Corporate Governance of a Joint Stock Company: The Board of Directors

 

Circulation of written resolutions

Matters can be approved by circulating a written resolution

1.1.       The Shareholder Meeting of a JSC may also approve matters within its authorities by way of circulating a written resolution among the company’s shareholders. Under the Enterprise Law 2014,[1] the following matters must be approved at a meeting of the Shareholder Meeting unless provided otherwise in the charter,

1.1.1.    amendment to the charter of a JSC;

1.1.2.    development strategy;

1.1.3.    classes of shares and total number of shares of each class;

1.1.4.    election, removal of members of the Board of Management and Inspection Committee; and

1.1.5.    a decision on any investment or sale of assets valued at equal to or more than 35% of the total value of assets recorded in the most recent financial statements of the company, or a smaller percentage or a specific value as stipulated in the charter of the company;

1.1.6.    approval of the annual financial statements; and

1.1.7.    reorganisation or dissolution of the company.

Therefore, if a JSC wants to be able to approve these matters by way of circulating written resolutions, the JSC must ensure its charter allowing it to do so. In practice, a non-Public JSC with few shareholders may prefer to being able to pass all matters within the authorities of the Shareholder Meeting by way of circulating written opinions.

1.2.       Listed JSCs are required to organise annual meetings of Shareholder Meeting in the form of physical meetings instead of circulating written resolutions.[2] Accordingly, matters to be decided at an annual meeting of Shareholder Meeting (see 4.2) should be approved at the annual meeting.

Procedures for circulating a written resolution

1.3.       Similar to the Enterprise Law 2005, the Enterprise Law 2014 allows the charter of a JSC to specify the procedures for circulating a written resolution of the Shareholder Meeting. If there is no specific procedure in the charter, the default procedures under the Enterprise Law 2014 will apply. The key steps for circulating a written resolution of the Shareholder Meeting under the Enterprise Law 2014 include:

1.3.1.    the JSC Board decides to obtain a resolution of the Shareholder Meeting by circulating a written resolution;[3]

1.3.2.    the JSC Board prepares draft written resolutions and a list of shareholders whose written opinions are to be collected;[4]

1.3.3.    the JSC Board sends the draft written resolution to shareholders; and

1.3.4. the JSC Board organises a vote counting section under the supervision of the Inspection Committee after the deadline for shareholders to return their votes.[5] A vote counting minutes must be sent to shareholders or uploaded to the JSC’s website.[6]

1.4.       Compared with the Enterprise Law 2005, the default procedures for circulating a written resolution under the Enterprise Law 2014 have some important changes. In particular,

1.4.1. the request for a written resolution must be sent to shareholders at least 10 days (or a longer period provided in the charter) before the time-limit within which they are required to return their written opinion forms.[7] The Enterprise Law 2005 does not have this minimum time requirement;

1.4.2.  the JSC must also establish a list of shareholders to whom the request for a written resolution is sent in the same manner as a list of shareholders attending a meeting of the Shareholder Meeting.[8] Under the Enterprise Law 2005, there is no express requirement for having a list of shareholders in case of circulating a written resolution;

1.4.3. a shareholder may return its resolution by facsimile or email.[9] Under the Enterprise Law 2005, the shareholder can only return its resolution by mail;

1.4.4.    the vote counting minutes of a written resolutions may be uploaded to the JSC’s website instead of sending to its shareholders;[10]

1.4.5. a shareholder, who does not return the resolution sent to it, is deemed not to participate in the voting.[11] Under the Enterprise Law 2005, it is not clear whether the votes of a shareholder, who does not return the resolution sent to it, should be counted or not;[12] and

1.5. all Board directors, the vote counting persons and the monitoring persons will jointly liable for the vote counting being true and correct.[13] This is similar to the Enterprise Law 2005 except that vote counting persons are added. As such, a Board director of a JSC wants to limit his/her liability regarding vote counting in a written resolution would need to exclude that liability in the charter of the JSC.

Voting thresholds

1.6.       Under the Enterprise Law 2014, a written resolution of the Shareholder Meeting will be approved if it receives the approval of a number of shareholders representing 51% (or a higher percentage provided in the charter) of the total votes.[14] The threshold for a written resolution under the Enterprise Law 2005 is 75%, so this is a major change compared to the Enterprise Law 2005.[15]  However, the Enterprise Law 2014 seems not to distinguish between matters subject to 51% simple majority (see 4.22) and matters subject to 65% super majority (see 4.25) in a meeting of the Shareholder Meeting. So technically, a matter subject to 65% super majority in a meeting of the Shareholder Meeting can now be passed by a 51% simple majority via a written resolution.

