceframework.Thereremain,however,somesignificantchallengesmoving forward. These included: ensuring implementation of recent legislative changes; strengthening the capacity of the securities regulator; improving enforcement of regulatory compliance; setting the framework and standards for the informal securities market; promoting awareness and training of corporate directors on corporate governance and encouraging better quality, timely, and accessible information(seeTable3).
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Table3:SummaryofObservanceofOECDCorporateGovernancePrinciples
Principle O L O PO M O NO Comment
I.ENSURINGTHEBASISFORANEFFECTIVECORPORATEGOVERNANCEFRAMEWORK IA.Overallcorporategovernance framework IB.Legalframework enforceable/transparent IC.Cleardivisionofregulatory responsibilities ID.Regulatoryauthority,integrity, resources X X X X Rapidlyevolvingcorporate governanceframework NewSecuritiesLaw(2006), effectivein2007 Cleardivisionof responsibilities SSCandSTCshavelimited capacity
II.THERIGHTSOFSHAREHOLDERSANDKEYOWNERSHIPFUNCTIONS IIA.Basicshareholderrights IIB.Rightstoparticipatein fundamental decisions IIC.ShareholdersAGMrights IID.Disproportionatecontrol disclosure IIE.Controlarrangementsallowedto function IIF.Exerciseofownershiprights facilitated IIG.Shareholdersallowedtoconsult eachother X X X X X Advancenoticeperiodof7 days Ownershipdisclosure required Mandatorytenderofferruleat 25% Norequirementsinplace Nolegalobstaclesto consultation X X Basicrightsinplace Fundamentaldecisionsmade with65%majority
III.EQUITABLETREATMENTOFSHAREHOLDERS IIIA.Allshareholdersshouldbe treatedequally X Limitedprotectionofminority shareholders,limited redress IIIB.Prohibitinsidertrading IIIC.Board/managersdisclose X X Weakinsidertradingrules,no enforcement Prevalentrelatedparty
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interests IV.ROLEOFSTAKEHOLDERSINCORPORATEGOVERNANCE IVA.Legalrightsofstakeholders respected IVB.Stakeholderredress IVC.Performanceenhancing mechanisms IVD.Stakeholderdisclosure IVE.Whistleblowerprotection IVFCreditorrightslawand enforcement X X X X X X
transactions
Limitedawarenessof corporatesocialresponsibility Accessbystakeholdersto legalprocess Practicebecomingmore common Limitedaccessby stakeholders,lowcompliance Limitedwhistleblower protection Weaklegalrights,creditors rarelyusetheirrights
V.DISCLOSUREANDTRANSPARENCY VA.Disclosurestandards VB.Standardsofaccountingand audit VC.Independentauditannually VD.Externalauditorsshouldbe accountable VE.Fairandtimelydissemination VF.Researchconflictsofinterests X X X X X X Weakdisclosurerequirements andenforcement Improvingaccounting standardsandcompliance VSAcompatibletoISA Limitedaccountability,no lawsuits Fewinformationchannels available Nospecificprovisions
VI.RESPONSIBILITIESOFTHEBOARD VIA.Actwithduediligence,care VIB.Treatallshareholdersfairly VIC.Applyhighethicalstandards VID.Fulfilcertainkeyfunctions VIE.Exerciseobjectivejudgment X X X X X Fiduciarydutiesprovidedin law Weakcompliance Codeofethicsnotcommon Directorstraininginearly stage Directorsindependencea
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newconcept VIF.Provideaccesstoinformation Notes: Observed(O)meansthatallessentialcriteriaaremetwithoutsignificantdeficiencies. Largelyobserved(LO)meansonlyminorshortcomingsareobserved,whichdonotraisequestions abouttheauthoritiesabilityandintenttoachievefullobservanceintheshortterm. Partiallyobserved(PO)meansthatwhilethelegalandregulatoryframeworkcomplieswiththe Principle,practicesandenforcementdiverge. Materiallynotobserved(MO)meansthat,despiteprogress,shortcomingsaresufficienttoraise doubtsabouttheauthoritiesabilitytoachieveobservance. Notobserved(NO)meansnosubstantiveprogresstowardobservancehasbeenachieved. X Legalaccessavailableto boardmembers
Source: World Bank Representative in Vietnam (WBVN), Corporate Governance: CountryAssessment(2006)9.
Casestudiesoncorporategovernanceoflistedcompanies
1.FPTcorporationcase 1.1.Facts215 TheFPTCorporation(FPT)wasofficiallyestablishedinOctober1990.After12years ofoperation,FPTwasequitizedinFebruary2002withatotalchartercapitalofVND 608 billion. The shareholdings were as follows: the State shareholder, internal shareholders, and outside shareholders held 7.3 per cent, 66.64 per cent, and 26.06 per cent, respectively. In December 2006, FPT officially listed its shares on HOSTC. ThesharepriceoninitiallistingwasVND160,000. InMarch2007FPTssharespeakedatVND672,000,butdeclinedafterwards.On10 August 2007, FPT shares were trading at VND 240,000. There were three major factorsthatimpactedonFPTsshareprice.First,thereweresomerumoursaboutFPT
215 Forreferencetothiscase,seegenerally,ThoibaoKinhteVietnam(VietnamEconomyTimes) athttp://www.vneconomy.vn/?home=detail&page=category &cat_name=01&id=110bacc68e64e8,lastvisited11August2007;Vnexpresswebsiteat http://vnexpress.net/Vietnam/Kinhdoanh/2007/08/3B9F9104/,lastvisited10August2007; FPTwebsiteatwww.fpt.com.vn,lastvisited11August2007;VietnamNetwebsiteat http://vietnamnet.vn/kinhte/2007/08/729630/,lastvisited14August2007;Tuoitre(Youth Newspaper)websitehttp://www.tuoitre.com.vn/Tianyon/Index.aspx? ArticleID=215376&ChannelID=86,lastvisited15August2007.
