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LOE 2005 Article 974.If the Board of Management fails to convene a General Meeting of Shareholders asstipulated, the chairman of the Board of Management must be responsible before the lawand 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 authorityto make decisions in the name of the company and to exercise the rights and dischargethe obligations of the company which do not fall within the authority of the General Meetingof 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 onannual business plans of the company;(b) To recommend the classes of shares and total number of shares of each class whichmay be offered;(c) To make decisions on offering new shares within the number of shares of each classwhich may be offered for sale; to make decisions on raising additional fund in otherforms;(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 inclause 1 of article 91 of this Law;(e) To make decisions on investment plans and investment projects within the authorityand limits stipulated in this Law and the charter of the company;(g) To make decisions on solutions for market expansion, marketing and technology; toapprove contracts for purchase, sale, borrowing, lending and other contracts valuedat fifty (50) or more per cent of the total value of assets recorded in the most recentfinancial 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 1and 3 of article 120 of this Law;(h) To appoint, dismiss or remove, and to sign contracts or to terminate contracts withthe 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 otherbenefits of such managers; to appoint an authorized representative to exerciseownership rights of shares or of capital contributed to other companies, and to makedecisions on the level of remuneration and other benefits of such persons;(i) To supervise and direct the director or general director and other managementpersonnel in their work of conducting the daily business of the company.(k) To make decisions on the organizational structure and internal management rules ofthe company, to make decisions on the establishment of subsidiary companies, theestablishment of branches and representative offices and the capital contribution toor purchase of shares of other enterprises;(l) To approve the agenda and contents of documents for the General Meeting ofShareholders; to convene the General Meeting of Shareholders or to obtain writtenopinions 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 andprocedures for payment of dividends or for dealing with losses incurred in thebusiness operation;(o) To recommend re-organization or dissolution of the company, or to requestbankruptcy 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, obtainingwritten opinions, or otherwise as stipulated in the charter of the company. Each memberof the Board of Management shall have one vote.4. When implementing its functions and performing its duties, the Board of Management shallstrictly comply with the provisions of law, the charter of the company and resolutions of theGeneral 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 damageto the company, then the members who agreed to pass such resolution shall be personally

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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. Insuch a case, a shareholder owning shares in a company for a minimum consecutive periodof at least one year shall have the right to request the Board of Management to suspendimplementation 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 director1. The company is entitled to pay remuneration, salary to members of the Board ofManagement, director or general director and other managers based on the businessresults and efficiency.2. Unless otherwise provided by the charter of the company, the numeration, salary andother benefits of members of the Board of Management, the director or general directorshall be paid according to the following regulations:(a) Members of the Board of Management shall be entitled to remuneration for workand bonus. Remuneration for work shall be calculated on the basis of theworking days which are necessary to fulfil the obligations of the members of theBoard of Management and the daily rate of remuneration. The Board ofManagement shall estimate the remuneration for each member on the principle

of agreement. The total amount of remuneration for the Board of Managementshall be decided by the General Meeting of Shareholders at the annual meeting;(b) Members of the Board of Management shall be entitled to reimbursement ofmeals, accommodation, travel and other reasonable expenses they have spent inorder to fulfil delegated obligations;(c) The director or general director shall be entitled to salary and bonus. The salaryof 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 directoror general director and other managers shall be included in the business expenses of thecompany in accordance with the law on corporate income tax and shall be presented in aseparate item in the annual financial statements of the company and shall be reported tothe General Meeting of Shareholders at the annual meeting.

