Corporate Governance 2021 - Chambers Global Practice Guide
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Publishing date:
14/7/2021
June 29, 2021

Law and Practice

1. Introduction

1.1 Forms of Corporate/Business Organisations

Vietnamese laws provide for four principal forms of corporate/business organisations, including the following.

  • Private enterprise ‒ owned by an individual who must take all responsibilities of the enterprise by his/her entire assets (unlimited liability). A private enterprise is not entitled to issue any kind of securities (including shares, bonds, rights, etc).
  • Partnership ‒ must have at least two individual partners who co-own the company and bear unlimited liabilities for the company. A partnership may also have contributing partners who are responsible for the company’s debts to the extent of their capital contribution (limited liability). A partnership is not entitled to issue any kind of securities (including shares, bonds, rights, etc).
  • Limited liability company (LLC) ‒ includes one-member LLC and multi-member LLC with up to 50 members. Members (ie, owners) of an LLC can be organisations or individuals and all members have limited liability. An LLC is not entitled to issue shares, but may issue bonds.
  • Joint stock company (JSC) ‒ must have at least three shareholders with no maximum limit of shareholders. A shareholder can be either an organisation or an individual. All shareholders have limited liability.

Compared to the other three forms, only a JSC can offer to sell shares to the public (public offering), after which the JSC must be registered as a public company and governed additionally by securities regulations.

A public company is a JSC which belongs to either of the following: (i) a JSC which has successfully completed its initial public offering (IPO) by registration with the State Securities Committee (SSC); or (ii) a JSC which has at least 10% of the total voting shares owned by at least 100 investors not being major shareholders, and has paid-up charter capital of at least VND30 billion (USD1.3 million).

1.2 Sources of Corporate Governance Requirements

In Vietnam, the principal sources governing corporate governance requirements for companies are listed below.

  • The Law on Enterprises 2020 (LOE) governs the establishment, management, restructuring, dissolution and other related activities of enterprises mentioned in 1.1 Forms of Corporate/Business Organisations. The LOE has been in effect since 1 January 2021.
  • The Law on Securities 2019 (LOS) governs the activities of public companies, including public offering, listing, trading and investing securities. Like the LOE, the LOS has been in effect since 1 January 2021.
  • The Vietnam Corporate Governance Code of Best Practice for Public Companies 2019 (CG Code) is the first edition of CG Code developed by the SSC in August 2019, with the main technical support from the International Finance Corporation to provide a set of recommendations on best corporate governance practices primarily for Vietnamese public companies based on international standards, yet suited to the Vietnamese market.
  • The companies’ constitutional documents and internal regulations on corporate governance.

1.3 Corporate Governance Requirements for Companies with Publicly Traded Shares

In addition to the CG Code, which acts as a set of recommendations and is voluntary for companies, public companies must comply with the corporate governance requirements stipulated in the LOE, LOS, their guiding documents and the companies’ constitutional documents and internal regulations (as mentioned in 1.2 Sources of Corporate Governance Requirements).

As a matter of principle, public companies must ensure the following:

  • suitable and efficient governing structure;
  • effective operation of the board of management (BOM) and the supervisory board;
  • benefits of shareholders and fair treatment among shareholders;
  • the role of investors, the securities market and intermediaries who assist public companies in their corporate governance;
  • respect and legitimate interests of stakeholders; and
  • disclosure and transparency in all company activities.

The detailed requirements of these principles will be addressed in the following sections.

2. Corporate Governance Context

2.1 Key Corporate Governance Rules and Requirements

In addition to the principal sources mentioned in 1.2 Sources of Corporate Governance Requirements, companies must comply with the following guidelines.

  • Decree 155/2020/ND-CP (Decree 155) guides the LOS, with a chapter specifically focused on corporate governance of public companies. Decree 155 took effect from 1 January 2021.
  • Circular 116/2020/TT-BTC (Circular 116) provides standard templates of a charter (or constitutional document), internal regulation on corporate governance and regulation on the operation of the BOM, the supervisory board and the audit committee, for public companies’ reference. Circular 116 took effect from 15 February 2021.
  • Circular 96/2020/TT-BTC (Circular 96) issued by the Ministry of Finance on information disclosure obligations on the securities market. Circular 96 has been in effect since 1 January 2021.

2.2 Environmental, Social and Governance (ESG) Considerations

For the first time, environmental, social and governance (ESG) considerations are officially required under a decree. Previously, companies had to address each of these issues in accordance with specialised legislation on environment and labour matters.

  • For environmental issues, this may include, among other reports, the periodic environmental monitoring report, the report on the exploitation of water resources and discharge of sewage into water resources, and the annual report on hazardous waste management.
  • For labour issues, companies may need to prepare and submit, among other items, the annual occupational health and safety report, the actual occupational accidents report, and the annual report on employees contributing to unemployment insurance.

In addition, under Circular 96, public companies are required to report on ESG in their annual report. The main ESG issues that must be reported include:

  • environmental issues ‒ total direct and indirect greenhouse gas (GHG) emissions, measures and initiatives to reduce GHG emissions; the management of raw materials; energy and water consumption; compliance with the law on environmental protection; and green capital market activities;
  • social issues ‒ number of employees; average wage; labour policies in relation to the employees’ health, safety and welfare; employees’ training; development activities or investment for the local community; and
  • governance issues ‒ structure and activities of the BOM and supervisory board; and transactions, remunerations and interests of members of the BOM, supervisory board and board of directors.

Lastly, Principle 8.3 of the CG Code recommends public companies to ensure the disclosure of key non-financial information, including environmental and social (E&S) reporting. Some significant recommended practices include the following.