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which were not corrected in a timely fashion. Second, TPG Capital, FPTs strategic shareholder which held 5.89 per cent of its issued capital, registered to sell a large volumeofshares.Third,twomembersofFPTsmanagementboardalsoregisteredto sellanumberofshares.216However,themainreasonforFPTsstockdevaluationwas FPTs expansion into several new fields such as banking, securities and fund management. FPT established three new subsidiary companies, namely FPT Bank (FPTB), FPT Securities (FPTS), and FPT Capital (FPTC) and the ratio of capital contributioninthesesubsidiarycompaniescausedsomeconcerntoinvestors.On10th August 2007 Mr. Truong Gia Binh, Chairman and CEO of FPT, held an online chat viatheVnexpresswebsite(www.vnexpress.net)asaformofinformationdisclosureto explainthestockdeclineinthesharepriceandreassurenervousFPTsshareholders. According to Mr. Binh, FPTs investment in a wide range of other sectors such banking, finance and education was an ordinary business expansion. All business sectors of FPT showed good prospects. For example, FPT midyear business results showedanincreaseinprofitsof118percentoverthesameperiodin2006.Moreover, at the end of the 2006, when FPT decided to expand its operations to other sectors, theFPTsBOMdiscussedwhetherFPTwouldholdcontrollingstakesoraminority interestinthesenewcompanies.Asaresult,FPTsstakeinthenewcompaniesonly accounted for 25 per cent, 33 per cent, and 15 per cent in FPTS, FPTC and FPTB, respectively.ThereasonsgivenastowhyFPTdidnotholdlargerstakeswere:(i)FPT hadatotalcapitalofVND608billionwhilethecombinedcapitalneededforthethree companies(FPTB,FPTS,andFPTC)wasVND1.31trillion;(ii)thoughthenewsectors werefullofpotential,FPTneededtoensureitsownfinancialsecurity;and(iii)FPT didnotwantthenewinstitutionstodependononeentitywithacontrollingstake. Itwasnotable,however,thatinthesethreenewcompanies,membersofFPTsBOM held 29 per cent, 47.7 per cent, and 4.5 per cent in FPTS, FPTC, and FPTB respectively.Mr.Binh asa Chairman of FPTs BOMand CEO held 4.3 per cent, 6.8 percent,and1.1percentrespectively(seeTable4).
216 Ibid.TwomembersofFPTsmanagementboardregisteredtosellshares.
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Table4:Structureofchartercapitalinthesubsidiarycompanies. Shareholders FPTS (VND200billion) FPT FPTsBOM Ofwhich,CEO Outside Total Source:FPT. 1.2.Analysis The FPT case raised several questions. Who decided that members of FPTs BOM could buy shares in the new subsidiary companies (FPTS, FPTB, and FPTF)? Who decided thatshareholdersin FPTand outsideshareholderscouldnot buy shares in the new companies? In relation to corporate governance, this case raised concerns aboutinvestorprotectionandlawenforcement,therightsanddutiesofmembersof BOMandCEOininternalgovernancestructure,conflictofinterests,andinformation disclosureandtransparency. 1.2.1.Investorprotectionandlawenforcement In the FPT case, shareholders interests were negatively affected by corporate governance matters. First, FPT and its BOM discriminated between the minority shareholders and controlling shareholders when the BOM decided on the ratio of sharesinthenewsubsidiarycompanies(seeTable5.2).Accordingly,themembersof BOM and CEO were given the right to buy shares at a prelisting price in these subsidiary companies as founding shareholders. For example, in FPTS, the share market price on listing was VND 85,000 (or 8.5 times) in comparison with the pre listing price (VND 10,000). The total capitalization of FPTS was VND 1,700 billion. ThemembersofBOMandCEOpaidonlyVND58billionfortheirsharesatthepre listingpricebuthadsharesworthVND493billionuponlisting.Inotherwords,the members of BOM preferred their own interests over those of the minority shareholders(seeTable5). 25% 29% 4.3% 46% 100% FPTC (VND110billion) 33% 47.7% 6.8% 19.3% 100% FPTB (VND1,000 billion) 15% 4.5% 1.1% 81.5% 100%
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Table5:StructureofchartercapitalinFPTS. Chaptercapital (VNDbillion) FPTS Ofwhich: FPTshareholders(25%) FPTsBOM(29%) Outsideshareholders(46%) Source:FPT(8/2007). Second, under the FPTs Charter, the BOM had the right to establish subsidiary companies.218ThisprovisionalsoappearsintheEnterprisesLaw2005wheretheBOM has the rights to make decisions on the organizational structure and internal management rules of the company, to make decisions on the establishment of subsidiary companies, the establishment of branches and representative offices and thecapitalcontributiontoorpurchaseofsharesofotherenterprises.219However,the Enterprises Law 2005 also requires that when implementing its functions and performingitsduties,theBOMmuststrictlycomplywiththeprovisionsoflaw,the charterofthecompanyandresolutionsoftheGMS.IftheBOMpassesaresolution which is contrary to law or contrary to provisions of the charter of the company causing damage to the company, then the members who agreed to pass such resolutionarepersonallyjointlyliableforthatresolutionandtheymustcompensate the company for the damage; any member who opposed the passing of such resolutionisexemptfromliability.220IntheFPTcase,theBOMwasnotonlyableto establishthesubsidiarycompaniesbutalsotodecidetheratioofcapitalcontribution in the subsidiary companies without referring to section 2 (d) of Article 96 of the EnterprisesLaw2005.Itisnoteworthy,intheFPTsCharter,itwastheGMSthathad therighttomakeinvestmentdecisionsordecisionsonsaleofassetsvaluedatfifty (50)ormorepercentofthetotalvalueofassetsrecordedinthemostrecentfinancial statement of the company unless the charter of the company stipulates some other
217 Notes:ThetotalmarketcapitalizationofFPTSwasbasedonstatisticsfromfreemarketatof August2007.Fordetails,seeSanOTCwebsiteatwww.sanotc.com.vn,lastvisited12 August2007. 218 SeemoreinArticle20.4.bofFPTsCharter. 219 SeeSection2(k)ofArticle108oftheEnterprisesLaw2005. 220 Ibid,section4.
Totalmarketcapitalization (VNDbillion)217 1,700 425 493 782
200 50 58 92
