LOE 2005 Article 97 4.

. If the Board of Management fails to convene a General Meeting of Shareholders as stipulated, the chairman of the Board of Management must be responsible before the law and must compensate for any damage arising to the company. Article 108 Board of Management 1. The Board of Management is the body managing the company and shall have full authority to make decisions in the name of the company and to exercise the rights and discharge the obligations of the company which do not fall within the authority of the General Meeting of Shareholders. 2. The Board of Management shall have the following rights and duties: (a) To make decisions on medium term development strategies, and plans, and on annual business plans of the company; (b) To recommend the classes of shares and total number of shares of each class which may be offered; (c) To make decisions on offering new shares within the number of shares of each class which may be offered for sale; to make decisions on raising additional fund in other forms; (d) To make decisions on the price of shares and bonds of the company offered for sale; (dd) To make decisions on redemption of shares in accordance with the provisions in clause 1 of article 91 of this Law; (e) To make decisions on investment plans and investment projects within the authority and limits stipulated in this Law and the charter of the company; (g) To make decisions on solutions for market expansion, marketing and technology; to approve contracts for purchase, sale, borrowing, lending and other contracts valued at fifty (50) or more per cent of the total value of assets recorded in the most recent financial statement of the company, or a smaller percentage as stipulated in the
Phillips Fox Translation 66

charter of the company, except for contracts and transactions stipulated in clauses 1 and 3 of article 120 of this Law; (h) To appoint, dismiss or remove, and to sign contracts or to terminate contracts with the director or the general director and other key managers of the company as stipulated in the charter of the company; to make decisions on salaries and other benefits of such managers; to appoint an authorized representative to exercise ownership rights of shares or of capital contributed to other companies, and to make decisions on the level of remuneration and other benefits of such persons; (i) To supervise and direct the director or general director and other management personnel in their work of conducting the daily business of the company. (k) 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 the capital contribution to or purchase of shares of other enterprises; (l) To approve the agenda and contents of documents for the General Meeting of Shareholders; to convene the General Meeting of Shareholders or to obtain written opinions in order for the General Meeting of Shareholders to pass resolutions; (m) To submit annual final financial reports to the General Meeting of Shareholders; (n) To recommend the dividend rates to be paid, to make decisions on the time-limit and procedures for payment of dividends or for dealing with losses incurred in the business operation; (o) To recommend re-organization or dissolution of the company, or to request bankruptcy of the company; (p) Other rights and duties stipulated in this Law and the charter of the company. 3. The Board of Management shall pass resolutions by way of voting at meetings, obtaining written opinions, or otherwise as stipulated in the charter of the company. Each member of the Board of Management shall have one vote. 4. When implementing its functions and performing its duties, the Board of Management shall strictly comply with the provisions of law, the charter of the company and resolutions of the General Meeting of Shareholders. If the Board of Management passes a resolution 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 resolution shall be personally

jointly liable for that resolution and they must compensate the company for the damage; any member who opposed the passing of such resolution shall be exempt from liability. In such a case, a shareholder owning shares in a company for a minimum consecutive period of at least one year shall have the right to request the Board of Management to suspend implementation of a resolution as mentioned above. Article 117 Remuneration, salary and other benefits of members of the Board of Management, the director or the general director 1. The company is entitled to pay remuneration, salary to members of the Board of Management, director or general director and other managers based on the business results and efficiency. 2. 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 the following regulations: (a) Members of the Board of Management shall be entitled to remuneration for work and bonus. Remuneration for work shall be calculated on the basis of the working days which are necessary to fulfil the obligations of the members of the Board of Management and the daily rate of remuneration. The Board of Management shall estimate the remuneration for each member on the principle of agreement. The total amount of remuneration for the Board of Management shall be decided by the General Meeting of Shareholders at the annual meeting; (b) Members of the Board of Management shall be entitled to reimbursement of meals, accommodation, travel and other reasonable expenses they have spent in order to fulfil delegated obligations; (c) The director or general director shall be entitled to salary and bonus. The salary of the director or general director shall be decided by the Board of Management. 3. 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 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. GORDON WALKER LISTED COMPANIES 2.1.1.2. The Board of Management (BOM) and members of BOM Except for issues which fall within the authority of the GMS, the BOM is the body managing the company and has full authority to make decisions in the name of the company and to exercise the rights and 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 parties in the charter. Those specified by law include decisions on or approval of: (i) medium term development strategies and annual business plans of the SC; (ii) marketing, technology transfer; loan agreements and contracts for sale of assets valued at 50 per cent or more of the total assets; and (iii) appointment/dismissal of the General Director and other key managers.62 In addition, the BOM is authorised to make recommendations to the SC in relation to certain specified matters. In this way, the BOM has a more direct role in the operations of the 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 shareholder of the SC. BOM members are appointed for a maximum 5 year term, but may be reappointed for additional terms.63 Under the Enterprise Law 2005 provisions, the members of the BOM of a shareholding