  • The BOM should disclose in detail the level and roadmap of the company’s compliance with the CG Code in its annual report.
  • The BOM should ensure that the company discloses information on its significant E&S impact and its approach to E&S risk management. The information should be prepared in accordance with globally accepted standards, such as standards issued by the International Integrated Reporting Council (IIRC), the Global Reporting Initiative (GRI) or the Sustainable Assurance Standards Board (SASB), and be subject to independent verification.
  • The BOM should ensure that appropriate governance policies and processes are in place to monitor the quality of E&S information.

3. Management of the Company

3.1 Bodies or Functions Involved in Governance and Management

The governance and management of a company, particularly a JSC, involve the following principal bodies or functions.

  • General meeting of shareholders (GMS) ‒ comprises all shareholders holding shares with voting rights (including ordinary shares and shares with preferential votes). The GMS is the highest decision-making body of a JSC.
  • Board of management (BOM) ‒ comprises three to 11 members elected by the GMS. The BOM is the managerial body entitled to act and make decisions on behalf of the company on every aspect of the business, except for certain decisions reserved for the GMS under the law or the company’s constitutional document. See 3.2 Decisions Made by Particular Bodies for more details.
  • Supervisory board/ audit committee ‒ a company may choose between two models: (i) a supervisory board comprising three to five members, separate from the BOM; or (ii) an audit committee comprising at least two members under the BOM. For (i), a supervisory board is not compulsory if the company has fewer than 11 shareholders and all shareholders being organisations hold fewer than 50% of the company’s total shares. The main function of the supervisory board is to supervise the BOM, director/general director in managing and running the company. For (ii), at least 20% of the BOM must be independent members who are responsible for supervising the governance of the company.
  • Director/general director ‒ this person directly manages the day-to-day business operation of the company and is supervised by and accountable to the BOM for the delegated works. This position is similar to that of chief executive officer (CEO) in many other jurisdictions.

3.2 Decisions Made by Particular Bodies

Decisions on the following matters are reserved for the GMS:

  • development orientation of the company;
  • types of shares and total number of shares of each type allowed to be issued;
  • the annual dividend rate of each type of shares;
  • election, removal and dismissal of the members the BOM and the supervisory board;
  • investment or sale of assets valued at 35% or more of the total asset value as recorded in the company’s latest financial statement, unless a different percentage/value is provided for in the company’s constitutional document;
  • contracts or transactions executed between the company and a related party, as defined under the laws, of 35% or more of the total value of assets recorded in the company’s latest financial statement, unless a different percentage/value is provided for in the company’s constitutional document;
  • contracts and transactions that involve borrowing, lending, selling assets that are worth more than 10% of the company’s total assets recorded in the company’s latest financial statement between the company and shareholders that hold at least 51% of the total voting shares or their related persons;
  • amendment of or supplement to the company’s constitutional document;
  • annual financial statements;
  • redemption of over 10% of the total issued shares of each class;
  • breaches of the BOM or the supervisory board that cause damage to the company and the shareholders;
  • restructuring or dissolution of the company;
  • budget or total remuneration of the BOM and the supervisory board;
  • regulation on internal governance; regulation on operation of the BOM and the supervisory board;
  • list of independent auditors; and
  • other matters provided under the LOE and in the company’s constitutional document.

Other Bodies

The BOM is entitled to make decisions on matters other than those reserved for the GMS.

The supervisory board/audit committee under the BOM is a specialised body for supervising the activities of the BOM and other managerial positions and therefore does not make any typical decisions on behalf of the company.

The director/general director is entitled to make decisions on:

  • matters in relation to the day-to-day business of the company without obtaining decisions from the BOM;
  • the appointment, removal and dismissal of the company’s managerial positions, except for those under the decision-making authority of the BOM;
  • the salary and other benefits of employees, including the managerial positions appointed by the director/general director;
  • employment issues; and
  • other matters in accordance with the laws, the company’s constitutional document and the BOM’s resolutions.

3.3 Decision-Making Processes

The GMS makes decisions by voting at the GMS meetings (see 5.3 Shareholder Meetings for more details) or collecting written opinions. Unless the company’s constitutional document provides otherwise, decisions on the following matters must be made by voting at the meetings:

  • amendment of or supplement to the company’s constitutional document;
  • development orientation of the company;
  • types of shares and total number of shares of each type;
  • election, removal and dismissal of the members of the BOM and the supervisory board;
  • investment or sale of assets valued at 35% or more of the total asset value as recorded in the company’s latest financial statement, unless a different percentage/value is provided for in the company’s constitutional document;
  • annual financial statements; and
  • restructuring or dissolving the company.

A GMS resolution on critical issues specified under the LOE and the company’s constitutional document is passed if approved by shareholders representing 65% or more of the total voting shares of all shareholders who present at the meeting. A resolution on other issues needs more than 50% to be passed.

Exceptionally, voting to elect members of the BOM and the supervisory board must be made by cumulative voting (see 4.4 Appointment and Removal of Directors/Officers), unless the company’s constitutional document provides otherwise.

In the event of collecting written opinions, a decision is passed if approved by shareholders holding more than 50% of the company’s total voting shares; the detailed ratio is to be specified in the company’s constitutional document.

The LOE brings a new requirement on passing a GMS resolution on issues which could materially affect the rights and obligations of preference shareholders. Particularly, such resolution is only passed if approved by shareholders holding the same preference shares who, either participate in the meeting or by way of collection of written opinions, represent 75% or more of the total such preference shares.

The BOM

The BOM makes decisions by voting at the meetings, collecting written opinions or by other methods provided for in the company’s constitutional document. Each BOM member has one vote.