Voting calculation

1.7.       Similar to the calculation of votes at a meeting of the Shareholder Meeting (see 4.28), the Enterprise Law 2014 also includes the words “total votes” (tổng số phiếu biểu quyết) in the voting calculation of a written resolution which could be interpreted to mean:

1.7.1. votes that carry voting rights regarding the relevant matter and that have been returned on the relevant matter; or

1.7.2. votes that carry voting rights regarding the relevant matter (whether or not such votes have been returned). If the default rules of voting calculation in circulating a written resolution apply then votes that carry voting rights but are not returned will be excluded from voting calculation in case of a written resolution (see 5.4.5); or

1.7.3. votes of all shareholders (whether or notes such votes carry voting rights or have been returned regarding the relevant matters). Logically, the Enterprise Law 2014 should expressly exclude from voting calculation the votes of the shareholders who are not entitled to vote on a matter presented to the Shareholder Meeting by way of circulating a written opinion.

Validity of a decision of the Shareholder Meeting

When a decision of Shareholder Meeting becomes effective?

2.1.       Similar to Decree 102/2010,[16] under the Enterprise Law 2014, a decision of the Shareholder Meeting will be effective as from the date it is passed or as from the effective date stated in such resolution or decision unless there is a temporary restraint order by the authorities.[17] Any resolution or decision of the Shareholder Meeting, which is approved by shareholders holding 100% of all shares that carry voting rights will be lawful and effective even when the order and procedures for passing such resolution or decision are not implemented correctly in accordance with regulations.[18]

Challenging a decision of the Shareholder Meeting

2.2.       Article 147 of the Enterprise Law 2014 provides that within ninety days from the date on which the minutes of meeting of Shareholder Meeting are received or the minutes of the results of counting of votes being written opinions from the Shareholder Meeting are received, a 10% Major Shareholder of a JSC will have the right to request a court or an arbitration tribunal to consider and cancel a resolution of the Shareholder Meeting in the following cases:

2.2.1.    The order and procedures for convening the meeting or issuing a decision of the Shareholder Meeting do not comply with the Enterprise Law 2014 and the charter of the company, except in case the decision is approved by a 100% votes (see 6.1); or

2.2.2.    The content of the resolution violates the law or the charter of the company.

Presumably, a 10% Major Shareholder can only bring a case to an arbitration tribunal if the charter of the JSC has an arbitration clause.

2.3. This provision of the Enterprise Law 2014 is similar to the one under the Enterprise Law 2005. However, now only 10% Major Shareholder has the right to invoke the right to cancel a decision of the Shareholder Meeting instead of all shareholders, Board directors, Inspectors or the General Director under the Enterprise Law 2005.[19] Article 148.3 of the Enterprise Law 2014 provides that “in case a shareholder or a group of shareholders request the court or the arbitration tribunal to cancel a decision of the Shareholder Meeting in accordance with Article 147 of the Enterprise Law 2014 then …”. The wording of Article 148.3 even suggests that a decision of the Shareholder Meeting can only be challenged by a 10% Major Shareholder in accordance with Article 147 of the Enterprise Law 2014. The Enterprise Law 2005 did not have this provision.

2.4.       It is not clear if the change in the Enterprise Law 2014 is intended to remove the rights of all less-than-10% shareholders, Board directors, Inspectors or the General Director to challenge a decision of the Shareholder Meeting. If this is the intention then it is not clear why the Enterprise Law 2014 adopts this amendment. Under the Enterprise Law 2014, any shareholder including less-than-10% shareholder, Board directors, Inspectors or the General Director must comply with decisions of the Shareholder Meeting. Removing the rights of these persons to challenge a decision of the Shareholder Meeting would likely put these persons at risks of being “oppressed” by other major shareholders.

2.5.       Both Article 147 of the Enterprise Law 2014 and Article 107 of the Enterprise Law 2005 do not expressly use the term “time limitation” (thời hiệu) in its wording. Therefore, it is not clear if this provision is intended to impose a 90-day time limitation for a claim against a decision of the Shareholder Meeting to be made. And no claim can be made against a decision of the Shareholder Meeting after this 90-day time limitation. In the author’s opinion, the 90-day period under Article 107 of the Enterprise Law 2005 and Article 147 of the Enterprise Law 2014 should not be construed as a time limitation period for making a claim against a decision of the Shareholder Meeting. This is because 90 day is an unreasonably short for a shareholder to make a claim. In addition, it is unusual to have a time limitation period which commences on “the receipt of documents” by the relevant claimant and only covers certain limited circumstances. A shareholder who wants to make a claim under Article 107 of the Enterprise Law 2005 and Article 147 of the Enterprise Law 2014 may simply declare that he/she has not received the decision of the Shareholder Meeting and as such the time limitation under Article 107 of the Enterprise Law 2005 and Article 147 of the Enterprise Law 2014 has not started.

2.6. That being said, in practice, to the author’s knowledge, many practitioners in Vietnam take the view that a shareholder who wants to take legal action against a decision of the Shareholder Meeting can only do it within 90 days from the date of receipt of the minutes of meeting of the Shareholder Meeting.[20] If this is also the position taken by the court then Article 147 of the Enterprise Law 2014 could be considered as a de-factor time limitation period for making a claim against a decision of the Shareholder Meeting.