company must satisfy the following criteria and conditions: (i) have full capacity for
Ibid, Article 6, sections 27. Article 108, the Enterprises Law 2005. 62 Ibid, Article 108.2. 63 Ibid, Article 109. For standards and conditions for acting as a member of the BOM, see Article 110.
60 61

21 Le Minh and Walker: Corporate Governance of Listed Companies in Vietnam Produced by The Berkeley Electronic Press, 2008 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 shareholder must own at least five (5) per cent of the total shares or in the case of a 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 those in this clause, then the provisions of the company charter shall apply. 64 The BOM passes resolutions by way of voting at meetings, obtaining written opinions, or otherwise as stipulated in the charter of the company. Each member of the BOM has one vote. The BOM must hold at least one ordinary meeting per quarter.65 Extraordinary meetings must be convened at the request of (i) the Control Board, (ii) the General Director (CEO) or five (5) other management personnel, (iii) two (2) BOM members or more, or (iv) any circumstance stipulated in the charter.66 The chairman must convene a meeting of the BOM within a timelimit of fifteen (15) days from the date of receipt of a request. If the chairman fails to convene a meeting of the BOM pursuant to a request, the chairman is responsible for any damage to the company; and the requester has the right to replace the BOM in convening a meeting of the BOM.67 A meeting of the BOM is conducted where there are three quarters or more of the total members attending. A resolution of the BOM is adopted if it is approved by the majority of the attending members; in the case of an equal vote, the vote of the chairman is effective.68 This issue is further discussed in FPT and VIPCO cases. The Enterprises Law 2005 provides that the CEO and members of the Control Board 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 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
See section 3, Article 13 of Decree 139/2007/NDCP dated 5 September, 2007 (hereinafter, Decree 139). 65 See Article 112 of the Enterprise Law 2005. 66 Ibid, section 4 67 Ibid, section 5. 68 Ibid, Article 112.8. Members not directly attending a meeting shall have the right to vote by sending a written vote. The written vote must be enclosed in a sealed envelope and delivered to the chairman of the Board of Management at least one hour prior to the
64

opening of the meeting. Written votes shall only be opened in the presence of all the people attending the meeting.

22 Bond Law Review, Vol. 20 [2008], Iss. 2, Art. 6 http://epublications.bond.edu.au/blr/vol20/iss2/6 provide information and materials related to the operation of the company; 69 for example, information on the companies financial situation and business operations. This may assist the board to oversee the daily management. For listed companies, the Code also provides that a report on activities of the board of management submitted to the GMS must contain at least the following contents: (i) Assessment of the companys activities during the fiscal year; (ii) Activities of the board of management; (iii) Summarised contents of meetings of and decisions of the board of management; (iv) Result of supervision of the director or general director; (v) Result of supervision of managers; and (vi) Proposed plan for the future. 70 The head of the BOM is a chairperson who is appointed by the GSM or the BOM in accordance with the charter. The chairperson of the board can also be the CEO of the company, unless otherwise provided for by the charter. The chairperson of the BOM is responsible for, inter alia, convening and chairing meetings and monitoring the execution of BOM resolutions.71 Under the Code, shareholders or a group of shareholders holding less than 10 per cent of the voting shares for a consecutive period of at least 6 months are entitled to nominate one member; shareholders holding from 10 per cent to less than 30 per cent are entitled to nominate two members; shareholders holding from 30 per cent to less than 50 per cent are entitled to nominate three members; shareholders holding from 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
Ibid, Article 114.1 See the Code, Article 7. 71 Sections 1 and 2, Article 111 of the Enterprise Law 2005. The chairman of the BOM has the following rights and duties: (a) to prepare working plans and programs of the BOM; (b) to prepare, or organize the preparation of agenda, content and documents for meetings of the BOM; to convene and preside over meetings of the BOM; (c) to organize for resolutions of the BOM to be passed; (d) to monitor the implementation of resolutions of the BOM; (e) to chair the GMS; (f) Other rights and duties stipulated in this Law and the charter of the company. See further, Articles 112115. 72 See sections 35, Article 9, the Code. If the number of candidates who are nominated and who stand for election is still insufficient, the incumbent [currently in office] BOM may nominate more candidates or organize for nomination in accordance with a mechanism stipulated by the company. The nomination mechanism or the method by which the incumbent BOM nominates candidates for the BOM are clearly announced and approved by the GMS before nominations are commenced. A listed company regulates and gives detailed instructions to shareholders on voting on membership of the BOM by the method of cumulative voting.
69 70