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percentage.221Forexample,thetotalvalueofassetsofFPTwasVND3,400billionin the2006financialstatementofFPT.Thismeantthatinvestmentdecisionswithvalue ofassetsfromVND1,700billionhadtobedecidedbytheGMS.222 Third, the FPT case also shows that the role of State shareholder and outside shareholders (minority shareholders) in term of investor protection was weak althoughtheyheld7.3percentand26.06percentofchartercapital,respectively. Fourth,theFPTcaseraisesquestionsabouttheresponsibilityofFPTsControlBoard in its role of supervising the BOM and the CEO in the daily management of the company. 1.2.2.TherolesofBOMandmembersofBOMincorporategovernance. The internal governance structure of FPT included: GMS, BOM (11 members), ControlBoard(3members),BoardofDirectors(5members)andCEO.TheChairman ofFPTsBOMwasalsoFPTsCEO(seeFigure4).ThisstructureshowsthattheFPTs BOMhadnononexecutiveindependentmembersasrequiredbytheCode.223
221 Seesection2(l)ofArticle13oftheFPTscharter.Thisprovisionalsostipulatesinsection2 (d)ofArticle96oftheEnterprisesLaw2005. 222 Thecombinedchartercapitalofthethreesubsidiarycompanies(FPTB,FPTS,andFPTC) wasVND1.31trillion.Thedecisionstoestablishthreesubsidiarycompaniesbelongedto theBOM. 223 UndertheCode(section1,Article11),onethirdoftheBOMisnonexecutiveindependent members.
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Figure4:TheInternalGovernanceStructureofFPT
GMS
ControlBoard (3members)
BOM (11members) ChairmanofBOM
BoardofDirectors (5members)
CEO
Source:FPT Under FPTs prospectus in 2006, FPTs shareholders included State shareholders, internal shareholders (including members of BOM and employees) and outside shareholders(includingstrategicshareholders)whoheld7.3percent,66.64percent, and 26.06 per cent, respectively (see Table 6).224It is notable that, the members of FPTsBOMheld37.4percentofthechartercapital.Mr.Binhheld8.42percent.This meant that members of BOM were the controlling shareholders. Table 7 shows the listofshareholdersholdingover5percentofthesharesinFPT.
224 Thereweremorethan8,100employeesasofAugust2007.
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Table6:StructureofchartercapitalinFPT(2006) Ownershipstructure State Internalshareholders (includingmembersofBOMandemployees) Others(includingstrategicshareholders) Totalequity Source:FPTsProspectuson20November2006. Table7:Listofshareholdersholdingover5percentsharesinFPT(2006) Ownershipstructure State Mr.TruongGiaBinh(ChairmanandCEO) Mr.LeQuangTien(ViceChairman) TPGVenturesFPT,LLC Totalequity Source:FPTsProspectuson20thNovember2006. The FPT case shows a conflict of interest between shareholders as principals and managers/directors of company as agents in the relationship between shareholders andmanagers/directors.225Underagencytheory,onthetraditionalview,aprincipal hiresaperson(anagent)todosomethingonhis/herbehalf,whichhe/shecannotdo Numberof shares 4,437,280 5,117,280 3,709,630 3,581,030 16,845,220 Percentage 7.3 8.42 6.1 5.89 27.7 15,846,340 60,810,230 26.06 100 Numberof shares 4,437,280 40,526,610 Percentage 7.3 66.64
225 Seegenerally,MichaelCJensenandWilliamHMeckling,TheoryoftheFirm:Managerial Behaviour,AgencyCostsandOwnershipStructureinThomasClarke(ed),Theoriesof CorporateGovernance:ThePhilosophicalFoundationsofCorporateGovernance(2004)589;M.M. BlairandLynnA.Stout,ATeamProductionTheoryofCorporateLawinThomasW.Joo (ed),CorporateGovernance:Law,TheoryandPolicy(2004)53.
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byhis/herself.226Theagencyrelationshipisrelatedtoagencycoststhatincludethe monitoringexpendituresbyprincipal,thebondingexpendituresbytheagent,and the residual loss. 227 The level of agency costs depends, among other things, on statutoryandcommonlawandhumaningenuityindevisingcontracts.228Analysisof therelationshipbetweenprincipalsandagentsisconcernedwithtwokeyissues:(i) howtoreduceagencycosts,and(ii)howtomaximizetheprincipalsinterests.229The natural characteristics of principalagent relationships assume that the principal (shareholders)oftenhastomonitortheagent(managers/directors)intheprincipals interests because the latter may be tempted to maximize their own welfare rather than the profits of the firm than employs them.230In these relationships, agents are possiblyopportunisticandselfserving.Anotherconcerniswhetherornottheagents cando theirbest for the interests of principals.231To deal with these issues,first, an effective information system operating between the shareholders and the managers/directors is necessary; and second, the managers/directors should have appropriatecompensationandincentivestomakeagentsmotivationalignwiththe companysshareholders.232 In the FPT case, the relationship between the BOM (an agent) and shareholders (principals)displaysonaninformationasymmetry.Underagencytheory,theagent (FPTsBOM)hadfullinformationaboutthecompanywhenitmadedecisionsonthe establishment of these subsidiary companies (FPTS, FPTB, and FPTF) and decided the ratio of the capital contribution in these subsidiary companies. In contrast, the principals(FPTsshareholders)didnothaveenoughoranyinformationtomakean informeddecision.Thisincidentcreatedaninformationasymmetryandaconflictof interestbetweentheminorityshareholdersandFPTsBOM.
226 SeeMMBlairandLynnAStout,opcit,51. 227 SeeMichaelCJensenandWilliamHMeckling,opcit,60. 228 Ibidat72. 229 SeeMMBlairandLynnAStout,opcit,51fordiscussionofagencycostsproblems,seeH NButlerandFSMcChesney,WhytheyGoveattheOffice:ShareholderWelfareand CorporatePilanthropyintheContractualTheoryoftheCorporationinThomasWJoo(ed), CorporateGovernance:Law,TheoryandPolicy(2004)6;MichaelCJensenandWilliamH Meckling,opcit,5960. 230 SeeHNButlerandFSMcChesney,opcit,5. 231 SeeMMBlairandLynnAStout,opcit,51. 232 SeealsoJamesKirkbrideandSteveLetza,TheCEOinLawandinPractice:AStudyof CategorisationandControl(2002)10(3)CorporateGovernance:AnInternationalReview136 40;NguyenVanThang,CorporateGovernanceinVietnamsEquitizedCompaniesinHo KhaiLong(ed),ReformingCorporateGovernanceinSoutheastAsia:Economics,Politics,and Regulations(2005)3545.
