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Business Ethics

CORPORATE GOVERNANCE

Dr. Truong Thi Nam Thang

What is CG?
Corporate governance deals with the ways in which suppliers
of finance to corporations assure themselves of getting a
return on their investment, The Journal of Finance, Shleifer
and Vishny [1997, page 737]

"Corporate governance is about promoting corporate fairness,


transparency and accountability" J. Wolfensohn, President of
the Word Bank, as quoted by an article in Financial Times,
June 21, 1999.

Modern Firm
GOVERNANCEL
EVEL

AGM

BOD
SB

MANAGEMENT
LEVEL

Management

F1

F2

F2

F2

Why CG?
Separation of ownership & control: problem exists whenever
owners themselves do not engage in the direct management
of the firm.
Self-interest before enterprise interest: when some owners
or managers view their self-interest before the interest of the
enterprise, all shareholders and stakeholders.

Effective CG System
Good corporate
performance

Full accountability to
shareholders/stakeholders

Competitiveness in low cost


finance

Governance bodies of a Firm


AGM

MB

BOD (SB)

Corporate
Charter

The core framework of the company, both guiding &


regulating the actions of the Board & other entities in
the company

Shareholder
Meeting

MODEL CHARTER

Board of
Directors

Sections I, II & III - Definitions, name, form,


headquarters, branches, representative offices,
operation term, objectives, business, operation
scope

CEO

Section IV - Charter Capital, Shares and Shareholders

Section V Organizational, management, controlling


Company
Secretary
Incentive
Schemes

structure

Section VI Shareholders and Shareholders Meetings


Rights and duties
Right to appoint a proxy
Timely notice and agenda of Meeting
Recommend issues to be included in the Agenda

Corporate
Charter
Shareholder
Meeting
Board of
Directors
CEO
Company
Secretary
Incentive
Schemes

2 FUNDAMENTAL ROLES
1. To provide leadership
2. To perform oversight over management
1. Establish overall strategies & directions
2. Develop guidelines & protective system
3. Oversee & support CEO & senior mgmt, review
recommendations & proposals
BOARD COMPOSITION
1. Executive non executive members
2. Independent members
3. Qualifications required (technical, strong character,
independent mind, practical wisdom, sound judgment)

FUNDAMENTAL OBLGATIONS
1. Full comprehension & compliance with fiduciary duties
2. Avoidance & full disclosure of conflicts of interests
3. Respect & implementation of internal policies &
established procedures

Corporate
Charter
Shareholder
Meeting

ROLE
1. To assist the Board of Directors and other organs
of enterprise
2. To facilitate the work of both the Chairman and
members of the Board and ensures full
compliance with the Charter and regulations

Board of
Directors

MAIN TASKS

1.

Convene meetings of BOD and SB on the


instructions of the Chairman of the Board of
Directors or of the Supervisory Board

2.

Taking minutes of meetings

3.

Advising on procedure of meetings

4.

Providing information to the members of


the Board of Directors, the Shareholders and
Supervisory Board

CEO
Company
Secretary
Incentive
Schemes

Corporate
Charter
Shareholder
Meeting
Board of
Directors
CEO

ROLE
Appointed & Supervised by BOD
1. Accountable for the day-to-day operation and
management of the enterprise before the Board and in
compliance with the Vietnamese Law
2. Must submit for approval of the Board all matters as
detailed in the Charter

1.
2.
3.

4.
5.

Company
Secretary
Incentive
Schemes

6.
7.

RESPONSIBILITES & DUTIES


Decide all issues relating to day to day operation
Organize the implementation of decisions of the BOD
Organize the materialization of business and investment
plans
Propose plans on the organizational structure and
internal management rules
Appoint, remove or dismiss management personnel
except those appointed, removed or dismissed by the
BOD
Make decisions on salary and allowances for employees,
including managers appointed by the CEO
Other rights and duties as set forth in the Charter of the
Company

SELECTION
Integrity / Competence / Character/ Industry Knowledge/
Management Philosophy

Corporate
Charter
Shareholder
Meeting
Board of
Directors

1. SHAREHOLDERS = Legitimate owners of firm


2. SHAREHOLDERS MEETING = supreme organ of
decision making of firm

1.
2.
3.
4.

CEO
Company
Secretary
Incentive
Schemes

1.
2.
3.
4.

RIGHTS OF SHAREHOLDERS
Attend and vote on all matters under the jurisdiction of
the GAS, each ordinary share carries one vote
Receive dividends
Prioritized for subscribing for new shares in proportion to
number of shares each hold
Receive a part of remaining assets in proportion to
number of shares each hold after payments for liabilities
and shareholders of other types upon dissolution of the
Company
DUTIES OF SHAREHOLDERS
Pay for the subscribed shares
Be liable for liabilities of the Company within their
contribution
Abide by the Charter and internal management rule
Observe decisions of the Annual Shareholders Meeting
and the BOD

Corporate
Charter

Supreme organ of decision of a Enterprise, which


elects the members of the Board to direct and
supervise the operation of the enterprise

Shareholder
Meeting
Board of
Directors
CEO
Company
Secretary
Incentive
Schemes

POWERS OF SHAREHOLDERS MEETING

1. Appointment and Dismissal of Members of the


BOD
2. Appointment and Dismissal of Members of the SB
3. Approval of the BOD and SB reports
4. Approval of the yearly Financial Report
5. Approval of the Business Plan
6. Approval the choice of External Auditors
7. Approval of Remuneration Package of Members of
the BOD and SB
8. Approval of other important decisions:
amendment of Charter, major sale of assets,
issuance of shares, etc.

Fiduciary Duties
Duty of Care

Obligation to perform duties:

1. In good faith

Duty of Loyalty

Avoidance of Conflict of
Interest

2. In a manner that is,


reasonably, believed to be in
the best interests of the
enterprise
3. With a degree of care that
ordinarily prudent persons
would reasonably be expected
to exercise in like positions and
under similar circumstances

1. Members
of
the BOD
2. Members
of
the Supervisory
Board
3. CEO
4. Other Senior
Management
Personnel

Fiduciary Duties
Duty of Care

1. Not take for themselves a


business opportunity that the
company might use to its own
advantage

Duty of Loyalty

Avoidance of Conflict of
Interest

2. Not use information obtained


in their positions for their own
personal gains or for the
benefits of any other economic
3. organization or individual
4. Be obliged to disclose to the
BOD any potentially
conflicting interest

1. Members
of
the BOD
2. Members
of
the Supervisory
Board
3. CEO
4. Other Senior
Management
Personnel

Fiduciary Duties
Duty of Care

Duty of Loyalty

Avoidance of Conflict of
Interest

Conflict = Interest (personal,


family, friends, etc.) in a
construction company that bids for
a construction contract with the
enterprise
Conflict = Hiring family or friends
for position inside the enterprise
Conflict = Sell personal land to the
enterprise
Conflict = Sell shares of enterprise
before disclosure of bad financial
performance

1. Full, Timely and Complete


Disclosure
2. Abstain from voting and discussing
on the issue
3. If Contract more than 20% of the
value of the assets of the
enterprise = Approval by the
Shareholders Meeting

1. Members
of
the BOD
2. Members
of
the Supervisory
Board
3. CEO
4. Other Senior
Management
Personnel

Corporate
Charter
Shareholder
Meeting
Board of
Directors

1. Performance Units
2. Bonuses
3. Perks
4. Share Options

CEO
Company
Secretary
Incentive
Schemes

Premium Options

Discounted Options

Indexed Options

Performance Vesting

Options