23 Le Minh and Walker: Corporate Governance of Listed Companies in Vietnam Produced by The Berkeley Electronic Press, 2008

In order to ensure a separation between the supervisory and managerial roles of the company, a listed company is required to limit the number of members of the BOM 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 approved at the annual GMS.73 It is noteworthy that, in a listed company, one third of the members of the BOM must 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 raised for discussion. When selling or purchasing shares of the company, members of 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 obtaining approval from the GMS; however, they may not purchase insurance for the liability of members of the BOM for breach of the law or the company Charter. 75 The Enterprise Law 2005, the Code and the Model Charter 2007 applicable to listed companies do not provide guidelines with regard to nonexecutive independent members qualifications and nomination procedures. Alternatively, only a few listed companies have nonexecutive independent members in their BOM.76 Under the Code, the BOM is accountable to shareholders for the companys activities. 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 with the law and the company Charter, ensuring equal treatment to all shareholders 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 for holding meetings of the BOM must include the following contents:
Ibid, Article 10. Ibid, section 1, Article 11. If a member loses membership status pursuant to law and the company Charter, is dismissed or cannot continue to be a member for some reason, the BOM may appoint another person as a replacement. In this case, the replacing member of the BOM must be voted for and approved at the next GMS. 75 Ibid, Article 12. 76 Such as Rang Dong JSC, Sacombank as of July 2008. See further statistics at SSC website at www.ssc.gov.vn; HOSE website at www.hsx.vn and HASTC website at www.hastc.org.vn.
73 74

24 Bond Law Review, Vol. 20 [2008], Iss. 2, Art. 6 http://epublications.bond.edu.au/blr/vol20/iss2/6 (i) Order and procedure for nominating, standing for election, election and dismissal of members of the board of management:77 (ii) Order and procedure for holding meetings of the board of management;78 The BOM formulates provisions on the order and procedure for selecting, appointing and dismissing senior managers and the order and procedures for coordination of

activities between the board of management, the board of directors and the board of controllers. These include:
(i) Order and procedures for selecting, appointing and dismissing senior managers. (ii) Order and procedures for coordination of activities between the board of management, the board of controllers and the board of directors. 79

The BOM is responsible for formulating a mechanism for assessing the activities of the company, and for rewarding and disciplining members of the BOM, the board of controllers, the board of directors and other managers. The BOM is responsible for preparing the report and providing it to the GMS. 80 The Code also stipulates that the BOM may set up subcommittees to assist it in its activities. Subcommittees may be formed for policy development, internal audits, to manage and recruit personnel, to administer salary and bonuses and to undertake other special tasks in accord with resolutions of the GMS. 81 The subcommittee for an internal audit must have at least one member who specialises in accounting and is
Article 13.3 of the Code. Such as criteria for membership of the board; method for nominating and/or standing for the post of member of the board of management by a nominee of a group of shareholders so qualified by law and the company Charter; method of election of members of the board of management; circumstances in which members will be dismissed; notification of election and dismissal of members of the board of management. 78 Ibid, Article 13 such as notification of a meeting of the board of management (including the agenda, time, venue, relevant documents, and voting slips for members who cannot attend a meeting); conditions for validity of the meeting; method of voting; method of approving resolutions of the board of management; taking minutes of the meeting of the board of management; approving minutes; announcing resolutions of the board of management. 79 Ibid, section 4, Article 13. 80 See Article 7, the Code. A report on activities of the board of management submitted to the GMS must contain at least the following contents: Assessment of the companys activities during the fiscal year; activities of the board of management; summarized contents of meetings of and decisions of the board of management; result of supervision of the director or general director; result of supervision of managers; proposed plan for the future. 81 Ibid, Article 15.
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25 Le Minh and Walker: Corporate Governance of Listed Companies in Vietnam Produced by The Berkeley Electronic Press, 2008 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 charge of each task such as auditing, salary and bonuses and personnel. 82 In order to assist the companys activities to be conducted effectively, the BOM must appoint at least one person to act as secretary of the company. The secretary of the company must have a good knowledge of law, and may not concurrently work for the auditing company which currently audits the company NGUYEN DINH CUNG