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1.2.3.Informationdisclosureandtransparency Information disclosure and transparency play an essential role in the corporate governance process. The EnterprisesLaw2005, the SecuritiesLaw2006 and the Code require that a listed company is obliged to promptly, completely and accurately announcebothperiodicalandextraordinaryinformationaboutitsbusiness,financial status and corporate governance status to shareholders and the public. Information andthemethodofannouncinginformationimplementedinaccordancewithlawand thecompanyCharter.233IntheFPTcase,astheChairmanandCEOconceded,oneof three major factors that impacted on FPTs share price was information disclosure andtransparency. Inshort,theFPTcasehighlightsseveralproblemsofcorporategovernanceinlisted companies. This case shows poor investor protection due to weak law enforcement, the lack of regulation of antidirector rights of shareholders in Enterprises Law 2005, the ineffective role of the companys shareholders in the corporate governance process, and weak information disclosure and transparency oflistedcompaniesinVietnam. 2.BIBICACase 2.1.TheFacts234 TheBienHoaConfectionaryCorporation(BIBICA)wasestablishedin1998andwas listed on HOSTC in December 2001 with a total charter capital of VND 101.6 billion. 235 This case shows lack of disclosure by a listed company in relation to accounting and auditing practice, the ineffective role of the securities regulator in
233 Seesection1,Article27oftheCode. 234 ForreferencetotheBIBICAcase,seetheSSCwebsiteatwww.ssc.gov.vn;BIBICAwebsite atwww.bibica.com.vnandseveralpopularVietnamesewebsites:VietnamNetat http://vietnamnet.vn/;StockInvestment(DauTuChungKhoan)atwww.vir.com.vn, VietnamEconomyTimes(ThoibaoKinhteVietnam)atwww.vneconomy.vn;alllast visited10August2007.SeemoreVanTien,BIBICA:AprofitofVND4.1billioninthefirst threequarters,alossofVND5.4billioninthewholeyear(CongtyBIBICA:3quylai4,1ty;ca namlo5,4ty)athttp://www.vnn.vn/kinhte/2003/5/12893/;VanTien,BIBICAproposedthe delayby30Septembertomakethelossclear(CongtyBIBICAxingiahanden30/9delamro khoanlo)atwww.vnn.vn/kinhte/taichinhnganhang/2003/7/18639;alllastvisited10August 2007.Formoreinformationaboutthisevent,seealso,NguyenVanThang,Corporate GovernanceinVietnamsEquitizedCompaniesinHoKhaiLong(ed),ReformingCorporate GovernanceinSoutheastAsia:Economics,Politics,andRegulations(2005)35268. 235 SeetheSSCatwww.ssc.gov.vn;theHOSTCatwww.vse.org.vn;andtheBIBICA www.bibica.com.vn,alllastvisited10August2007.
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dealing with breaches of disclosure requirements, and, a shortage of provisions on antidirectorrightsofshareholders. In2003,theBIBICAsannualfinancialreportfor2002madebytheBOMandsigned by the CEO for auditors stated that the company made a profit of VND 8.9 billion. However,thisreportwasrejectedbytheBOSofthecompany.Thereportwasthen revisedbytheBOMwiththeassistanceofanauditingcompanytoshowthatBIBICA lostVND2.7billioninthefinancialyear2002. BecauseBIBICAdidnotreleasetheaudited2002financialreportwithin90daysfrom theendoffinancialyear2002asrequiredunderthecurrentlegislation,236theHOSTC required the company to explain the reasons for this failure. BIBICA reported that theyhadencounteredaccountingproblemssuchasinconsistentaccountingdataand changesofaccountancystaff.Thelatesubmissionofthe2002financialreportcaused the delay of the ordinary meeting of GMS and submission of the first quarter financialreportof2003.Asaresult,inMay2003,theBIBICAsharepricewasaround VND10.500(a60percentdeclineincomparisonwiththefirstdateoflisting).Some investorsaskedtheSSCtosuspendtradingoftheBIBICAsharesbuttheSSCdidnot doso. On 23 May 2003, BIBICA released its 2002 financial report audited by external auditorsstatingthatthecompanylostVND5,422billioninthefinancialyearof2002. InordertodiscoverwhyBIBICAdelayeddisclosingtheannualfinancialreportand whether it was reliable, the SSC decided to inspect the company. In June 2003, an inspectionreportbytheSSCconcludedthat(i)BIBICAhadbrokendisclosurerulesin a systematic manner, and (ii) there was misleading accounting practice. Consequently, the authority required the company to recheck the accounting data andsubmitadetailedfinancialreportauditedbyexternalauditorstotheSSCandthe HOSTCby30June2003. On26June2003,theBOSofBIBICAsubmittedareporttotheHOSTCsayingthatthe company lost VND 12.3 billion in 2002, but the HOSTC viewed the report as an unofficial document because it was not verified by the BOM, the CEO of the company, and external auditors. Two days later, the GMS of BIBICA declined to approvethe2002financialreportsubmittedbytheBOMbecauseitwasinconsistent with a report made by the BOS. While the former said that BIBICA lost VND 5.4 billion,thelatterclaimedthatthecompanylostVND12.3billionin2002.Therefore, BIBICAcouldnotsubmittheaudited2002financialreportby30June2003astheSSC
236 Article32oftheRegulationonMembers,Listing,DisclosureandSecuritiesTransactions (underDecision79/2000/QDBTC,dated29December2000)requiredalistedcompanyto discloseandsubmitfinancialreportsforeverythreemonthsnolatethan15daysandthe annualfinancialreportsnolatethan90daysfromtheendtheterm.
