Source: ‘Corporate governance in Vietnam: a system in transition’ by Hai, Bui Xuan and Nunoi, Chihiro, Hitotsubashi journal of commerce and management, 42(1): 45-66
Note: Footnotes omitted. See fulltext here.
- board of management – BOM = hội đồng quản trị
- board of supervisors – BOS = ban kiểm soát
- chairperson = chủ tịch hội đồng quản trị
- chief executive officer – CEO = giám đốc/tổng giám đốc
- company = corporation = công ty
- constitution = điều lệ công ty
- imited liability company – LLC = công ty trách nhiệm hữu hạn
- legal representative = người đại diện theo pháp luật
- organisation shareholder = cổ đông tổ chức
- resolution = nghị quyết
- shareholder = cổ đông
- shareholdersʼ meeting – SM = đại hội đồng cổ đông
- shareholding company – SC = công ty cổ phần
- supervisor = kiểm soát viên
- voting share = cổ phần có quyền biểu quyết
The Internal Governance Structure of a Shareholding Company [under the Vietnamese Enterprise Law 2005]
The mandatory governance structure of a shareholding company consists of four governance bodies: (1) the shareholdersʼ meeting (SM); (2) a board of management (BOM); (3) a CEO, and (4), if the company has more than 11 shareholders being natural persons or one (or more) institutional shareholder(s) holding more than 50 percent of the equity capital, a board of supervisors (BOS) (see Figure 3).
(1) Shareholders’ Meeting (SM)
The Enterprise Law 2005 sets out detailed provisions relating to procedures of, and other matters concerning, shareholdersʼ meetings (SM). The SM, comprising all shareholders with the right to vote, is the highest decision making body of an SC. The Enterprise Law 2005 retains many powers of the company for the SM, and such mandated powers can be expanded by the companyʼs constitution. The SM can be convened in an ordinary (at least once a year) or extraordinary mode via a call by the BOM, the BOS, or a shareholder (or a group of shareholder) under particular circumstances provided for by the 2005 Law and the company constitution. A meeting of shareholders must be attended by shareholders holding at least 65 percent of the voting shares.
A resolution can be passed by the shareholders at a meeting or by collecting written votes conducted by the BOM. At meetings, depending on the matter, a resolution is adopted if it is approved by at least 65 or 75 percent of the total voting shares of all attending shareholders. If a resolution is passed via the written votes of shareholders, it must be approved by at least 75 percent of total votes. These high requirements may help to protect the minority shareholders of the company.
Additionally, the Enterprise Law 2005 allows a shareholder, a member of the BOM, the CEO, and the BOS to request a court to review and cancel a resolution of the shareholders if (i) the order and procedures for convening the meeting were unlawful, or (ii) the procedures for issuing the resolution or its contents break laws or/and the companyʼs constitution. These rules may help protect investors and keep the company operating lawfully.
(2) The Board of Management (BOM)
The board of management (BOM), with from three to eleven members elected by the SM, has an essential role in the corporate governance of an SC. The board shares decision-making power with the SM and appears as a decision-making and management body. The board manages the company and has authority to deal with all matters in the name of the company, except those that fall within the powers of the SM as prescribed in the Law and the companyʼs constitution. This means that the matters of a company not under the powers of the SM can fall to the BOM. The Enterprise Law 2005 prescribes a list of statutory matters (some similar to those of the MC of LLCs) that the board can decide or propose to the SM. The statutory powers of the board can be divided into four major areas: (i) making decisions concerning management matters; (ii) selecting the CEO and other senior managers; (iii) supervising the daily management, and, (iv) proposing matters under the power of the SM.
The board can adopt a decision via a meeting, collecting written votes, and other ways provided for by the companyʼs constitution. The boardʼs meetings are convened in an ordinary (at least once every three months) or extraordinary manner, as called for by the chairperson. The chairperson must convene an irregular board meeting requested by the BOS, the CEO, at least two board members, or five managers, or other circumstances provided for by the constitution. If the chairperson fails to convene a requested meeting, he/she is responsible for any losses that may occur, and the requester has the right to convene a boardʼs meeting. A meeting must be attended by at least three-quarters of the members and a boardʼs decision is adopted if approved by a majority of participating members. If the numbers of votes for and against are equal, the vote of the chairperson is decisive.
It is an improvement of the Enterprise Law 2005 in comparison to the Enterprise Law 1999 when the 2005 Law provides that the CEO and members of the BOS have the right to attend and discuss, but not to vote, at all meetings of the BOM. This is a significant way for supervisors to monitor the board, and for the CEO to make proposals and obtain the opinions of the board in running the company. On the other hand, a board member has the right to request the CEO and other managers to provide information and materials related to the operation of the company. This may assist the board in overseeing the daily management.