2. BOARD OF MANAGEMENT Therefore, the board of management is given a significant power and plays

a central role in the company. Power of the board of management covers a wide range of the company operation, from initiating development strategy, capital and human resource management to supervising the day-to-day business operation. However, performance of the board of management will depend much on its size, structure and expertise of individual members as well as whole board. Chairman of the board of management is a special member. Chairman of the board of management will be elected by either the Shareholders Meeting or the Board of Management (Article 111(1)-the law on enterprise). Law on enterprise has provided in detail procedures for convening a meeting of the board of management in a manner that enable all members to have adequate information and time to discuss and vote at the meeting. 4. REMUNERATION AND OTHER BENEFITS OF (GENERAL) DIRECTOR AND MEMBERS OF THE BOARD OF MANAGEMENT. Remuneration is one of the most important tool for motivating (general) director and members of the board of management to act in a fiduciary, diligent and optimal manner for the purpose of maximizing legitimate benefit of the company and its shareholders. Article 117 of the law on enterprise has specified explicitly principle for defining remuneration of (general) director and members of the board of managment toward linking their benefit to that of the company and shareholders. Remuneration of (general) director and members of the board of management is calculated basing on business performance of the company. The remuneration is calculated basing on the working days necessary to complete the assigned tasks and the daily remuneration. The total remuneration of the Board of Management will be determined by the Shareholders Meeting in an ordinary meeting. Members of the Board of Management will be reimbursed all expenses such as meals, accommodation, transportation and other reasonable expenses that they have to pay to fulfill their duties. The salary of the (general) director is determined by the Board of Management. Remuneration of the Board of Management and salaries of (general) director or other managers of the company will be deducted from business expenses of the company and will be presented in a separate section of the companys annual financial statement and reported to the annual Shareholders Meeting. In conclusion, regulation on remuneration of the board of management and (general) director has following developments: - Remuneration is not regulated by a ceiling margin. By contrast, the remuneration will be defined basing on the company performance. - Remuneration will be deducted from business expenses of the company. - Remuneration will be disclosured at the shareholding meeting and presented in the annual financial statement. 5. DUTIES OF MANAGERS Duties of managers, including (general) director, members of the board of management are stipulated by article 119 of the law on enterprise. 12 Those duties are tool for measuring effort and behavior of managers in carrying out their asigned duties. Duties of mmanagers are as follows:

- Exercise rights and obligations in accordance with provisions of this law, other related laws, the company charter and decisions of the shareholders meeting; - Exercise rights and obligations in a fiduciary, diligent and optimal manner for the purpose of maximizing legitimate benefit of the company and its shareholders; - Pledge loyalty toward the company and its shareholders. This duty often demonstrates some activities as follows::
12 Those

duties are much more detailed and clearer than that in the law on enterprise 1999

+ do not make use of information, know-how and business opportunity of the company for the benefit of themselves or other individual or organization; + do not abuse their position, power and assets of the company for the benefit of themselves or other individual or organization; + Notify promptly, fully and accurately the company of companies in which they or their related persons are sole owner or own a dominant capital contributor or major shareholder. Transactions without those related persons should be suspended promptly or should not be implemented without permission from the shareholder meeting and/or the board of management. + suspend implementation of any activity within the scope of the business operation of the company, that they engage on their own behalf or on behalf of others. That activity is required to report to the board of management. + are not allowed to increase the salary or pay bonus if the company is incapable of paying off due debts and other liabilities. As matter of fact, concepts of fiduciary and diligent duties are far away from acknowledge of managers in Vietnam. Adaptation of these concepts into the law on enterprise is necessary on one hand. However, enforcement of these duties is not easy in the reality. BUI XUAN HAI
2) The Board ofManagement (BOM) 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.51 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 boards meeting.
54 HITOTSUBASHI JOURNAL OF COMMERCE AND MANAGEMENT [October 49 Article 108 of the EL 2005. 50 Clause 2 of Article 108 of the EL 2005.