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required,andthecompanyalsoaskedtheauthoritytoallowalatesubmissionby30 September2003. On30September2003,afterreauditing,BIBICAreleasedarevisedannualfinancial reportshowingalossofaboutVND10.086billionintheyearof2002.Becauseofthe breachofthedisclosurerulesdiscussedabove,BIBICAwasfinedVND20millionby theSSC(seeTable8). Table8:Businessresultsof2002reportedbyBIBICA. Time Reportedby Forpurpose Loss (VND billion) Thefirstreport The second report 23May2003 26June2003 30 September 2003 CEOandBOM CEOandBOM CEOandBOM (audited) Supervisory Board CEOandBOM (audited) Auditing Auditing Disclosureat HOSTC Reportingthe HOSTC Disclosureat HOSTC 2.7 5.422 12.3 10.086 Profit (VND billion) 8.9
Source:BIBICA,SSC,HOSTC. 2.2.Analysis TheBIBICAcaseraisesquestionsaboutlackoftransparencyanddisclosurebylisted companies,breachofdisclosurerulesandtheineffectiveroleofsecuritiesregulator indealingwiththeincident. Firstly,theBIBICAcaseraisesquestionsabouttheaccountingandauditingstandards oflistedcompanies.Asmentionedabove,accountingandauditingstandardsaswell as their practices are important to corporate governance and development of financialmarket.237Blackcommentsthatoverlyflexibleaccountingrulescanreduce
237 ILChongNam,YeongjaeKangandJooKyungKim,ComparativeCorporateGovernance TrendsinAsiainOECD(ed),CorporateGovernanceinAsia:AComparativePerspective(2001) 85,108.
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comparability, increase opportunities for fraud, and increase overall information asymmetry between companies and investors. 238 Accounting rules, according to Black, should facilitate evaluating a companys business and limit managers flexibility to pick and choose among alternate accounting practice in order to make their own firm appear more profitable. 239 However, the accounting practices of BIBICA raise concerns about Vietnamese accounting standards promulgated by the MOFsinceBIBICAproducedfivedifferentbusinessresultsfortheyear2002,among themtwofinancialreportswhichwereauditedbyanauditingcompany. When presenting reasons for the incident, BIBICA management acknowledged that (i)itsfinancialmanagementsystemwasweak;and(ii)therewasmisleadingdatain accounting files, and these resulted in inconsistent financial reports. The financial management of BIBICA raises concerns about accounting practices of other Vietnamese companies. This means that contemporary accounting methods may be inconsistently applied in companies to produce different business results. In this way, contemporary accounting standards of Vietnam do not meet international standardsofadvancedeconomies,andareunreliableforinvestors. TheexternalauditorswereinbreachoftheirdutiesinBIBICAcase.Theroleofthe external auditors is critical in ensuring at least some degree of transparency and disclosure of listed companies. But as in other countries, Vietnamese external auditorscanonlyperformtheirauditsontheinformationprovidedbythecompany. TheSSCrequireseveryfinancialreportofalistedcompanytobeauditedbyexternal auditors but the auditing practices in the BIBICA case raise concerns. The auditing company made two inconsistent auditing reports of the 2002 financial year for BIBICA. In the BIBICA case, the external auditors had to redo their audits due to inaccurate information provided by the companys management. In this way, the contemporaryauditingstandardsandtheirpracticeslackreliabilityforinvestors.Itis therefore submitted that accounting and auditing standards following international standards and their proper practices are an important for good corporate governanceinVietnam. Secondly,itisapparentthattheBOMandtheCEOofBIBICAwereinbreachoftheir duties of care anddiligence as required by the lawand the companys charter. The financialmanagementandtheimplementationofdisclosureobligationswereunder the responsibility of the BOM and CEO. However, they did not fulfill their duties.
238 BernardBlack,TheLegalandInstitutionalPreconditionsforStrongStockMarkets:the NontrivialityofSecuritiesLawinOECD(ed),CorporateGovernanceinAsia:AComparative Perspective(2001)5561. 239 Ibid,61.
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Althoughthesemanagerswereinbreachofstatutoryduties,BIBICAsshareholders couldnotsuethemduetoalackofremediesinthecurrentlaw. In contrast, the BOS of BIBICA had a significant role in discovering and warning investorsabout inaccurate annualfinancial reportsmade by management. The BOS also required company management to recheck accounting data and remake the 2002financialreport.Theinvolvementofthesupervisorybodyshowsitsimportant role in monitoring the management and protecting investors. It is submitted that qualified managers and efficient external supervisory mechanisms are essential for everycompany. Thirdly, the BIBICA case raises questions about the ineffective role of securities regulator in dealing with the incident. It is apparent that BIBICA was in serious contravention of disclosure rules and under the current regulations of the SSC the HOSTChadtherighttosuspendtheBIBICAsharesfromtradingtoprotectinvestors. However, neither SSC nor HOSTC suspended the BIBICA shares from trading althoughitwasaskedtodosobysomeinvestors. Securities regulators should a play a significant role in protecting investors and ensuring the proper operation of stock market. However, what the stock regulators did in the BIBICA case was unsatisfactory. They accepted the delays of BIBICA in releasingthe2002financialreportforalongtimeandmoreseriouslydidnotwarn investors about the incident. Next, the fine of VND 20 million under the current legislationwasquitetrivialforsuchagrossviolationofdisclosurerules.Therefore, strongsecuritiesregulatorsandstrongpenaltiesforviolationsofsecuritieslaware necessarytoprotectinvestors.
