BUSINESS LAW ASSIGNMENT

Subject: Vietnamese Law on Enterprises gives far too much power to the Board whilst giving the general meeting far too little power to control what the Board does, save in very limited circumstances. Discuss.

LECTURER: Dr. Vu Van Ngoc

STUDENTS: Trn c Vit L Minh Hng CLASS: EMBA 12C

Number of Words: 1984

Introduction Balance of power in the company raises the question of the relationship between the shareholders in general meeting and the Board of Directors. All these bodies have distinct powers and controls of the company provided for in Law Of Enterprise, and Circular No. 121/2012/TT-BTC. The general meeting is principally responsible for election of the directors while directors are principally concerned with the management of the company. All company laws are very cautious about allocating decision-making to the shareholders meeting on a mandatory basis. Company laws commonly take this step only in one of three situations: changes to the companys constitution; decisions which are as close to investment decisions as they are to management decisions (for example, the decision whether to merge the company with another one); and decisions on matters where the directors are conflicted. The question is whether Vietnamese Law on Enterprises gives far too much power to the board whilst giving the general meeting far too little power to control what the board does, save in very limited circumstances. The power of board of directors and general meeting II.1 The power of board of directors Board of directors enjoy all the rights provided for in the law on enterprises, Circular No. 121/2012/TT-BTC and their companys charter, particularly: - The Board of Directors is the body managing the company and shall have full authority to make decisions in the name of the company and to exercise the rights and discharge the obligations of the company which do not fall within the authority of the General Meeting of Shareholders. [8] - To make decisions on medium term development strategies, and plans, and on annual business plans of the company; [8] - To recommend the classes of shares and total number of shares of each class which may be offered; [8]

- To make decisions on offering new shares within the number of shares of each class which may be offered for sale; to make decisions on raising additional fund in other forms; [8] - To make decisions on the price of shares and bonds of the company offered for sale; [8] - To make decisions on redemption of shares in accordance with the provisions in clause 1 of article 91 of this Law; ( Article 108 Board of Directors) [8] - To make decisions on investment plans and investment projects within the authority and limits stipulated in this Law and the charter of the company; [8] - To make decisions on solutions for market expansion, marketing and technology; to approve contracts for purchase, sale, borrowing, lending and other contracts valued at fifty (50) or more per cent of the total value of assets recorded in the most recent financial statement of the company, or a smaller percentage as stipulated in the charter of the company, except for contracts and transactions stipulated in clauses 1 and 3 of article 120 of this Law (Article 108 Board of Directors) [8] - To appoint, dismiss or remove, and to sign contracts or to terminate contracts with the director or the general director and other key managers of the company as stipulated in the charter of the company; to make decisions on salaries and other benefits of such managers; to appoint an authorized representative to exercise ownership rights of shares or of capital contributed to other companies, and to make decisions on the level of remuneration and other benefits of such persons; [8] - To supervise and direct the director or general director and other management personnel in their work of conducting the daily business of the company. [8] - To make decisions on the organizational structure and internal management rules of the company, to make decisions on the establishment of subsidiary companies, the establishment of branches and representative offices and the capital contribution to or purchase of shares of other enterprises; [8]

- To approve the agenda and contents of documents for the General Meeting of Shareholders; to convene the General Meeting of Shareholders or to obtain written opinions in order for the General Meeting of Shareholders to pass resolutions; [8] - To submit annual final financial reports to the General Meeting of Shareholders; [8] - To recommend the dividend rates to be paid, to make decisions on the time-limit and procedures for payment of dividends or for dealing with losses incurred in the business operation; [8] - To recommend re-organization or dissolution of the company, or to request bankruptcy of the company; [8] - When implementing its functions and performing its duties, the Board of Management shall strictly comply with the provisions of law, the charter of the company and resolutions of the General Meeting of Shareholders. If the Board of Management passes a resolution which is contrary to law or contrary to provisions of the charter of the company causing damage to the company, then the members who agreed to pass such resolution shall be personally jointly liable for that resolution and they must compensate the company for the damage; any member who opposed the passing of such resolution shall be exempt from liability. In such a case, a shareholder owning shares in a company for a minimum consecutive period of at least one year shall have the right to request the Board of Management to suspend implementation of a resolution as mentioned above. [8] II.1 The power of general meeting Board of directors enjoy all the rights provided for in the law on enterprises, Circular No. 121/2012/TT-BTC and their companys charter, particularly: - The General Meeting of Shareholders shall include all shareholders which may vote and shall be the highest decision-making authority of a shareholding company. [8] - To pass the development direction of the company; [8]