GORDON WALKER LISTED COMPANIES

2.1.1.2. The Board of Management (BOM) and members of BOMExcept for issues which fall within the authority of the GMS, the BOM is the bodymanaging the company and has full authority to make decisions in the name ofthecompany and to exercise the rights and discharge the obligations of thecompany.61The powers and duties of the BOM are specifically regulated by the law and asagreed by the parties in the charter. Those specified by law include decisions onorapproval of: (i) medium term development strategies and annual business plansofthe SC; (ii) marketing, technology transfer; loan agreements and contracts forsale ofassets valued at 50 per cent or more of the total assets; and (iii)appointment/dismissal of the General Director and other key managers.62 Inaddition,the BOM is authorised to make recommendations to the SC in relation to certainspecified matters. In this way, the BOM has a more direct role in the operations ofthecompany (daily management) than the supervisory board of the German twotierboard structure (discussed above). The BOM comprises 3 to 11 members andmembers are appointed and dismissed by the GSM. A member need not also be ashareholder of the SC. BOM members are appointed for a maximum 5 year term,butmay be reappointed for additional terms.63

Under the Enterprise Law 2005 provisions, the members of the BOM of ashareholding

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company must satisfy the following criteria and conditions: (i) have full capacityfor60 Ibid, Article 6, sections 27.61 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, seeArticle 110.

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civil acts and not be prohibited from establishing and managing an enterprise asstipulated in article 13.2 of the Enterprise Law 2005; (ii) a shareholder being anindividual must own at least five (5) per cent of the total ordinary shares; or ashareholder must own at least five (5) per cent of the total shares or in the caseof aperson not a shareholder then he or she must have expert qualifications or actualexperience in business management or in the principal line of business of thecompany. If the company charter stipulates different criteria and conditions fromthose in this clause, then the provisions of the company charter shall apply.64

The BOM passes resolutions by way of voting at meetings, obtaining writtenopinions, or otherwise as stipulated in the charter of the company. Each memberofthe BOM has one vote. The BOM must hold at least one ordinary meeting perquarter.65 Extraordinary meetings must be convened at the request of (i) theControlBoard, (ii) the General Director (CEO) or five (5) other management personnel, (iii)two (2) BOM members or more, or (iv) any circumstance stipulated in thecharter.66The 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 ameeting

of the BOM pursuant to a request, the chairman is responsible for any damage tothecompany; and the requester has the right to replace the BOM in convening ameetingof the BOM.67 A meeting of the BOM is conducted where there are three quartersormore of the total members attending. A resolution of the BOM is adopted if it isapproved by the majority of the attending members; in the case of an equal vote,thevote of the chairman is effective.68This issue is further discussed in FPT and VIPCOcases.The Enterprises Law 2005 provides that the CEO and members of the ControlBoard

have the right to attend and discuss, but not to vote, at all meetings of the BOM.Thisis a significant way for supervisors to monitor the board, and for the CEO to makeproposals and obtain opinions of the board on running the company. On the otherhand, a board member has the right to request the CEO and other managers to64 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 467 Ibid, section 5.68 Ibid, Article 112.8. Members not directly attending a meeting shall have the right to votebysending a written vote. The written vote must be enclosed in a sealed envelope anddelivered to the chairman of the Board of Management at least one hour prior to the

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

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provide information and materials related to the operation of the company;69 forexample, information on the companies financial situation and businessoperations.This may assist the board to oversee the daily management.For listed companies, the Code also provides that a report on activities of theboard ofmanagement submitted to the GMS must contain at least the following contents:(i)Assessment of the companys activities during the fiscal year; (ii) Activities of theboard of management; (iii) Summarised contents of meetings of and decisions oftheboard of management; (iv) Result of supervision of the director or generaldirector;

(v) Result of supervision of managers; and (vi) Proposed plan for the future.70The head of the BOM is a chairperson who is appointed by the GSM or the BOM inaccordance with the charter. The chairperson of the board can also be the CEO ofthecompany, unless otherwise provided for by the charter. The chairperson of theBOMis responsible for, inter alia, convening and chairing meetings and monitoring theexecution of BOM resolutions.71Under the Code, shareholders or a group of shareholders holding less than 10 percent of the voting shares for a consecutive period of at least 6 months are entitledtonominate one member; shareholders holding from 10 per cent to less than 30 percent