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3.VIPCOCase 3.1.Thefacts240 The Vietnam Petroleum Transport JSC (VIPCO) was established in 2005 with a chartercapitalofVND351billion.TheStateshareholder,internalshareholdersand outside shareholders held 51 per cent, 3.7 per cent and 45.3 per cent of its equity, respectively.InDecember2006,VIPCOlistedontheHOSTCwithchartercapitalof VND421.2billion.Thiscasehighlightsissuesrelatingtoinvestorprotectionandlaw enforcement. On26March2007,theannualGMSpassedaresolutiontoissue17,880,000sharesin ordertoincreasethechartercapitaltoVND600billion.Theshareholderspurchased asfollows:theStateshareholderpurchased9,118,800sharesatapriceofVND15,000; other shareholders purchased 8,761,200 shares at a ratio of 50:21 (i.e., each investor owning 50 shares was entitled to buy 21 new shares) at a price of VND 40,000 (see Table9).AlthoughVIPCOsBOMexplainedtheplan,theplanwascancelledbecause ofshareholdersreactiontotheissuingprice.
240 ForreferencetotheVIPCOcase,seetheSSCwebsiteatwww.ssc.gov.vn;VIPCOwebsite www.vipco.com.vn;theHOSTCwebsiteatwww.vse.org.vn;alllastvisited15August 2007.SeefurtherabouttheVIPCOcaseinVietnamAssociationofFinancialInvestors (VAFI)atwww.vafi.org.vn;MinhDuc,WhetherVIPCOissuingsharesplanbreachesthe Law?(PhuonganphathanhcophancuaVIPCOcosailuat?)at http://vneconomy.vn/?home=detail&page=category&cat_name=07&id=e18cf15adec150;Lan Huong,VIPCOsshareholderscanbesued(CodongVIPCOcothekien)at http://vneconomy.vn/?home=detail&page=category&cat_name=07&id=07664777da27f1; ThanhXuan,VIPCO:controllingshareholdersforceminorityshareholders(CongtyVIPCO:Co donglonepcodongnho)at http://www2.thanhnien.com.vn/Kinhte/Chungkhoan/2007/3/31/187091.tno;HoangLy, VIPCOcontinuestoforceminorityshareholders(VIPCOtieptucepcodongnho)at http://www1.thanhnien.com.vn/Kinhte/2007/5/29/194782.tno;NguyenNhu,Thenew VIPCOsplan:Minorityshareholdersstillhasbeenforced(PhuonganmoicuaVIPCO:Codong nhovanbiep)athttp://www.laodong.com.vn/Home/kinhte/2007/6/39815.laodong;alllast visited15August2007.
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Table9:TheVIPCOsissuingsharesplan Shareholder State(PETROLIMEXCorp.) Others Total Numberofshares 9,118,800 8,761,200 17,880,000 Pricepershare(VND) 15,000 40,000
On 25 June 2007, the GMSs resolution produced another plan for shareholders approval. Accordingly, VIPCO issued 17,880,000 shares at a ratio of 50:21 and shareholderscouldchoosetwoissuingprices:(i)ifbuyingatapriceofVND15,000, shareholderscouldnotfreelyassigntheirsharestoothershareholdersforatermof 10years;or(ii)ifbuyingatapriceofVND30,000,shareholderscouldfreelyassign theirshares.Topassthisresolution,theVIPCOsBOMconductedavotebycollecting written opinions. The BOM also stipulated that VIPCOs shareholders who did not send their written opinion to the company about this share plan were deemed to haveacceptedtheBOMsplan. 3.2.Analysis The VIPCO case raises questions about investor protection, especially the discriminationbetweenStateshareholderandothershareholders(includingminority shareholders)inissuingshares.Thiscaseisasignificantexampleofpoorcorporate governanceinequitizedSOEs. 3.2.1.Investorprotectionandlawenforcement. The VIPCO case is a significant example of bad investor protection and law enforcement. In this case, minority shareholders interests were negatively affected bytwoofVIPCOsresolutions. First, the first resolution in March 2007 was contrary to the Enterprises Law 2005 becauseunder the EnterprisesLaw2005 each share of thesame class shallentitle its holder to the same rights, obligations and interests. 241 Moreover, relating to the rightsofordinaryshareholders,theEnterprisesLaw2005stipulatesthattheordinary shareholders have the rights to be given priority in subscribing for new shares offered for sale in proportion to the number of ordinary shares each shareholder holds in the company.242When the GMS approved a share issuance plan, the plan had to ensure that shareholders had the right to protect their legitimate interests without any discrimination among shareholders. In the VIPCOs GMS first
241 Seesection5ofArticle78oftheEnterprisesLaw2005. 242 Ibid,section1(c)ofArticle79.
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resolution, the State shareholder had the benefit of buying shares at a lower price (about37.5percent)andatdoublethequantityofshares.Thisproducedaconflictof interestwithothershareholdersandwascontrarytotheEnterprisesLaw2005. Second,themethodbywhichtheVIPCOsBOMattemptedtopasstheresolutionby collecting the written opinion of shareholders violated shareholders rights because theVIPCOsshareholdersdisapprovedtheplan. Third, the second resolution in June 2007 was also contrary to the Enterprises Law 2005 because the BOM set the share price. The reasons are twofold. First, the EnterprisesLaw2005stipulatesthateachshareofthesameclassentitlesitsholderto the same rights. Second, the issuance of shares with conditions to limit the assignation of shares to other shareholders was under the GMSs authority, not the BOMsauthority. 3.2.2.AntiDirectorrightsofshareholders ItisapparentthattheBOMofVIPCOactedcontrarytotheEnterprisesLaw2005when they collected shareholders written opinion in the two VIPCOs resolutions. The actionsoftheBOMwereinbreachofitsstatutorydutiesanddirectlybenefitedthe Stateshareholderswhoheld51percentofthechartercapitalofVIPCOandbenefited from both share plans. The VIPCOs minority shareholders could not sue the BOM duetolackofremediesintheEnterprisesLaw2005.