Unless the company’s constitutional document provides otherwise, a BOM resolution is passed if approved by a simple majority. If the votes are equal, the chairperson of the BOM (chairperson) has the casting vote.

The BOM must have at least one board meeting every quarter of a calendar year and may have extraordinary meetings upon a written request of the supervisory board, or independent BOM member, or at least two BOM members, or director/general director, or at least five managerial positions besides the director/general director.

4. Directors and Officers

4.1 Board Structure

For JSCs in general, the LOE requires that the BOM must have between three and 11 members; the specific number of members will be set out in the company’s constitutional document. Every BOM must have a chairperson. If a JSC opts to have an audit committee under the BOM instead of having a supervisory board, at least 20% of the BOM must be independent members.

For public companies, the BOM are usually required to have the following members:

  • a chairperson;
  • executive members;
  • non-executive members ‒ one third of the BOM of a public company must be non-executive members, ie, those who are not director/general director, deputy director/deputy general director, chief accountant and other managerial positions specified in the company’s constitutional document; and
  • independent members ‒ the criteria for an independent member are specified in 4.5 Rules/Requirements Concerning Independence of Directors.

The BOM of public companies may also establish specialised committees (with the approval of the GMS) under the direction of the BOM, such as a human resources committee and remuneration committee, managed by one of the independent members of the BOM.

The detailed requirements of board composition are further clarified in 4.3 Board Composition Requirements/Recommendations.

4.2 Roles of Board Members

The BOM generally has broad rights and duties in managing the company’s matters that do not belong to the GMS’ authority. Every member of the BOM has the right to participate in the BOM meetings and has one vote to decide on these matters. The chairperson, however, is entitled to other rights and obligations with respect to convening and managing the meetings of the BOM and the GMS.

While executive members of the BOM (such as the director/general director) have specific roles provided for by law, there is a lack of regulations on the roles of non-executive members.

For public and listed companies, independent members of the BOM are responsible for making an annual assessment report on the operation of the BOM as well as the audit committee (if this model is applied), which is to be published at the annual GMS. In addition, independent members can be assigned to assist the BOM in managing the specialised committees, as mentioned in 4.1 Board Structure.

4.3 Board Composition Requirements/Recommendations

See 4.1 Board Structure for overall requirements on board composition.

In addition, public companies are also subject to the following requirements and recommendations.

  • The chairperson of the BOM must not concurrently be the director/general director of the same public company.
  • An odd number of BOM members between five and 11 is recommended.
  • Members of the BOM must have knowledge and experience in business administration or the company’s business sectors and are not necessarily shareholders of such company, unless the company’s constitutional document provides otherwise.
  • Gender diversity should also be taken into account. The CG Code recommends that the BOM has at least two female members.
  • Members of the BOM of a public company must not concurrently be BOM members of more than five other companies.
  • At least one third of the BOM must be non-executive members, while the CG Code recommends two thirds.
  • For non-listed public companies applying the audit committee model, if the BOM has fewer than five members, at least one of them must be an independent member.
  • For listed companies, regardless of whether the audit committee model is applied or not, any BOM with three to five members must include at least an independent member; any BOM with six to eight members must include at least two independent members; and any BOM with nine to 11 members must include at least three independent members.
  • The CG Code recommends that the BOM should establish an audit committee (rather than the supervisory board model, if possible), a risk management committee and a corporate governance, nomination and remuneration (CGNR) committee, each of which should be composed of minimum of three BOM members, all non-executives and a majority of whom, including the committee chairperson, should be independent.

4.4 Appointment and Removal of Directors/Officers

A shareholder or a group of shareholders holding 10% or more of the total ordinary shares, or holding a smaller ratio as stipulated in the company’s constitutional document, has the right to nominate candidates for the BOM or supervisory board.

Unless otherwise stipulated in the company’s constitutional document, the election of the BOM or supervisory board members must be conducted by cumulative voting, in which the following rules apply.

  • The total number of votes that a shareholder has is equal to the total number of shares he/she owns multiplied by the number of BOM or supervisory board candidates.
  • A shareholder is entitled to cast all votes for one candidate, or some votes for one or more candidates.
  • The elected BOM or supervisory board members are those with the highest votes, counted from the top until the number of BOM or supervisory board members needed is reached. If the last vacancy has two candidates or more with the same votes, the GMS must either vote again for these candidates or appoint one of them based on the election criteria or the company’s constitutional document.

The chairperson is elected and dismissed by the BOM, while BOM members are dismissed by the GMS.

For every BOM member dismissed, a new BOM member will be elected at the earliest annual GMS. However, the BOM must convene an extraordinary GMS to elect new BOM members if (i) the number of BOM members is reduced by more than a third of the total BOM members stipulated in the company’s constitutional document; or (ii) in the event the company is applying the audit committee model, fewer than 20% of existing BOM members are independent members.

The director/general director is appointed or hired, dismissed or has his or her contract terminated by the BOM. The director/general director can be a BOM member or not.

Other managers or executive officers will be appointed, hired, dismissed or have their contracts terminated by either the BOM or the director/general director, subject to the company’s constitutional document.

4.5 Rules/Requirements Concerning Independence of Directors

Independence

An independent member of the BOM is one who:

  • is not working for the company or its subsidiaries, and has not done so at any point in the last three years;
  • is not currently receiving remuneration from the company, except for the allowances which BOM members are entitled to receive, such as reasonable expenses while undertaking the delegated works;
  • does not have any spouse, biological parents or adoptive parents, biological children or adopted children, biological siblings being a major shareholder or manager of the company, or manager of the subsidiaries;
  • is not directly or indirectly owning at least 1% of the total voting shares of the company; and
  • has never been a member of the company’s BOM or supervisory board at any point in at least the last five years, unless he or she is appointed for two consecutive terms.