A meeting must be attended by at least three-quarters of the members and a boards decision s dopted if approved by a majority of participating members. If the numbers of votes for and gainst are equal, the vote of the chairperson is decisive.52 It is animprovemen t of the Enterprise Law 2005 incomparisonto the Enterprise Law 1999 whenthe 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

operationof the company.53 This may assist the board in overseeing the daily management. The head of the BOM is a chairperson( chu tich hoi dong quan tri), who unlike under the 1999 Law is elected by either the SM or the BOM in accordance with the company constitution.54 The chairpersonof the board canalso 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 boards operation, and supervising the implementation of the boards decisions.55 Nevertheless, the companys 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) ChiefExecutive Officer (CEO) AnSC must have a CEO selected by the BOM to runthe daily operations of the company.56 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.57 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.58 Beside the statutory powers prescribed inthe Law, the powers of the CEO canbe expanded by the company constitution. (4) The Board ofSupervisors (BOS) 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. 61 A major function of the BOS involves supervising the BOM and CEO in managing and running the company. 62 Inparticular, 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.63 Supervisors also have the right to access the companys 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. Inadditionto the statutory powers provided for by the Law, the companys constitutioncanalso 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 BOSs 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.64 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 companys constitution can expand, but not decrease, the powers of the above corporate governance bodies.

PROBLEMS
Mandatory supervision: The Enterprise Law 2005 requires that a BOS must be established whenanSC has more than11 natural shareholders or one (or more) organisation shareholder(s) holding more than 50 percent of the equity capital.77 Thus, it could be assumed that anSC that may have 10 natural shareholders holding 51 percent and 490 organisation shareholders holding 49 percent of the share capital would have no mandatory supervisor. In public companies with many shareholders, mandatory supervisory mechanisms are necessary to protect minority investors. Accordingly, it is inappropriate that an SC with 500 shareholders has no supervisor. This is an erroneous provision of the 2005 Law. INSIDER-BASED CONTROL This section argues that Vietnamese corporate governance can be described as an insider-based corporate governance system on the grounds of the dominance of state-owned enterprises (SOE) with privileges from the state, family-runcompanies. Secondly, most private Vietnamese companies are small and owned by insiders, especially family members. While SOEs are often managed by government officials under close state administration, private firms are largely run by family members as controlling shareholders. RECOMMENDATIONS

The accounting and auditing standards promulgated by the government as hard law must also be improved to meet international standards and promote good corporate governance with the efficient engagement of professional associations of accountants and auditors. In addition, there is a lack of important sources of corporate governance regulation as in advanced economies, such as codes of corporate governance and listing rules by securities regulators. In order to create ane ffective corporate governance regulatory framework, the lacking corporate governance rules should be implemented by the efficient engagement of not only governmental and non-governmental agencies, but also shareholders and companies themselves. In short, since the introduction of economic reforms and company law is less than two decades old, most Vietnamese entrepreneurs and scholars are not yet familiar with corporate governance mechanisms as understood in advanced economies. However, there are a number of reasons why corporate governance is becoming increasingly important in the transitional economy of Vietnam. SCORECARD

e. OECD Principle VI - Responsibilities of the Board (including Supervisory Board) The corporate governance framework should ensure the strategic guidance of the company, the effective monitoring of management by the board and the boards accountability to the company
0 20 40 60 80 100 120 D.29 D.30 D.31 D.32 Not observed Partially observed Observed

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and the shareholders33. Board structures and procedures will vary from country to country, depending on the legal and regulatory requirements and structures. Some countries in Asia require a code of ethics or business conduct, others do not but the existence of one does encourage better corporate governance and gives stakeholders increased confidence that the company is operating ethically. In Vietnam, companies have a two-tier board with a BOD and a SB. Under the current CG laws and regulations, the BOD is required to be accountable to the shareholders for the strategy and performance of the company, including the annual financial and business plan and guiding and

controlling management, and to ensure CG policies and processes are in place so the BOD can fulfil its tasks in accordance with all applicable laws and regulations. However policies and processes do not of themselves guarantee good corporate governance. Good corporate governance requires the actions and implementation of the BOD, the SB and the key executives of the company. The BOD has a duty to ensure the adherence to the company charter, act in the best interests of the company, treat all shareholders fairly and equitably, and protect shareholders rights. It is responsible for ensuring smooth running of the BOD, its meetings and its business, for the appointment and dismissing key management, for BOD, SB and management evaluation of performance, remuneration and discipline and to report to shareholders at least at the AGM. The SB is accountable to shareholders for the financial oversight of the company and to ensure compliance in the company with all applicable laws and regulations. It is also responsible for internal control oversight and must report to the shareholders at the AGM on how it fulfils these roles and its relationships with the BOD and management. With this SB remit, many companies in Vietnam, consequently, do not have an Audit Committee at the BOD level. The scorecard looks selectively at selected areas of board responsibility, including the corporate governance environment in which the board operates the role of the chairman and leadership of the board, board composition, the board role in company oversight and key board activities and company control, and the activities of the supervisory board. Responsibilities of the board were identified as the one of the most important areas in achieving quality corporate governance in Vietnam and, as such have a possible maximum score of 30%. Table 16: Evidence of Responsibilities of the Board and Supervisory Board comparison Measure Score % 2009 Score % 2010 Score % 2011 Possible maximum score for this area 30.0 30.0 30.0 Maximum achieved 16.0 16.5 16.4 Minimum achieved 3.4 5.3 2.9 Mean 10.6 10.8 10.8 The chart below indicates areas of relative strength in the surveyed group. In general companies were diligent at giving guidance on the disclosure of material transactions, explaining the role of the Chairman at BOD meetings, and for communicating the BODs responsibility for company strategy, business plans and for receiving regular reports on the company from management.
33 OECD, Principles of Corporate Governance, OECD 2004, Paris.