Conclusion
Shortcomings of corporate governance of listed companies were discussed above. Therefore,toencouragebettercorporategovernanceoflistedcompanies,wepropose thatthefollowingissuesshouldbeaddressed. Firstly,corporategovernanceoflistedcompaniesshouldrequiretheindependenceof directors on the BOM and a strengthening of the role of the Control Board. In addition,enhancingtheoversightofthefinancialreportingprocess,internalcontrol system,andadequatequalificationsoftheControlBoardsmembersshouldbemade tostrengthentheroleofControlBoard. Second, the corporate governance of listed companies should encourage shareholders participation in GMS. Moreover, voting by proxy should be encouraged,andshareholdersshouldbeallowedtoelectproxiesthroughelectronic devices. The 7day notice for GMS is too short and needs to be increased to one month. Third,itisnecessarytolowerthepercentageofsharesrequiredtonominateaBOM member or an extraordinary GMS. Accordingly, the Enterprise Law 2005 should consider lowering the minimum 10 percent ownership threshold required to
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nominate a member of the board. In comparison with other jurisdictions, a shareholder or a group of shareholders holding at least 10 per cent of the voting rights in China, Ireland, and Italy or 5 per cent in Australia, Germany, Spain and New Zealand have the right to demand an extraordinary GMS, without the obligation to show evidence of reasons. Hence, the meetings requisitions rules and theobligationstoshowevidenceofreasonstorequireanextraordinaryGMSunder theEnterpriseLaw2005shouldbeabandoned. Fourth,performanceenhancingmechanismsshouldbeallowedandpromoted.Such mechanismsaligntheinterestsofseniorexecutivesandmanagementofthecompany with those of their shareholders, and provide incentives for the former to perform. Suchschemes should beapproved by shareholders.No memberof the BOMor the CEOshouldbeinvolvedindecidingonhis/herownremuneration.Aremuneration committee comprising nonexecutive membersunder the Board of Directors should besetup. Fifth, I suggest that the SSC should assume a leading role in promoting corporate governance. The efforts of MOF, the SSC, SBV, the Ministry of Planning and Investment (MPI), Vietnam Chamber of Commerce and Industry (VCCI), State CapitalInvestmentCorporation(SCIC),supervisingLineMinistriesofSOEs,andthe National Steering Committee for Enterprise Reform and Development (NSCERD) needtobesynchronised,avoidingduplicationsofresponsibilities.Itisrecommended that a highlevel committee consisting of relevant institutions be set up to promote corporategovernance. Sixth,privatesectorinitiativesintheareaofcorporategovernance,withthesupport of research institutions, universities, business associations, chambers of commerce, andthepressareimportant.Apriorityshouldbetopromoteandexpandthetraining programdevelopedbytheAcademyofFinancefordirectorsandmanagersoflisted companies.Directorsandmangersoflistedcompaniesshouldberequiredtoattend andcompletethetrainingcourse.Furthereffortsshouldberequiredtoestablishan InstituteofDirectors,andtodevelopandpromoteinvestorassociations,shareholder activism,andassociationsoflistedcompanies. Seventh,alongwiththeongoingefforttounifythethreelawsgoverningSOEs,FIEs, and domestic private enterprises under the Enterprise Law 2005, it is important to establishacentralisedsystemofcompanyregistries.Thisregistryinstitutionshould provide the public with financial and corporate governance information for all companies. Inconclusion,thisstudydiscussedthecorporategovernanceoflistedcompaniesin Vietnam based on provisions of the Securities Law 2006, the Enterprises Law 2005, ModelCharter2007andtheCode.Sometroublingmattersofcorporategovernancein
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listedcompaniesshowedthattheframeworkforcorporategovernanceinVietnamis in the early stages of development and requires reform. Listed companies need to improve their corporate governance to ensure market transparency, investor protectionandeffectivemanagement.
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Figure5:TheOECDPrinciplesofCorporateGovernance
I.ENSURINGTHEBASISFORANEFFECTIVE CORPORATEGOVERNANCEFRAMEWORK: IA.Overallcorporategovernanceframework IB.Legalframeworkenforceable/transparent IC.Cleardivisionofregulatoryresponsibilities ID.Regulatoryauthority,integrity,resources
IV.ROLEOFSTAKEHOLDERSIN CORPORATEGOVERNANCE IVA.Legalrightsofstakeholdersrespected IVB.Stakeholderredress IVC.Performanceenhancingmechanisms IVD.Stakeholderdisclosure IVE.Whistleblowerprotection IVF.Creditorrightslawandenforcement THEOECDPRINCIPLESOF CORPORATEGOVERNANCE V.DISCLOSUREANDTRANSPARENCY VA.Disclosurestandards VB.Standardsofaccountingandaudit VC.Independentauditannually VD.Externalauditorsshouldbeaccountable VE.Fairandtimelydissemination VF.Researchconflictsofinterests VI.RESPONSIBILITIESOFTHEBOARD VIA.Actwithduediligence,care VIB.Treatallshareholdersfairly VIC.Applyhighethicalstandards VID.Fulfilcertainkeyfunctions VIE.Exerciseobjectivejudgment VIF.Provideaccesstoinformation
II.THERIGHTSOFSHAREHOLDERSAND KEYOWNERSHIPFUNCTIONS IIA.Basicshareholderrights IIB.Rightstoparticipateinfundamental decisions IIC.ShareholdersAGMrights IID.Disproportionatecontroldisclosure IIE.Controlarrangementsallowedtofunction IIF.Exerciseofownershiprightsfacilitated IIG.Shareholdersallowedtoconsulteachother III.EQUITABLETREATMENTOF SHAREHOLDERS IIIA.Allshareholdersshouldbetreatedequally IIIB.Prohibitinsidertrading IIIC.Board/managersdiscloseinterests
Source:OECD
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Bond Law Review

