NATIONAL ECONOMICS UNIVERSITY BUSINESS SCHOOL ~~~~~~*~~~~~~

BUSINESS LAW
Title of Assignment: Discuss whether shareholders can effectively control directors and managers remuneration and bonus given the legal powers and rights they possess under the current Vietnamese law Instructor: Students: : Dr. NGUYEN VAN NGOC : Ho Thi Thuy Giang Vu Phuong Giang Vu Thanh Thuy Class: : EMBA11B

HANOI, 2013

It is obvious that in business, the law is everywhere and it influences the choice of both the initial and subsequent structure of the business or human resources matters and so on. The lack of legal awareness can cause us not only potential legal issues but also can harm our benefit. In Vietnam, apart from Limited liability Company (LLC), Partnership, Private enterprises, number of Shareholding Company (SC) has been increased sharply for recent years. A joint-stock company is a business entity which is owned by shareholders. Each shareholder owns the portion of the company in proportion to his or her ownership of the company's shares (certificates of ownership). This allows for the unequal ownership of a business with some shareholders owning a larger proportion of a company than others. Shareholders are able to transfer their shares to others without any effects to the continued existence of the company. There are so many issues within a shareholding company but within this paper, we would like to discuss whether shareholders can effectively control directors and managers remuneration and bonus given the legal powers and rights they possess under the current Vietnamese law. The issue of directors and managers remuneration and bonus is one of the hot questions from shareholders during General Meeting of Shareholders of major companies in Vietnam like Asia Commercial Bank (ACB), Eximbank (EIB) or Binh Minh Plastic (BMP), REE Corporation (REE ), Vietnam gas Corporation (GAS), Hanoimilk JSC and etc. The monthly salary for the directors and managers is just symbolic meanwhile the bonus is such a huge number. And the question set here is that whether the shareholders can control this issue.

According to the Article 78 of Law on Enterprise 2005, shareholding companies must have ordinary shares and optional preference shares corresponding to the ordinary shareholders and preference shareholders. Each share of the same class shall entitle its holder to the same rights, obligations and interests. The Article 117 Law on Enterprise 2005 provides clearly on the remuneration, salary and other benefits of members of the Board of Management, the director or the general director. Unless otherwise provided by the charter of the company, the numeration, salary and other benefits of members of the Board of Management, the director or general director shall be paid according to their business result and efficiency. Members of BOM shall be entitled to remuneration for work and bonus but the total amount of remuneration for the Board of Management shall be decided by the annual General Meeting of Shareholders. Meanwhile, the director or general director shall be entitled to salary and bonus and shall be decided by the Board of Management. However, according to the Article 79 Law on Enterprise 2005, the ordinary shareholders only have right to attend and express opinion in the General Shareholders Meeting, and only a shareholder or a group of shareholders holding more than ten (10) per cent of the total ordinary shares have right to request the convening of a General Meeting of Shareholders in the case or to request the Inspection Committee to inspect each particular issue relating to the management and administration of the operation of the company where it is considered necessary. So even if the ordinary shareholders find out that the remuneration and bonus for the BOM and directors is inappropriate they cannot do anything until the time of General Shareholders Meeting. The remuneration of members of the Board of Management and the salary of the director or general director and other managers shall be included in the 3

business expenses of the company in accordance with the law on corporate income tax and shall be presented in a separate item in the annual financial statements of the company and shall be reported to the General Meeting of Shareholders at the annual meeting. It means that to find out the information of remuneration and bonus for the managers and directors, the investors and shareholders must read through at least tens of pages of a financial report. But not everyone can read and understand thoroughly a financial statement. Then it is something like a hard puzzle to the shareholders to know and control the issue. In addition, the Article 129 also regulates on Public disclosure of information on shareholding companies but no regulation on the disclosure of information on remuneration and bonus for the managers. So many companies even publicize the type of financial statement without or unclear information which makes the situation dimmer. One more thing we would like to mention that the Inspection Committee (Supervisory Board) whose right to inspect the BOM and directors as requested by the shareholders (in a General Shareholders Meeting or in written documents as provided in Article 79) are often recommended by the BOM and approve by a General Shareholders Meeting. Therefore, sometimes the Inspection Committee do not fulfill their task then the inspection is not so helpful. In conclusion, with the current laws and regulations in Vietnam, shareholders especially small shareholders cannot effectively control the remuneration and bonus for managers and directors.

REFERENCES 1. Article 78, Vietnamese Law on Enterprise 2005 2. Article 79, Vietnamese Law on Enterprise 2005 3. Article 117, Vietnamese Law on Enterprise 2005 4. www.cafef.vn 5. www.wikipedia.org