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Chart 50: Responsibilities of the board areas of better performance However, the chart below indicates each question related to the responsibilities of the board and supervisory board on which the observations of company data are relatively poor and achieve a score of 40% or below. The number of questions and the degree of red in the chart is an indicator

that this important area needs to be improved in Vietnam. The chart indicates that the BOD and SB are not fully aware of the expectations of BOD and SB members and are not adequately fulfilling their roles. Many issues related to best practices in board responsibilities are either not well understood or not well applied in Vietnamese listed companies The specific issues will be raised on a question by question basis. Chart 51: Responsibilities of the board areas of poorer performance
0 10 20 30 40 50 60 70 80 90 100 E.04 E.03 E.20 E.07 E.19 E.28 E.09 E.17 Observed Partially observed Not observed 0 10 20 30 40 50 60 70 80 90 100 E.23 E.21 E.31 E.15 E.26 E.18 E.25 E.13 E.08 E.06 E.30 E.27 E.02 E.22 E.10 E.11 E.12 E.24 Observed Partially observed Not observed

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For corporate governance to improve in Vietnamese companies, the roles of the BOD and the SB should be clear, distinct and board members should be committed to their role beyond minimum levels of compliance required by law and regulations. Question by question analysis E.1 Board and corporate governance environment Chart 52: Board and corporate governance environment
E.01 Has the company promulgated good CG guidelines? E.02 Does the company have clear company values and direction led by the BOD? E.03 Does company CG guidance disclose the material transactions that must be approved by the board?

96% of companies have in place company specific corporate governance guidelines. These guidelines should include a statement of BOD and SB values and responsibilities, refer to their role at the AGM, and their role in the appointment and dismissal of directors and senior management.

The guidelines should also refer to how the BOD and SB effectively co-ordinate their roles, oversee the company and company strategy and how they evaluate senior management and themselves in order to improve. In 21% of companies these guidelines were comprehensive (E.01). In some cases the company corporate governance guidelines are simply a copy of the Model Charter or of the company Articles of Association, indicating an unthinking and uncaring approach and some 4% of firms do not have CG Guidelines. Rarely was there evidence of a Code of Ethics or Conduct and company values were not clear or not clearly expressed (E.02) in 97% of firms. However policies concerning material transactions can be found in most Articles of Association (E.03). The BOD and the SB in Vietnam are the bodies accountable for setting the tone at the top for the company and in so doing should establish a clear, written vision for the company and a code of ethics or conduct by which the company will do its business. All operating within the company should know and abide by these values. E.2 Role of the chairman and board leadership The BOD leads the company and the chairman leads the board. The chairmans role is one of great expectation. Ideally, he should provide leadership for the board and ensure board and individual director effectiveness, establish structures, policies, procedures and schedules for company oversight and for efficient board work, organize and lead board agenda and meetings, ensuring participation by all directors and quality decision making. He will have a close working relationship with the chairmen of BOD committees, the CEO and senior management. The chairman will drive board evaluations and development and counsel individual directors. He will participate in the selection and induction of non-executive directors and keep good relations with shareowners,
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investors and key stakeholders. He will ensure that the role of independent directors is understood and that they are encouraged to challenge BOD and management thinking. Chart 53: Role of the chairman and board leadership
E.04 Is the Chairmans role at board meetings clearly described in the company CG guidance? E.05 Is the Chairman a non-executive director? E.06 Is the Chairman independent of the company?