For public companies, a director/general director must not be a family relative of any of the managers or members of the supervisory board of the company and the parent company.

See 4.3 Board Composition Requirements/Recommendations for more details on the requirements relating to independent members.

Conflicts of Interest

Vietnamese laws introduced basic regulations to prevent conflicts of interest among BOM members, director/general director, supervisory board members and other managers (directors/officers), which are likely to occur due to: (i) the transactions made with the company; and (ii) the unlawful disclosure of information.

With respect to (i), unless the company’s constitutional document provides more strictly, the company must make a list of related persons and their related interests, which includes the transactions made between the company and the directors/officers or their related persons. Directors/officers must disclose their related interests to the company, including information on enterprises that they or their related persons own or have controlling rights over, and must update this information in a timely manner.

The list of related persons must be submitted to the GMS at the annual meeting and filed at the head office. Shareholders and directors/officers can access to, extract and make copies of the list.

Contracts or transactions between the company and the directors/officers and their related persons must be approved by either the BOM or the GMS, depending on the value of such contracts or transactions. The BOM members or shareholders related to the contracts or transactions in question are not allowed to vote for approval.

For public companies, contracts or transactions made between the directors/officers and their related persons and the public company’s subsidiaries or other companies that the public company holds over 50% of the charter capital must also bear the same scrutiny as above-mentioned. Moreover, the public company must disclose the resolutions approving such contracts or transactions.

Unless approved by the GMS, a public company is not allowed to issue a loan or financial guarantee to the directors/officers and their related persons or enterprises.

With respect to (ii), directors/officers are not allowed to misuse information, know-how, business opportunities or other assets of the company, abuse their positions and powers to gain personal advantages or serve the interests of other persons or organisations.

For public companies, directors/officers and their related persons are not allowed to misuse any information whose disclosure has not been permitted by the company or disclose information to someone else to conduct relevant trading.

4.6 Legal Duties of Directors/Officers

Directors/officers bear the following principal duties:

  • to perform the delegated rights and obligations in accordance with the LOE, other relevant legislation, the company’s constitutional document and the GMS’ resolutions;
  • to exercise reasonable care, skill and diligence to ensure maximisation of the company’s legitimate interests;
  • of loyalty to the interests of the company and shareholders as a whole; and
  • of honesty and to avoid conflicts of interests. See 4.5 Rules/Requirements Concerning Independence of Directors for more details.

4.7 Responsibility/Accountability of Directors

The BOM owes its duties to the GMS, while the director/general director owes his or hers to the BOM.

The BOM of a public company is also required to respect the interests of other stakeholders, such as employees, creditors, clients, suppliers and the local communities, in decision making. Public companies in general, which should include directors/officers in particular, are required to implement corporate social responsibility in accordance with the laws and the company’s constitutional document, as well as comply with the regulations on ESG.

4.8 Consequences and Enforcement of Breach of Directors’ Duties

A shareholder or group of shareholders holding at least 1% of the total ordinary shares is entitled to file a civil lawsuit, either on their own or on behalf of the company, against the BOM members and director/general director severally or jointly, for their return of the unlawful interests gained or for compensation to the company or other persons. See 5.4 Shareholder Claims for more details.

As a general rule, a director/general director who breaches his or her duties and causes losses to the company must bear legal responsibilities and compensate the company.

4.9 Other Bases for Claims/Enforcement against Directors/Officers

The LOE provides other bases on which directors/officers can be held liable for their breaches and to provide compensation for any losses incurred by the company as listed below.

  • Failure of the BOM or supervisory board to convene an extraordinary GMS.
  • Failure of the BOM members in relation to inaccurate and dishonest counting of votes.
  • Failure of the directors/officers to promptly and accurately provide shareholders with information in the company’s shareholders’ register as per the shareholders’ request.
  • Failure of the chairperson to convene a BOM meeting.
  • Where a payment for share redemption or for dividends is wrongly made due to a violation of the BOM and shareholders are not able to return such payment, all of the BOM members must be jointly liable for the company’s debts and other asset liabilities to the extent of the shareholders’ unreturned payment.
  • Failure to obtain the BOM or GMS approval for contracts or transactions as required, leading to the contracts or transactions being declared invalid and causing losses to the company. In such case, the person who signed the contracts and shareholders, BOM members or the director/general director who are relevant to the signing must jointly compensate for the losses incurred and return any benefits received from such contracts or transactions.
  • Supervisory board members breaching their duties and causing losses to the company must bear personal liability or jointly compensate for the losses. All incomes and other benefits received from such breaches must be returned to the company.

4.10 Approvals and Restrictions Concerning Payments to Directors/Officers

Generally, the company is entitled to remunerate BOM members, the director/general director and other managers in accordance with its business results and efficiency. The payment of, approvals or restrictions on remuneration, fees or benefits payable to the above positions are usually provided in the company’s constitutional document.

Unless the company’s constitutional document provides otherwise, the total remuneration payable to the BOM members must be approved at the annual GMS. The BOM members are entitled to receive other fees and reasonable expenses while undertaking their delegated works; however, the LOE is silent on whether these benefits must be approved by the GMS.

The remuneration, bonuses and other benefits of director/general director and other high-level managers must be approved by the BOM.

The GMS must approve the total remuneration, bonuses and other benefits of the supervisory board members, as well as the annual operation budget of the supervisory board. Supervisory board members are entitled to receive other fees while undertaking their delegated works, including service fees for independent consultancy. The total remuneration and the above-mentioned fees must not exceed the annual operation budget approved by the GMS, unless decided otherwise by the GMS.