are entitled to nominate two members; shareholders holding from 30 per cent tolessthan 50 per cent are entitled to nominate three members; shareholders holdingfrom50 per cent to less than 65 per cent are entitled to nominate four members; andshareholders holding from 65 per cent upwards shall be entitled to nominate allcandidates.7269 Ibid, Article 114.170 See the Code, Article 7.71 Sections 1 and 2, Article 111 of the Enterprise Law 2005. The chairman of the BOM hasthefollowing rights and duties: (a) to prepare working plans and programs of the BOM; (b) toprepare, or organize the preparation of agenda, content and documents for meetings of

theBOM; to convene and preside over meetings of the BOM; (c) to organize for resolutions ofthe BOM to be passed; (d) to monitor the implementation of resolutions of the BOM; (e) tochair the GMS; (f) Other rights and duties stipulated in this Law and the charter of thecompany. See further, Articles 112115.72 See sections 35, Article 9, the Code. If the number of candidates who are nominated andwho stand for election is still insufficient, the incumbent [currently in office] BOM maynominate more candidates or organize for nomination in accordance with a mechanismstipulated by the company. The nomination mechanism or the method by which theincumbent BOM nominates candidates for the BOM are clearly announced and approvedby the GMS before nominations are commenced. A listed company regulates and givesdetailed instructions to shareholders on voting on membership of the BOM by the methodof cumulative voting.

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In order to ensure a separation between the supervisory and managerial roles ofthecompany, a listed company is required to limit the number of members of theBOMwho may concurrently hold other positions in the managerial apparatus of thecompany. 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. Thechairman of the BOM must not concurrently hold the position of the CEO, unlessapproved at the annual GMS.73It is noteworthy that, in a listed company, one third of the members of the BOMmustbe nonexecutive independent members.74 Moreover, members of the BOM mustattend all meetings of the board of management and state their opinions onissuesraised for discussion. When selling or purchasing shares of the company,members ofthe BOM and affiliated persons must report to the SSC, SE or STC and discloseinformation about matters such as purchases and sales in accordance with law. Alisted company may purchase liability insurance for members of the BOM after

obtaining approval from the GMS; however, they may not purchase insurance fortheliability of members of the BOM for breach of the law or the company Charter.75TheEnterprise Law 2005, the Code and the Model Charter 2007 applicable to listedcompanies do not provide guidelines with regard to nonexecutive independentmembers qualifications and nomination procedures. Alternatively, only a fewlistedcompanies have nonexecutive independent members in their BOM.76Under the Code, the BOM is accountable to shareholders for the companysactivities.A listed company formulates a corporate governance mechanism to ensure thattheBOM implements its obligations in compliance with the law and the companyCharter. The BOM is responsible for ensuring that the companys activities complywith the law and the company Charter, ensuring equal treatment to allshareholdersand consideration of persons with interests related to the company. The BOMformulates provisions on the order and procedures for nominating, standing forelection, voting for and dismissing members of the BOM. The order and procedurefor holding meetings of the BOM must include the following contents:73 Ibid, Article 10.74 Ibid, section 1, Article 11. If a member loses membership status pursuant to law and thecompany Charter, is dismissed or cannot continue to be a member for some reason, theBOM may appoint another person as a replacement. In this case, the replacing member ofthe 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 websiteatwww.ssc.gov.vn; HOSE website at www.hsx.vn and HASTC website at www.hastc.org.vn.

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(i) Order and procedure for nominating, standing for election, election anddismissal of members of the board of management:77(ii) Order and procedure for holding meetings of the board ofmanagement;78The BOM formulates provisions on the order and procedure for selecting,appointing

and dismissing senior managers and the order and procedures for coordination of

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activities between the board of management, the board of directors and theboard ofcontrollers. These include:(i) Order and procedures for selecting, appointing and dismissing seniormanagers.(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 ofthe company, and for rewarding and disciplining members of the BOM, the boardofcontrollers, the board of directors and other managers. The BOM is responsible forpreparing the report and providing it to the GMS.80The Code also stipulates that the BOM may set up subcommittees to assist it initsactivities. Subcommittees may be formed for policy development, internal audits,tomanage and recruit personnel, to administer salary and bonuses and to undertakeother special tasks in accord with resolutions of the GMS.81The subcommittee foran