- To make decisions on the classes of shares and total number of shares of each class which may be offered for sale; to make decisions on the rate of annual dividend for each class of shares, unless the charter of the company otherwise provides; [8] - To elect, remove or discharge members of the Board of Management and members of the Inspection Committee; [8] - To make investment decisions or decisions on sale of assets valued at fifty (50) or more per cent of the total value of assets recorded in the most recent financial statement of the company unless the charter of the company stipulates some other percentage; [8] - To make decisions on amendments of and additions to the charter of the company, except for adjusting the charter capital as a result of sale of new shares within the number of shares which may be offered as stated in the charter of the company; [8] - To approve annual financial statements; [8] - To make decisions on redemption of more than ten (10) per cent of the total number of shares of each class already sold; [8] - To consider and deal with breaches by the Board of Management and the Inspection Committee which cause damage to the company and its shareholders; [8] - To make decisions on re-organization and dissolution of the company; [8]

Discussion Should any board decision which has sufficiently large impact upon the

companys business be treated as analogous to an investment decision and so require shareholder approval? Even in these cases, shareholders in some cases acquire a decision-making role only if the management has proposed the decision in question. In such cases the shareholders have a veto right over certain classes of decision but no power to take the initiative. Such an arrangement is more protective of centralised management than rules giving shareholders the power of initiative.[3]

In Vietnam Law of Enterprise, in clause 2 of article 99, The shareholder or

group of shareholders stipulated in clause 2 of article 79 of this Law may recommend items to be included in the agenda of the General Meeting of Shareholders. But in clause 3 of article 99, The item recommended does not fall within the decision-making authority of the General Meeting of Shareholders. So, there are many board decisions which have sufficiently large impact upon the companys business, are not required approval by the General Meeting. Verifying and ensuring the independence of directors is a challenge. The

role of controlling shareholders adds to the problem. Composition of the board : independent board members is still a relatively

new concept in Viet Nam. In Circular 121/2012/QD-BTC, Art. 10,11: The public company should limit the number of members of the board of directors who concurrently hold posts in the executive apparatus of the company in order to ensure the independence of the board. The composition of the board must balance between the executive members and non-executive members and ensuring that at least one third are non-executive directors. In The UK, The US at least half of members in the board of directors are nonexecutive directors. And in the U.S. among the largest U.S. companies ( S & P 500 ) , approximately 83 % are members of board of directors are non-executive Director . Vietnamese law-makers should refine the procedures of the special

committee as well as clarify the role of independent board members. One more thing, many shareholders violated their powers and obligations in

practice, these violations include: + Major shareholders (especially state shareholders ) have abused their powers and their enforcement are not contrary to the provisions of law as to directly appoint their representatives as members of the Board of Directors , decided to raise capital directly charter or transfer , use company assets to serve its own interests or for other subsidiaries , or has used its position as majority shareholder vote for their right to buy more with prices incentives when companies issue new shares ... + The founding shareholders contribute not enough and exactly registration of the shares purchased Violation of the aforementioned has created some negative consequences for the company its shareholders and all parties concerned .

Codes of conduct can improve board member performance by publicly articulating the minimum procedures and effort that constitute due diligence and care. While most Asian jurisdictions with the exception of Viet Nam, have promulgated codes, further refinement and adoption of codes of conduct should be encouraged, with support from international technical-assistance providers when appropriate. All companies at the very least should issue annual corporate governance reports which provide details on items such as related-party transactions and the involvement of independent board members. In order to ensure credibility of the system, it is also essential that both shareholders and regulators must have means of verifying compliance and disclosure. All respondent jurisdictions, with the exception of Viet Nam, report having codes or guidelines in place, promulgated by either private sector organisations or regulatory bodies. These codes and guidelines include corporate governance codes, codes of ethics as well as guidelines for the conduct of boards. The bodies issuing these codes and guidelines range from stock exchanges and securities commissions to professional associations and corporate governance institutes. [5]

In short , the rights of shareholders under the provisions of general law in varying degrees has been done. However, the effect of the implementation of these powers , especially minority shareholders , in decision-making process in the company is quite limited . The phenomenon of violation of powers and obligations of shareholders are quite varied form , nondescript directly . The trend chasing immediate benefits , while ignoring or even long-term benefits in exchange of the company's shareholders and is quite evident. Balance of power in the company raises the question of the relationship between the shareholders in general meeting and the Board of Directors is very important to corporate governance.

Bibliography 1. Bn v quyn ca c ng v i hi ng c ng: Thc trng v vn cn khc phc http://luatcongdong.com/TuVanLuat/Luat_kinh_doanh/8214012.aspx The law of enterprise 2005 2. Circular 121/2012/QD-BTC 3. Corporate Governance, OECD Publishing http://dx.doi.org/10.1787/9789264096790-en
4. http://www.globalcorporategovernance.com/n_ap/270_275.htm

5. OECD (2011), Corporate Governance in Asia: Progress and Challenges, 6. Paul L Davies, The Board of Directors: Composition, Structure, Duties and Powers, OECD Publishing. 7. THE OECD PRINCIPLES OF CORPORATE GOVERNANCE : http://acts.oecd.org/Instruments/ShowInstrumentView.aspx?InstrumentID=151&Instr umentPID=147&Lang=en&Book=

8. Vietnamese Law on Enterprises, 2005, National Assembly