4.11 Disclosure of Payments to Directors/Officers

For JSCs in general, the remuneration of directors/officers must be: recorded as the company’s business expenses in tax documents; recorded as a separate item in the annual financial statements of the company; and reported to the GMS at the annual meeting.

For public companies, this means that the remuneration would be disclosed to the public, as they are required to disclose the audited annual financial statements. Moreover, the remuneration, rewards and other benefits of directors/officers, regardless of being calculable or not, must be reported in detail in the annual report and disclosed to the public. See 6.1 Financial Reporting for more details.

5. Shareholders

5.1 Relationship between Companies and Shareholders

The relationship between a company and a shareholder is bilateral, connected by the shareholder’s act of contributing capital to the company and becoming one of its owners together with other shareholders. Consequently, shareholders are granted rights for owning and developing the company and are liable for the company’s debts and other liabilities to the extent of the capital they have contributed.

Generally, shareholders have the right to participate in the GMS, vote at the GMS, receive dividends from the company, and nominate candidates for the BOM and supervisory board, and other rights in accordance with the laws and company's constitutional document.

However, shareholders are also obliged to comply with the company’s constitutional document and internal management rules, the resolutions of the GMS and BOM and other requirements set out by law.

The relationship between companies and shareholders is mainly governed by the LOE, LOS (for public companies), the companies’ constitutional documents and internal corporate governance regulations.

5.2 Role of Shareholders in Company Management

In addition to voting rights, shareholders have minor roles in the company’s direct and day-to-day management compared to the BOM or director/general director (see 3.1 Bodies or Functions Involved in Governance and Management for more details).

Shareholders are entitled to request the court to suspend the implementation of or cancel the BOM resolutions that have been passed against the law or the company’s constitutional document. However, this may be time-consuming and not always effective. Otherwise, there must be a GMS resolution overturning the BOM’s non-compliance resolution.

For a shareholder or group of shareholders holding 5% or more of the total ordinary shares or a smaller ratio as stipulated in the company’s constitutional document, other indirect roles in a company’s management are as follows:

  • to view and extract meeting minutes book and resolutions of the BOM, biannual and annual financial statements, reports of the supervisory board, contracts and transactions approved by the BOM and other documents, except for those relevant to the company’s trade secrets;
  • to call for an extraordinary GMS meeting when the BOM critically violates shareholders’ rights, fiduciary duties or makes an ultra vires decision, meaning that the decision was made beyond the BOM’s authority; and
  • to request the supervisory board to inspect particular issues relating to the management and operation of the company if needed.

Nevertheless, those shareholders must clearly express in writing the reasons for such requests and provide evidence of the decisions that were made ultra vires.

5.3 Shareholder Meetings

A company must hold an annual GMS within four months of the end of its financial year. Upon the BOM’s request, this timeline can be extended by the company's registry, but must not exceed six months from the end of its financial year.

Extraordinary Meetings

Besides the compulsory annual GMS, extraordinary GMS can be convened under certain circumstances specified under the laws and the company’s constitutional document, such as upon the request of a shareholder or a group of shareholders holding 5% or more of the total ordinary shares or of the supervisory board.

Within 30 days of receipt of the request, or of the number of the remaining BOM/supervisory board members falling below the required threshold, the BOM must convene a GMS. If the BOM fails to convene the meeting, the supervisory board must convene the meeting within the next 30 days. If the supervisory board fails to do so, the shareholder or group of shareholders holding 5% or more of the total ordinary shares can convene the GMS on behalf of the company.

Meeting Preparation

The convening party must, among other things, establish a list of shareholders entitled to participate in the meeting, prepare the meeting agenda, prepare documents for the meeting and send invitations at least 21 days before the meeting (unless the company’s constitutional document provides for a longer timeline) to all shareholders entitled to participate in the meeting.

The shareholder or group of shareholders holding 5% or more of the total ordinary shares is entitled to propose in writing additional issues to be added to the meeting agenda. The proposal must be sent to the company at least three working days before the meeting, unless the company’s constitutional document provides otherwise.

Meeting Quorum

The meeting must be held in Vietnam, though shareholders may participate in the meeting in person, via electronic means or by proxy.

A meeting can be conducted if the shareholders present at the meeting represent more than 50% of the company’s total votes; the precise ratio can be specified in the company’s constitutional document. If the number of attendees falls short, the meeting can be convened again within 30 days of the initial meeting date, unless the company’s constitutional document provides otherwise. The minimum ratio required to conduct the meeting this time is 33%; the detailed ratio can be specified in the company’s constitutional document.

If the number of attendees falls short of the required threshold again, the meeting can be convened for the third time within 20 days of the second-attempted meeting date, unless the company’s constitutional document provides otherwise. The meeting can be conducted this time irrespective of the number of total votes represented by the shareholders at the meeting.

5.4 Shareholder Claims

A shareholder or group of shareholders holding at least 1% of the total ordinary shares is entitled to file a civil lawsuit, either on their own or on behalf of the company, against members of the BOM and director/general director if they have:

  • violated the fiduciary duties as mentioned in 4.6 Legal Duties of Directors/Officers;
  • violated or not implemented the delegated rights and obligations under the laws, the company’s constitutional document or the BOM’s resolutions sufficiently or timely;
  • abused their positions and misused the company’s information, know-how, business opportunities and other assets for their own personal interests or those of other entities; or
  • violated any other obligations specified under the laws and the company’s constitutional document.

The procedural cost for filing a lawsuit on behalf of the company will be recorded at the company’s expense, unless the lawsuit is rejected.