internal audit must have at least one member who specialises in accounting andis77 Article 13.3 of the Code. Such as criteria for membership of the board; method fornominating and/or standing for the post of member of the board of management by anominee of a group of shareholders so qualified by law and the company Charter; methodof election of members of the board of management; circumstances in which members willbe dismissed; notification of election and dismissal of members of the board ofmanagement.78 Ibid, Article 13 such as notification of a meeting of the board of management (includingtheagenda, time, venue, relevant documents, and voting slips for members who cannot attenda meeting); conditions for validity of the meeting; method of voting; method of approvingresolutions of the board of management; taking minutes of the meeting of the board ofmanagement; 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 totheGMS must contain at least the following contents: Assessment of the companys activitiesduring the fiscal year; activities of the board of management; summarized contents ofmeetings of and decisions of the board of management; result of supervision of thedirectoror general director; result of supervision of managers; proposed plan for the future.81 Ibid, Article 15.

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

not a person working in the accounting/financial department of the company. TheBOM provides detailed rules on the establishment of subcommittees, and on the

responsibility of subcommittees and of each member of a subcommittee. Whereacompany does not set up subcommittees, the BOM nominates the person(s) incharge of each task such as auditing, salary and bonuses and personnel.82In order to assist the companys activities to be conducted effectively, the BOMmustappoint at least one person to act as secretary of the company. The secretary ofthecompany must have a good knowledge of law, and may not concurrently work forthe 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

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a central role in the company. Power of the board of management covers awiderange of the company operation, from initiating development strategy, capitalandhuman resource management to supervising the day-to-day business

operation.However, performance of the board of management will depend much on itssize,structure and expertise of individual members as well as whole board.Chairman of the board of management is a special member. Chairman ofthe board of management will be elected by either the Shareholders Meetingorthe Board of Management (Article 111(1)-the law on enterprise).Law on enterprise has provided in detail procedures for convening ameeting of the board of management in a manner that enable all members tohave adequate information and time to discuss and vote at the meeting.

4. REMUNERATION AND OTHER BENEFITS OF (GENERAL) DIRECTORAND 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 benefitof the company and its shareholders. Article 117 of the law on enterprise hasspecified explicitly principle for defining remuneration of (general) director andmembers of the board of managment toward linking their benefit to that of thecompany and shareholders. Remuneration of (general) director and membersof the board of management is calculated basing on business performance ofthe company. The remuneration is calculated basing on the working daysnecessary to complete the assigned tasks and the daily remuneration. Thetotal remuneration of the Board of Management will be determined by theShareholders Meeting in an ordinary meeting. Members of the Board ofManagement will be reimbursed all expenses such as meals, accommodation,transportation and other reasonable expenses that they have to pay to fulfilltheir duties. The salary of the (general) director isdetermined by the Board of Management. Remuneration of the Board ofManagement and salaries of (general) director or other managers of thecompany will be deducted from business expenses of the company and willbe 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, theremuneration 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 andpresented in the annual financial statement.5. DUTIES OF MANAGERSDuties of managers, including (general) director, members of the board ofmanagement are stipulated by article 119 of the law on enterprise.12 Those

duties are tool for measuring effort and behavior of managers in carrying outtheir asigned duties. Duties of mmanagers are as follows:

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- Exercise rights and obligations in accordance with provisions of this law,other related laws, the company charter and decisions of the shareholdersmeeting;- Exercise rights and obligations in a fiduciary, diligent and optimal mannerfor the purpose of maximizing legitimate benefit of the company and its

shareholders;- Pledge loyalty toward the company and its shareholders. This duty oftendemonstrates 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 ofthe company for the benefit of themselves or other individual or organization;+ do not abuse their position, power and assets of the company for thebenefit of themselves or other individual or organization;+ Notify promptly, fully and accurately the company of companies in whichthey or their related persons are sole owner or own a dominant capitalcontributor

or major shareholder. Transactions without those related persons should besuspended promptly or should not be implemented without permission fromthe shareholder meeting and/or the board of management.+ suspend implementation of any activity within the scope of the businessoperation of the company, that they engage on their own behalf or on behalfof 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 isincapable of paying off due debts and other liabilities.As matter of fact, concepts of fiduciary and diligent duties are far away fromacknowledge of managers in Vietnam. Adaptation of these concepts into thelaw on enterprise is necessary on one hand. However, enforcement of these

duties is not easy in the reality.