The head of the BOM is a chairperson, who ̶ unlike under the 1999 Law ̶ is elected by either the SM or the BOM in accordance with the company constitution. The chairperson of the board can also be the CEO of the company, unless otherwise provided for by the constitution. A major mandatory function of the chairperson involves chairing meetings of the board and the SM, planning the boardʼs operation, and supervising the implementation of the boardʼs decisions. Nevertheless, the companyʼs constitution can allocate wider powers to the chairperson. Consequently, as other corporate governance bodies, the powers of the chairperson can vary from company to company.
(3) Chief Executive Officer (CEO)
An SC must have a CEO selected by the BOM to run the daily operations of the company. Interestingly, unlike the 1999 Law and company laws of some other jurisdictions, the Enterprise Law 2005 provides that the CEO of an SC cannot concurrently be the CEO of another enterprise in order to prevent any conflict of interests. The CEO has statutory powers to manage and decide on matters regarding the daily operations of the company, implement the decisions of the BOM, and select managers and officers who are not under the power of the board. Beside the statutory powers prescribed in the Law, the powers of the CEO can be expanded by the company constitution.
(4) The Board of Supervisors (BOS)
The Enterprise Law 2005 provides that a board of supervisors (BOS) must be established in an SC with more than 11 natural shareholders or of which more than 50 percent of the share capital is held by one or more organisation shareholder(s). Unlike Anglo-American jurisdictions, where a supervisory body often belongs to a board of directors, the supervisory body of a Vietnamese SC is a body elected by shareholders and separated from the BOM.
Supervisors elect one of their members as chief of the BOS. Nonetheless, the Enterprise Law 2005 does not state the powers and duties for this position. More than half the BOS members must reside permanently in Vietnam and at least one supervisor must be an accountant or auditor. Interestingly, in order to assure the independence of the BOS, company managers and their relatives cannot become supervisors of the company.
A major function of the BOS involves supervising the BOM and CEO in managing and running the company. In particular, the BOS (i) checks the reasonability, reliability, legality, truthfulness and carefulness of the management in directing and managing the company, and, (ii) evaluates the business reports, annual financial reports, and management reports of the BOM. The Enterprise Law 2005 also ensures that supervisors have access to management information. For example, a supervisor has the statutory right to attend meetings of the BOM, and the CEO has to report to the BOM and the BOS in the same manner. Supervisors also have the right to access the companyʼs files and working locations of the company managers and employees. Furthermore, the BOM, its members, the CEO and other managers have to provide, without delay, full materials for the BOS as requested. In addition to the statutory powers provided for by the Law, the companyʼs constitution can also enlarge the powers of the BOS. Compared to the 1999 Law, the principles discussed above are an improvement of the Enterprise Law 2005.
The Enterprise Law 2005 has enhanced the supervisory mechanisms in SCs. However, it does not provide for the operation of the BOS as a collective corporate body, and does not specify how this body adopts a decision. Furthermore, the efficiency of a BOSʼs operations depends upon various factors. A survey conducted by MPDF in 2004 found that 36 percent of the respondents believe that the BOS “just exists on paper” because it is required by law.
In short, the mandatory internal governance structure of an SC under the Enterprise Law 2005 comprises four constituents: the general meeting, a BOM, a CEO, and a BOS with respective statutory powers and functions. Besides the statutory powers prescribed in the Law, the companyʼs constitution can expand, but not decrease, the powers of the above corporate governance bodies.
The Legal Representative of a Company
A company is an artificial legal entity, and must have people to act on its behalf. Unlike the corporation law of Australia and some other countries, the Enterprise Law 2005 requires the companyʼs constitution to decide upon the legal representative of the company. According to Vietnamese law, the legal representative is the only person who has statutory powers to represent the company (such as signing in contracts and documents on behalf of the company), unless he/she properly delegates this authority to other people. In contrast, the Corporations Act 2001 (Cth) of Australia stipulates that ʻany 2 directors of a company that has 2 or more directors, or the director of a proprietary company that has only 1 director, may sign, draw, accept, endorse, or otherwise execute a negotiable instrument.ʼ Under Australian corporations law, a company can execute a document without using a common seal when it is signed by two directors, or a director and a company secretary, or the sole director of the company.
The Enterprise Law 2005 provides that the legal representative of an LLC is either the chairperson of the MC or the CEO, while that of an SC is either the chairperson of the BOM or the CEO. These provisions appear to be flexible, but inappropriate. It means that the chairperson of the MC, who is the head of an ownership body and not involved in the daily management, can be the legal representative of an LLC. If so, the powers of the CEO are restricted by the chairperson and the CEO may have no authority to decide on contracts and sign documents on behalf of the company. This can adversely affect the companyʼs business and present difficulties in daily management.