5.5 Disclosure by Shareholders in Publicly Traded Companies

A shareholder becoming or ceasing to be a major shareholder by reaching or falling below 5% of the circulating voting shares of a public company must disclose and report this to the company, the SSC and the stock exchange within five working days of the date the changes occurred.

The disclosure obligation also applies to a major shareholder whose shares exceed or fall below every 1% threshold, eg, 5.8% increasing to 6.1% because 6% was exceeded, or 7% increasing to 8%. Groups of related persons holding 5% or more of the public company’s voting shares must also bear the above disclosure obligations.

However, a shareholder or groups of related shareholders are not required to disclose information if their voting shares were changed passively, ie, due to the public company’s redemption of shares or issuance of new shares.

Founding Shareholders

Founding shareholders, whose shares are restricted from being transferred within three years of the date on which the company was established, must report to the public company, the SSC, the stock exchange (for listed shares) and Vietnam Securities Depository (VSD) the intended transaction at least three working days in advance. Should the transaction be made with non-founding shareholders, a GMS resolution approving such transaction must be enclosed to the report. The founding shareholders must also report the results within five working days after the transaction is completed.

Other Notes

The company must publish all changes above on the company’s website within three working days of the date they are reported by the shareholders.

Shareholders conducting tender offers and the companies who receive such offers must also disclose information in accordance with the Law on tender offers.

6. Corporate Reporting and Other Disclosures

6.1 Financial Reporting

Public companies must disclose certain information regularly, extraordinarily and on request in accordance with the LOS and Circular 96.

On a regular basis, public companies must disclose the following information.

  • Audited annual financial statements must be disclosed within ten days of the date the audit company signed the audited financial statements, but no later than 90 days from the end of the financial year.
  • The annual report must be disclosed within 20 days of the audited annual financial statements, but no later than 110 days from the end of the financial year. The financial information in the annual report must be in accordance with the audited annual financial statements.

The annual report must contain all detailed information as required by the laws, though the main contents should include: the results of business operations in the year, major investment, major financial benchmarks, shareholders structure, ESG reporting (see 2.2 Environmental, Social and Governance (ESG) Considerations) and corporate governance (see 6.2 Disclosure of Corporate Governance Arrangements).

  • Information on the annual GMS must be disclosed by a public company at least 21 days before the meeting. This includes the meeting’s information package, the invitation, meeting agenda, votes, meeting documents and draft resolution on each issue in the agenda, on the website of the company, the SSC and the stock exchange (if listed).
  • The report on corporate governance must be disclosed twice a year, within 30 days of the end of the first half of a calendar year and the end of a calendar year.

With respect to extraordinary disclosures, public companies must disclose any crucial or sudden event as prescribed in Circular 96, such as the dissolution of the company, amendments of the company’s constitutional document, dividend payments, etc.

In certain circumstances, the SSC and stock exchange may request a public company to disclose information when there is an event that may have a material effect on the investors’ benefits or the company’s stock price. In such case, the company must disclose the information requested together with the reasons, assessment and solutions (if any) within 24 hours of the receipt of the request.

In addition to the above-mentioned disclosure requirements, listed companies and large-scale public companies must also make regular disclosures on:

  • the biannual financial statements reviewed by an approved audit company within five days of the date the audit company signed the reviewed financial statements, but no later than 45 days from the end of the first half of the financial year; and
  • the quarterly financial statements within 20 days of the end of the quarter, or the quarterly financial statements reviewed by an approved audit company (if any) within five days of the date the audit company signed the reviewed financial statements, but no later than 45 days of the end of the quarter.

6.2 Disclosure of Corporate Governance Arrangements

Corporate governance arrangements are required to be addressed in the annual report of public companies as well as in the annual and biannual reports on corporate governance.

Annexes 4 and 5 to Circular 96 provide templates of these reports, which include the following main components.

  • Information on the BOM, namely a list of BOM members, the BOM members’ ownership ratio of voting shares and other securities issued by the company, independent members and their activities, list of positions that the BOM member is holding at other companies, list of committees under the BOM with information of its members and their activities, assessment of the BOM activities and list of BOM members having certificates in or trained on corporate governance in the year.
  • Information on the supervisory board/audit committee, including a list of board members, the board members’ ownership ratio of voting shares and other securities issued by the company and assessment of the activities of the supervisory board/audit committee.
  • Information on the salary, rewards, remuneration and benefits of each member of the BOM, general director, directors, managers and supervisory board/audit committee.
  • Information on share transactions of members of the BOM, members of the supervisory board/audit committee, director/general director, chief accountant, managers, company secretaries, major shareholders and the related persons of all these positions.
  • Information on contracts or transactions that members of the BOM, members of the supervisory board/audit committee, director/general director, managers and the related persons of all these positions entered into or executed in the year with the public company, subsidiaries and other companies in which the public company holds the controlling rights.
  • Assessment on the implementation of regulations on corporate governance and matters that have not been implemented in accordance with corporate governance legislation, reasons, solutions and plans to overcome the shortcomings or improve the efficiency of corporate governance.

Moreover, a JSC is required to disclose the company’s constitutional document, which usually contains corporate governance arrangements, on its website (if it has one). A public company is required to have a website when registering with the SSC to become a public company, and to have the company’s constitutional document, internal governance rules (if any) and prospectus (if any), among other information, disclosed on its website.

6.3 Companies Registry Filings

A company must register as and when there are changes to the enterprise registration contents, such as the company’s name, address, charter capital, business lines, etc at the provincial Department of Planning and Investment (DPI). The DPI will then publish these changes on the National Business Registration Portal.