Volume 20 | Issue 2 Article 6

Corporate Governance of Listed Companies in Vietnam

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Corporate Governance of Listed Companies in Vietnam

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Le Minh and Walker: Corporate Governance of Listed Companies in Vietnam

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Bond Law Review, Vol. 20 [2008], Iss. 2, Art. 6

Le Minh and Walker: Corporate Governance of Listed Companies in Vietnam

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Bond Law Review, Vol. 20 [2008], Iss. 2, Art. 6

Singlememberlimitedliabilitycompany(Congtytrachnhiemhuuhanmotthanh vienSLLC); Multiplememberlimitedliabilitycompanywithtwoormoremembers(Congty trachnhiemhuuhanhaithanhvientrolenMLLC); Shareholdingcompany(CongtycophanSC);and Partnership(Congtyhopdanh).

Le Minh and Walker: Corporate Governance of Listed Companies in Vietnam

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Bond Law Review, Vol. 20 [2008], Iss. 2, Art. 6

AlthoughtheframeworkforcorporategovernanceinVietnamespeciallyasregards listedcompanies,isintheearlystagesofdevelopment,theEnterpriseLaw2005andits regulationsprovidethefundamentalregulatoryframeworkforcorporategovernance oflistedcompanies.

Le Minh and Walker: Corporate Governance of Listed Companies in Vietnam

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Bond Law Review, Vol. 20 [2008], Iss. 2, Art. 6

Le Minh and Walker: Corporate Governance of Listed Companies in Vietnam

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Bond Law Review, Vol. 20 [2008], Iss. 2, Art. 6

Le Minh and Walker: Corporate Governance of Listed Companies in Vietnam

(iii) theequitabletreatmentofshareholders; (iv) theroleofstakeholdersincorporategovernance; (v) disclosureandtransparency;and

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Bond Law Review, Vol. 20 [2008], Iss. 2, Art. 6

Le Minh and Walker: Corporate Governance of Listed Companies in Vietnam

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Bond Law Review, Vol. 20 [2008], Iss. 2, Art. 6

Le Minh and Walker: Corporate Governance of Listed Companies in Vietnam

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Bond Law Review, Vol. 20 [2008], Iss. 2, Art. 6

Le Minh and Walker: Corporate Governance of Listed Companies in Vietnam

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Bond Law Review, Vol. 20 [2008], Iss. 2, Art. 6

Le Minh and Walker: Corporate Governance of Listed Companies in Vietnam

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Bond Law Review, Vol. 20 [2008], Iss. 2, Art. 6

Le Minh and Walker: Corporate Governance of Listed Companies in Vietnam

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Bond Law Review, Vol. 20 [2008], Iss. 2, Art. 6

Le Minh and Walker: Corporate Governance of Listed Companies in Vietnam

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Bond Law Review, Vol. 20 [2008], Iss. 2, Art. 6

Le Minh and Walker: Corporate Governance of Listed Companies in Vietnam

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Bond Law Review, Vol. 20 [2008], Iss. 2, Art. 6

Le Minh and Walker: Corporate Governance of Listed Companies in Vietnam

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Bond Law Review, Vol. 20 [2008], Iss. 2, Art. 6

Le Minh and Walker: Corporate Governance of Listed Companies in Vietnam

94 SeeSection1,Article13ofDecree139. 95 Seesection2,ofArticle116oftheEnterpriseLaw2005. 96 Ibid. 97 Ibid,Article110.

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Le Minh and Walker: Corporate Governance of Listed Companies in Vietnam

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Bond Law Review, Vol. 20 [2008], Iss. 2, Art. 6

Le Minh and Walker: Corporate Governance of Listed Companies in Vietnam

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Bond Law Review, Vol. 20 [2008], Iss. 2, Art. 6

Le Minh and Walker: Corporate Governance of Listed Companies in Vietnam

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