BUI XUAN HAI2) 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 circumstancesprovided for by theconstitution.51 If the chairperson fails to convene a requested meeting, he/she isresponsible for any losses that may occur, and the requester has the right toconvene a boards meeting.54 HITOTSUBASHI JOURNAL OF COMMERCE AND MANAGEMENT [October49 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 aboards 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 isdecisive.52It is animprovemen t of the Enterprise Law 2005 incomparisonto the EnterpriseLaw1999 whenthe 2005 Law provides that the CEO and members of the BOS have theright toattend and discuss, but not to vote, at all meetings of the BOM. This is asignificant way forsupervisors to monitor the board, and for the CEO to make proposals and obtainthe opinionsof the board in running the company. On the other hand, a board member has the

right torequest the CEO and other managers to provide information and materials relatedto the

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operationof the company.53This may assist the board in overseeing the dailymanagement.The head of the BOM is a chairperson( chu tich hoi dong quan tri), who unlike

underthe 1999 Law is elected by either the SM or the BOM in accordance with the

company

constitution.54The chairpersonof the board canalso be the CEO of the company,unlessotherwise provided for by the constitution. A major mandatory function of thechairpersoninvolves chairing meetings of the board and the SM, planning the boards

operation, andsupervising the implementation of the boards decisions.55 Nevertheless, the

companys

constitution can allocate wider powers to the chairperson. Consequently, as othercorporategovernance bodies, the powers of the chairperson can vary from company tocompany.(3) ChiefExecutive Officer (CEO)AnSC must have a CEO selected by the BOM to runthe daily operations of thecompany.56 Interestingly, unlike the 1999 Law and company laws of some otherjurisdictions,the Enterprise Law 2005 provides that the CEO of an SC cannot concurrently bethe CEO ofanother enterprise in order to prevent any conflict of interests.57The CEO hasstatutory powersto manage and decide on matters regarding the daily operations of the company,implement thedecisions of the BOM, and select managers and officers who are not under thepower of theboard.58 Beside the statutory powers prescribed inthe Law, the powers of the CEO

canbeexpanded by the company constitution.(4) The Board ofSupervisors (BOS)Supervisors elect one of their members as chief of the BOS. Nonetheless, theEnterpriseLaw 2005 does not state the powers and duties for this position. More than halfthe BOSmembers must reside permanently in Vietnam and at least one supervisor mustbe anaccountant or auditor. Interestingly, in order to assure the independence of theBOS, companymanagers and their relatives cannot become supervisors of the company.61A major function of the BOS involves supervising the BOM and CEO in managing

andrunning the company.62 Inparticular, the BOS (i) checks the reasonability,reliability, legality,truthfulness and carefulness of the management in directing and managing thecompany, and,(ii) evaluates the business reports, annual financial reports, and managementreports of theBOM. The Enterprise Law 2005 also ensures that supervisors have access tomanagementinformation. For example, a supervisor has the statutory right to attend meetingsof the BOM,and the CEO has to report to the BOM and the BOS in the same manner.63Supervisors also

have the right to access the companys files and working locations of thecompany managers

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and employees. Furthermore, the BOM, its members, the CEO and othermanagers have toprovide, without delay, full materials for the BOS as requested. Inadditionto thestatutorypowers provided for by the Law, the companys constitutioncanalso enlarge the

powers of the

BOS. Compared to the 1999 Law, the principles discussed above are animprovement of theEnterprise Law 2005.The Enterprise Law 2005 has enhanced the supervisory mechanisms in SCs.However, itdoes not provide for the operation of the BOS as a collective corporate body, anddoes notspecify how this body adopts a decision. Furthermore, the efficiency of a BOSs

operationsdepends upon various factors. A survey conducted by MPDF in 2004 found that 36percent ofthe respondents believe that the BOS just exists on paper because it is requiredby law.64

In short, the mandatory internal governance structure of an SC under theEnterprise Law2005 comprises four constituents: the general meeting, a BOM, a CEO, and a BOSwithrespective statutory powers and functions. Besides the statutory powersprescribed in the Law,the companys constitution can expand, but not decrease, the powers of the

above corporategovernance bodies.