7. Audit, Risk and Internal Controls

7.1 Appointment of External Auditors

Public companies and foreign-owned enterprises are among the companies required to have their annual financial statements audited by an accredited external auditor. Listed companies and large-scale public companies must also have their biannual financial statements reviewed by an accredited external auditor, but may choose whether or not to have their quarterly financial statements reviewed by an accredited external auditor.

The accredited external auditor conducting the audit for public companies must be an independent audit company approved by the SSC in conformity with the LOS and the Law on independent audit. The CG Code recommends that the BOM should set up an audit committee which is responsible for recommending the appointment, remuneration and terms of engagement of the accredited external auditor for the BOM’s review and approval (before submission to the annual GMS for final approval). This recommendation has been adopted by the current LOE.

The audit committee is responsible for monitoring and reviewing the accredited external auditors’ independence and objectivity and the effectiveness of the audit process. Moreover, the CG Code recommends the company to disclose all fees payable to an accredited external auditor, including both assurance and non-assurance services.

7.2 Requirements for Directors Concerning Management Risk and Internal Controls

There are almost no mandatory and specific requirements for the BOM of public companies, except for financial institutions, to ensure the integration of strategy, risk and control, as well as to oversee the effectiveness of the company’s internal control system.

Pursuant to Decree 05/2019/ND-CP, listed companies are required to, among other things, have an independent internal audit function from 1 April 2021 as a measure for risk management and internal control.

The CG Code has recommended several practices in relation to the matters in question, including the following:

  • the BOM has the ultimate responsibility for overseeing the company’s risk management and internal control frameworks;
  • the BOM, with the aim of supporting the internal control framework, should develop a whistle-blowing mechanism to enable employees and stakeholders to make early disclosures about wrongdoings, so that problems can be identified and resolved;
  • the BOM and senior management need to be able to rely on adequate line functions within the company by considering the internationally recognised “three lines of defence” model; and
  • the BOM should treat cybersecurity risk management as part of the company’s enterprise-wide risk management rather than a separate issue.

Trends and Developments

Shareholder Activism in Vietnam

Recently, Vietnamese law has undergone an interesting change in providing increased protection for minority shareholders. This development should have a meaningful impact on shareholder activists, such as venture capital investors and, from a different perspective, on managers, such as board members of a company.

The newly adopted Law on Enterprises (LOE) 2020, Law on Securities (LOS) 2019 and their guiding regulations have strengthened the tools for enhancing shareholder activism. Minority shareholders, hedge fund or venture capital investors may initiate campaigns and introduce changes in corporate governance utilising these tools, ranging from the right to nominate board members, a reduced GMS meeting quorum and voting threshold to derivative actions and so on.

This article is intended to inform those interested in shareholder activism, especially minority shareholders and companies' top managers. This article will look at (i) the available tools for shareholder activism in comparison with those under the previous laws, where applicable; and (ii) the impact of shareholder activism, both positive and negative, on shareholders and companies in view of some of the initiatives recently undertaken by a number of prominent shareholders of Vietnamese public companies.

Shareholder Activism Tools

The laws set out many mechanisms which enable shareholders to play their actual roles as owners of a company and have their voices heard, as follows.

Exercising shareholder rights is easier than ever

Exercising shareholder rights is easier under the LOE 2020, which is good news for minority shareholders ‒ although more problematic for top managers of a company.

The LOE 2020 provides greater protection for shareholders, especially minority shareholders, than its predecessor, the LOE 2014. The required shareholding for exercising several fundamental shareholder rights was remarkably decreased, and a shareholder or group of shareholders is no longer required to hold shares for at least six consecutive months or a year before exercising those rights.

In addition to other general rights, such as voting or receiving dividends, a shareholder holding even just one share now has the right to request the Court to suspend or revoke the board’s resolutions that have been passed against the law or the company’s constitutional document.

A shareholder or group of shareholders holding as little as 1% of the company’s total ordinary shares can, on his/her behalf or on the company’s behalf, initiate legal proceedings against the company’s managers for their breach of fiduciary duties or other violations.

Being more favourable to shareholders, a shareholder or group of shareholders holding 5% or more (instead of 10% as previously required) of the company’s ordinary shares is entitled to:

  • submit a request for convening an extraordinary GMS;
  • access important information such as the board’s meeting minutes and resolutions, contracts and transactions subject to the board’s approval, the company’s financial statements, etc; and
  • other rights in accordance with the LOE and the company’s constitutional document.

A shareholder or group of shareholders holding 10% or more of the company’s ordinary shares can nominate candidates for the board and the supervisory board.

More importantly, a company’s constitutional document is allowed to regulate an even smaller ratio than the minimum 5% or 10% required under the Law as above-mentioned, which enables minority shareholders to exercise their shareholder rights as far as they can negotiate or trade with other shareholders in the company.

GMS meeting quorum and voting threshold

In general, a GMS meeting can commence upon the attendance of shareholders representing more than 50% of the total number of votes (whereas the previous LOE required at least 51%). A GMS resolution is passed if approved by attending shareholders representing more than 50% of the total votes (for general issues) or at least 65% (for critical issues) of the total votes.

Of note, the LOE 2020 still provides for a higher quorum or voting threshold to be stipulated in companies’ constitutional documents. This gives room for shareholders holding just 5% or 10% ownership of a company to determine the occurrence of a GMS meeting or to veto a critical issue when the quorum or voting threshold stipulated in that company’s constitutional document is, for example, 100%.

Interestingly, the LOE 2020 provides for new types of related-party transactions which are classified as critical issues to be approved by the GMS and subject to the minimum 65%, or up to 100% if provided by the company’s constitutional document, voting threshold. These include contracts and transactions that satisfy the following two points:

  • they involve borrowing, lending or selling assets valued at more than 10% of a company’s total asset value recorded in the latest financial statement; and
  • they are signed between the company and its shareholders holding 51% or more of the total voting shares or such shareholders’ related persons.