To fulfil these roles, the chairman should have sufficient and appropriate powers vested in him, have the highest integrity and enjoy the trust and confidence of other directors and shareholders. His powers should be clearly described in company CG policies and guidance. In the case of Vietnam, this is well done and 97% of companies comprehensively describe the chairmans role, largely in the Articles of Association (E.04). It is deemed good practice in the OECD Principles and Annotations to separate the roles of BOD chairman and CEO as it preserves the balance of power between the two most important roles in the company. Further the roles of the chairman and CEO are fundamentally different the chairman should lead and run the BOD and the CEO should lead and run the operations of the company. In the sample group the chairman is a non-executive director in 66% of cases and in the other 34% where the chairman is also an executive, mostly he is also the CEO (E.05). Where the BOD is responsible to oversee management, it is difficult to see how this may occur when the chairman of the BOD is also the CEO. An inherent conflict of interest occurs. It is also considered better practice if the chairman is independent of the company in that he is not a major shareholder or a representative of major shareholder, has no close relations in company management and has no recent (within the last three years) former employment or business association with the company. Because the concept of independence in CG terms is not well known and applied in Vietnam, most chairmen (95%) are not independent of the company (E.06). Indeed in Vietnam law and regulation, the term independent director had not been used and applied. It is now a feature of the CG Regulations in Circular 121. In many countries, boards have a specific number or percentage of independent directors mandated. Normally the minimum is one-third of the board being independent, one of whom is often the chairman. The goal is to have a sufficient number of board members who are independent so that no one individual or group can dominate decision making. Independence as described in OECD Principle VI and by the IFC would ensure that the chairman should not have a material relationship with the company other than his directorship. E.3 Board balance - skills, competences and training The BOD is responsible to lead the company and to bring to board deliberations a variety of skills and experiences that each director will apply in the best interests of the company. Directors should
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exercise independent judgment on corporate matters and monitor the performance of management. Therefore when considering the mix of skills, experience and behaviours required for leading and directing the company, board balance is recommended balance of executive and nonexecutive directors, balance of independent directors and a variety skills and experiences, including financial, legal, industry and other experiences appropriate to the company. In general, there is a good mix of executive and non-executive directors in 91% of companies (E.07). However, two companies had BODs comprised only of executives despite the CG Regulations requiring one-third of directors to be non-executive. 93% of companies did not have independent directors (E.08). his is unsurprising as the CG Regulations in place in 2011 did not define independent directors or use that terminology. However in CG there is no reason for companies not to move beyond the minimum of the law and apply global good practices. Four companies in the survey group have done just that and have more than 1/3 of the BOD being independent. 64% of companies demonstrate that collectively the BOD has a range of skills and experiences, including business knowledge, accounting / finance knowledge, industry experience and a balance of executive and non-executive directors (E.09). Chart 54: Board balance skills, competences and training
E.07 How many BOD members are non-executive? E.08 What percentage of the BOD is independent? E.09 Is there evidence of the BOD being a balanced board? E.10 Does company information and director information clearly state/disclose the number of board seats each director holds? E.11 Does the company have a board induction policy and program for new appointments to the BOD and SB? E.12 Do the BOD and SB undertake an annual self assessment / evaluation? E.13 Did BOD and SB members and CEO participate in CG training and report this?

However and from the evidence provided by the companies and available in the public domain, we know little about the number of board seats each director may hold in all. 99% of companies do not disclose the number of board seats each director holds (E.10). The CG Regulations require that each BOD member should hold a total of 6 or less board seats. Information on this may point to the directors capacity or incapacity to commit time to the company affairs. Too many board seats or committee activities may mean little time can be spared for the director to fulfil his duties at each company. Further the survey group provided little information on how new BOD members are prepared for their role and for the initial BOD meeting. It is good practice for new directors to be inducted into

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the company on appointment by being provided with information on the industry, the state of the company, the recent financial performance and through meeting other directors and key management. 99% of companies do not refer to the induction of new BOD members (E.11). A shareholder would be comforted in knowing that directors are well prepared for their role. In good CG practice and given ever present changing law and regulations affecting business and the rising expectations of CG, it is important that directors keep pace with developments. In many countries this means that boards will assess their performance annually and report to shareholders on the assessment and how the findings feed into development programs and even training for the BOD. There is little evidence of BOD assessments in Vietnamese companies. 99% of companies do not disclose information on this activity (E.12). However 13 companies do report that their directors undertake some kind of training and development (E.13). BOD and SB members commitment to quality CG and CG development would be enhanced by evaluation and training and transparency on these matters. E.4 Board effectiveness information, meetings and records A BOD is comprised of talented people whose time is valuable. Therefore the time they spend at BOD meetings should be maximised. They require effective working practices at the meetings, including regular meetings, adequate notification of the meetings, timely delivery of meeting papers, a clear agenda, and that good records are kept of the meetings and the resolutions from each meeting. Each of the BOD and SB should have a schedule of meetings for the year, a working plan for meetings with topics for discussion and decision, leaving time for deliberation of other issues that may arise. Chart 55: Board effectiveness information, meetings and records
E.14 How often did the BOD meet in the past year? E.15 How often did the SB meet in the past year? E.16 Are there mechanisms in place to ensure board members receive adequate notification of the board meeting for all BOD / SB meetings? E.17 Do the BOD and SB keep meeting minutes and resolution records of each meeting?