PROBLEMSMandatory supervision: The Enterprise Law 2005 requires that a BOS must beestablished whenanSC has more than11

natural shareholders or one (or more) organisation shareholder(s) holding morethan 50 percentof the equity capital.77Thus, it could be assumed that anSC that may have 10naturalshareholders holding 51 percent and 490 organisation shareholders holding 49percent of theshare capital would have no mandatory supervisor. In public companies withmanyshareholders, mandatory supervisory mechanisms are necessary to protectminority investors.Accordingly, it is inappropriate that an SC with 500 shareholders has nosupervisor. This is anerroneous provision of the 2005 Law.

INSIDER-BASED CONTROLThis section arguesthat Vietnamese corporate governance can be described as an insider-basedcorporategovernance system on the grounds of the dominance of state-owned enterprises(SOE) withprivileges 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 governmentofficials under closestate administration, private firms are largely run by family members ascontrollingshareholders.

RECOMMENDATIONS

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The accounting and auditing standards promulgated by the government as hardlaw must alsobe improved to meet international standards and promote good corporategovernance with theefficient engagement of professional associations of accountants and auditors. Inaddition, there

is a lack of important sources of corporate governance regulation as in advancedeconomies,such as codes of corporate governance and listing rules by securities regulators.In order tocreate ane ffective corporate governance regulatory framework, the lackingcorporategovernance rules should be implemented by the efficient engagement of not onlygovernmentaland non-governmental agencies, but also shareholders and companiesthemselves.In short, since the introduction of economic reforms and company law is less thantwodecades old, most Vietnamese entrepreneurs and scholars are not yet familiar

with corporategovernance mechanisms as understood in advanced economies. However, thereare a number ofreasons why corporate governance is becoming increasingly important in thetransitionaleconomy 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

020406080100120D.29 D.30 D.31 D.32Not observedPartially observedObserved

76

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

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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

theseroles 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 of30%.

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 roleof 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.

77Chart 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

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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 performance0 10 20 30 40 50 60 70 80 90 100E.04E.03E.20E.07E.19E.28E.09E.17Observed Partially observed Not observed

0 10 20 30 40 50 60 70 80 90 100E.23E.21E.31E.15E.26E.18E.25E.13E.08E.06E.30E.27

E.02E.22E.10E.11E.12E.24Observed Partially observed Not observed

78For 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 environmentE.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 theboard?

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.

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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 codeof

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,

ensuringparticipation 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,020406080

100120E.01 E.02 E.03Not observedPartially observedObserved

79investors 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 leadershipE.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?

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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

relationshipwith 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

should020406080

100120

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E.04 E.05 E.06Not observedPartially observedObserved

80exercise 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 non-

executive

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

seatseach director holds?

E.11 Does the company have a board induction policy and program for new appointments to the BODand

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 companiesdo 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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020406080100

120E.07 E.08 E.09 E.10 E.11 E.12 E.13Not observedPartially observedObserved

81the 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 businessand 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 enhancedby

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 recordsE.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 theboard

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

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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 a020406080100120E.14 E.15 E.16 E.17Not observed

Partially observedObserved

82minimum 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 meetingpapers 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 aneffective

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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 Committee35.

Chart 56: Board effectiveness company strategy, risk and oversightE.18 Has the BOD established BOD committees (Audit Committee, Remuneration Committee andHuman

Resource Committee) or a designated BOD person?E.19 Is there evidence that the BOD receives regular management reports on the company activities

and itsfinancial 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.

020406080100120E.18 E.19 E.20 E.21 E.22Not observedPartially observedObserved

83

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 AuditCommittee 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

placeto ensure management identifies and has mechanisms to manage identified risks and that

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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.