Shareholders having related interests to the parties to the said contracts or transactions are not allowed to vote. These regulations ensure minority shareholders are made aware of and take appropriate action against any possibly harmful related-party transactions by the company and the majority shareholders.

Mechanisms for controlling/supervising the board

The LOE 2020 and the LOS 2019 aim to give more power to shareholders in supervising the board and counterbalance the board’s governing authority. As above-mentioned, more shareholders have the right to access information, including the board’s meeting minutes and resolutions, and can request the Court to revoke such resolutions or bring a derivative suit should the resolutions be illegal or against the company’s constitutional document.

Remarkably, the LOE 2020 allows the GMS to replace or remove any board member when it deems necessary, ie, in cases not necessarily specified under the laws or the company’s constitutional document. This provides shareholders with much greater flexibility in making changes to the company’s management at the shareholders’ discretion.

Moreover, a one-tier board structure is promoted and developed under the new laws. For companies applying this structure, at least 20% of the board members must be independent, and one of these members must chair the audit committee. The laws also have other detailed requirements on non-executive and independent board members in public and listed companies. These regulations are believed to improve the board’s independence and professionalism in undertaking the role of direct management of a company while the shareholders are out of sight.

Impacts of Shareholder Activism: Good or Bad?

The positive and negative effects of shareholder activism can be intertwined.

Positive effects

On one hand, shareholder activism helps shareholders to protect their own interests as well as to ensure the Board’s effectiveness. Kustocem Pte Ltd, a Singaporean investor, could be seen as an example of a shareholder activist who took actions against the Board of Coteccons, a Vietnamese public company, for those reasons.

Coteccons and Ricons are both well-known construction companies in Vietnam. During its downfall in 2018, Coteccons’ Board found a solution to solving the negative cash flow by merging with Ricons and taking advantage of the two’s reputation, available clients and labour resources. However, the Board’s proposal was strongly opposed by Kustocem at the 2019 AGM, which stated that the deal would bring no value to Coteccons’ then declining stock price and the stability of its business operations. By using the veto right, Kustocem and other shareholders of its side, who together held at least 35% of Coteccons’ ownership, were able to reject the proposed merger between Coteccons and Ricons.

In addition to exercising its veto right, Kustocem also called for an extraordinary GMS in July 2020 in order to vote on a restructuring of the Board and demanded an independent audit on the conflict of interests within the business.

Kustocem’s strong-willed actions against a Coteccons/Ricons merger and against the Board have pressured many Coteccons’ directors and managers to resign. As a result, all Board members have been replaced by Kustocem’s personnel, including the Board’s chairperson and the general director cum legal representative.

Many believe that Kustocem’s actions originated from a fear of their shares being diluted and their personnel in Coteccons’ management body being replaced after the merger with Ricons. While Coteccons only held 15% of Ricon’s ownership at the time, up to 27% of Ricon’s ownership was held by Coteccons’ then Board members or their related persons. As such, while Kustocem may have been criticised for its actions, which led to some negative consequences as discussed below, Kustocem successfully utilised shareholder activism tools to protect its legitimate interests and investment.

Also, with the aim of producing a change in the corporate governance, particularly to the Board structure, many Eximbank shareholders who individually or jointly held 10% to 15% of Eximbank’s ownership continuously called for the bank’s reform in corporate governance at the extraordinary GMS meeting of 2019, AGM 2020 and AGM 2021. This included the request to decrease the current nine Board members to a maximum of seven by a vote of no confidence in each member, and the dismissal of the Board’s chairperson.

Negative effects

On the other hand, given that a company involves many shareholders, the board and many other stakeholders with diverse purposes, actions taken by shareholders to protect their interests may unavoidably affect those of the others.

Kustocem’s veto right over the proposed Coteccons/Ricons merger and its request to replace the then Board members faced disappointment from many other minority shareholders and even employees of Coteccons who supported the former Board. As soon as Kustcocem’s actions were published, Coteccons’ stock price plummeted to an all-time low of around VND10,000 (less than USD1) per share. By February 2021, 32% of Cotteccons’ employees left after the former Board’s chairperson resigned.

Coteccons’ new Board, which is currently comprised of all personnel from Kustocem and other shareholders of its side, now needs to adapt to Vietnamese’s corporate and management culture, as well as put greater efforts into turning the business around.

Moreover, shareholder activism may also interrupt a company’s normal business operations. For example, the conflict of interests between different groups of Eximbank shareholders, most of whom are shareholder activists, led to many astonishing consequences: failure to hold AGM 2019 and AGM 2020 because the meeting quorum were continuously not met; the same Board’s chairperson being removed and re-appointed by the Board within an hour on 13 April 2021; and within the last two years, five chairpersons of the Board have been replaced.

Conclusion

Vietnamese corporate management has been evolving and is now experiencing a very testing change, from being overly protective of majority shareholders to being more protective of minority shareholders. Shareholder activism now has more possibilities to perform than before. Under the new legislation, shareholders ‒ especially minority ones ‒ may take advantage of many newly introduced tools and mechanisms so as to act in their own interests or those of the company. This strengthening of shareholder activism could, however, be seen as a new challenge for companies' top managers.

To a certain extent, shareholder activism is still relatively new in Vietnam’s corporate governance structure. There are currently no shareholder activism organisations to lead shareholder activism. In the absence of such watchdogs, the relevant corporate management rules, eg decision-making, especially with respect to dividend distribution, information rights, derivative actions etc, should be duly considered and professionally crafted into a company’s constitutional documents in order to manage shareholder activism efficiently for the company’s success.

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