The Model Charter requires BODs to meet at least four times per year, once in every quarter. Most

BODs meet this requirement and disclose the number of meetings held either in their Annual Report or in AGM documents (E.14). However we have little information as to the individual director attendance at the meetings. It is good practice to let shareholders know the record of individual attendance at BOD and BOD committee meetings as they can then assess the commitment of each director individually. Whilst the SB meets less frequently, with the Model Charter requiring a
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minimum of two times per year, again there are few companies revealing individual attendance at the meetings (E.15). BODs and SBs should not be constrained in the number of meetings they have. It is their responsibility to meet as often as required to lead and direct the business, which in times of crisis may be more often. BOD and SB members should read and consider the issues before each meeting which means they should receive adequate notification of the meetings, their location and receive meeting papers in good time. Good practice is that BOD and SB meeting papers should be received at least seven days in advance of the meeting. Usually this process is facilitated by the Company Secretary. In Vietnam documents tend to be distributed about five days before the meetings as stipulated as the minimum in the Model Charter. Very few companies have a seven day policy, yet there is nothing to prevent companies aspiring to this deadline (E.16). There is evidence that meeting records are well kept and available for both the BOD and the SB in 62% of companies surveyed (E.17). E.5 Board effectiveness company strategy, risk and oversight According to the OECD Principles of Corporate Governance, the board should fulfil certain key functions including, reviewing and guiding corporate strategy, major plans of action, risk policy, annual budgets and business plans; setting performance objectives; monitoring implementation and corporate performance34 and overseeing management. As board expectations continue to increase as companies globalise, regulations increase and become more complex, companies delegate board oversight to board committees. They can be an effective

method of handling a greater number of issues more efficiently by allowing experts to focus on specific areas, developing subject specific expertise, such as in financial reporting and risk management, and can enhance the objectivity and independence of the BOD judgment. Globally the most widely established committees are an Audit Committee, a Remuneration Committee and a Nomination and CG Committee. Indeed in Asia, 94% of listed companies have an Audit Committee, 75% a Remuneration Committee and 56% a Nomination Committee 35. Chart 56: Board effectiveness company strategy, risk and oversight
E.18 Has the BOD established BOD committees (Audit Committee, Remuneration Committee and Human Resource Committee) or a designated BOD person? E.19 Is there evidence that the BOD receives regular management reports on the company activities and its financial position?
34 OECD, Principles of Corporate Governance, OECD, 2004, Paris. 35 Gavin Grant, Beyond the Numbers: Corporate Governance in Australia and Asia, Deutsche Bank, London 2007, accessible at www.db.com.

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E.20 Is there evidence the BOD is responsible for the strategy and business plans of the company? E.21 Are the BOD/SB responsible for and oversee the risk management system of the company? E.22 Do the BOD / SB assess the CEO and key executives annually?

In Vietnam, committees are not mandatory and in any event all responsibility for committee activities remains with the board. However, both the CG Regulations and the Model Charter suggest that the BOD set up committees to facilitate BOD activities. Further in good practices committees should have a charter that clearly establishes their mandate and responsibility to report to the BOD. Only 16% of companies seemed to have committees working under the BOD. The most prevalent committee was an Audit Committee. However there is little evidence of either a committee charter or of committee reporting to the BOD (E.18). As a minimum an Audit Committee and Nomination Committee are recommended. In global good practices, all members of these committees are independent directors. In other BOD activities there is better news. There is evidence that 81% of BODs receive regular management reports on company activities and its financial position (E.19). The BOD seems to participate in the development of the company strategy and approves both the company strategy and its business plans in 93% of cases reviewed (E.20). Less evident was the BODs role in risk oversight. Evidence of policies and processes being in place to ensure management identifies and has mechanisms to manage identified risks and that

management reports to the BOD on risk regularly is poor in 80% of companies (E.21). One key role of the BOD and the SB is to assess the CEO and key senior executives annually. There is little evidence as to if or how this evaluation occurs or that the annual evaluation considers senior managements contribution to the long-term performance of the company in 98% of firms reviewed (E.22). BODs and SBs should undertake this important role annually and report to shareholders on it.