Authorities of the Board of Directors

General authorities

3.1.       Under the Enterprise Law 2014, the authorities of the Board of a JSC remain substantially the same as in the Enterprise Law 2005. In particular, the Board of a JSC will have all the authorities to decide on any matter relating to the JSC except for matters under the authorities of the Shareholder Meeting.[21]

Specific authorities

3.2.       Under the Enterprise Law 2014, the Board’s specific authorities include the following “rights and obligations”:[22]

3.2.1.    to decide on medium term developmental strategies and plans, and on annual business plans of the company;

3.2.2.    to sell new shares within the number of shares of each class which may be offered for sale;

3.2.3.    to decide on raising additional funds in other forms;

3.2.4.    to decide on the sale price of shares and bonds issued by the company;

3.2.5.    to decide on redemption of up to 10% shares in the company;

3.2.6.    to decide on investment plans and investment projects within the authority and limits stipulated in the law;

3.2.7.    to decide on solutions for market expansion, marketing and technology;

3.2.8.    to approve contracts for purchase, sale, borrowing, lending and other contracts valued at 35% or more of the total value of assets recorded in the most recent financial statements of the company, if the charter of the company does not stipulate another percentage or specific value provided that such contracts are not subject to approval by the Shareholder Meeting under its authorities (see 3.1.5) or approval as a related party transaction (see 23);

3.2.9.    to elect, remove, dismissed JSC Chairman;

3.2.10. to appoint, remove and sign contracts or terminate contracts with the General Director and other key managers of the company as stipulated in the charter of the company; to decide on salaries and other benefits of such managers;

3.2.11. to appoint an authorised representative to participate in the Members' Council or the Shareholder Meeting of other companies, and to decide on the level of remuneration and other benefits of such persons;

3.2.12. to supervise and direct the director or general director and other managers in their work of conducting the day-to-day business of the company;

3.2.13. to decide on the organisational structure and the regulations on internal management of the company;

3.2.14. to decide 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;

3.2.15. to approve the agenda and contents of documents for the meetings of the Shareholder Meeting; to convene meetings of the Shareholder Meeting or to obtain written opinions in order for the Shareholder Meeting to pass resolutions; and

 3.2.16. to recommend the dividend rates to be paid, to decide on the time-limit and procedures for payment of dividends or for dealing with losses incurred in the business operations.

3.3.       Compared to the Enterprise Law 2005, the Enterprise Law 2014 contains the following changes regarding Board’s authorities:

3.3.1.    the Board now only has authorities to approve investment decisions in accordance with laws instead of laws and charter. It is not clear why the Enterprise Law 2014 introduces this change given that a JSC should have the flexibility to determine the authority of the Board when it comes to investment decision.[23] It is not clear if a JSC can rely on the general provision that the Board has such rights and obligations as provided in the Enterprise Law 2014 and the charter to overcome the limitation;[24]

3.3.2. under the Enterprise Law 2014, a JSC now has more flexibility to determine the minimum value (whether as a percentage of total assets or as a specific value) of contracts that are subject to Board’s approval. In addition, the charter of a JSC may increase the 35% value threshold and thereby limiting the default authorities of the Board under the Enterprise Law 2014; and

3.3.3. the Board now has the sole authority to elect and remove JSC Chairman.[25]

3.4.       The Enterprise Law 2014 also tries to address a potential conflicting between the authorities of the Shareholder Meeting and the Board regarding contract approval. Under the Enterprise Law 2005,

3.4.1.    the Shareholder Meeting has the authority to approve investment decision or sale of assets which have value of 50% or more of the total asset of the company;[26] and

3.4.2.    the Board has the authority to approve contracts for sale, purchase, borrowing and lending and other contracts which also have value of 50% or more of the total asset of the company.[27]

Now, under the Enterprise Law 2014, a material contract which is subject to approval by the Shareholder Meeting will not need to be approved again by the Board. The issue which remains unclear is to determine which material contracts could qualify as an investment by the company. The term “investment project” is broadly defined under the Investment Law 2014 to mean a collection of proposals for the expenditure of medium and long-term capital to carry out investment activities in a specific geographical area and for a specified duration.[28] Such a broad definition can cover many types of contracts.

3.5.       Similar to the Enterprise Law 2005, the Enterprise Law 2014 fails to clarify various issues regarding the authorities of the Board including:

3.5.1.    the Board may issue internal regulations of the company.[29] And a shareholder need to comply with these internal regulations.[30] Logically, a shareholder as owner of the company should not be bound action decided by the Board. In addition, this authority may give a major shareholder, who controls the Board the ability to limit the rights of a minority shareholder; and

3.5.2.    the Board has the authority to approve documents and agenda of a meeting of a Shareholder Meeting.[31] This authority may be relevant when a meeting of the Shareholder Meeting is convened by the Board. However, if a meeting of the Shareholder Meeting is convened by other persons (see 4.5.2) then this authority may cause a conflict of interest between the Board and the person convening the Shareholder Meeting.

Board committees

3.6.       The Enterprise Law 2014 does not generally require a Board to set up specific Board committees. The Board of a Listed JSC may (but not compulsorily required to set up certain committees to assist the Board including HR committee, compensation committee and “other committees” in accordance with decisions of the Shareholder Meeting. In this case, the Board must appoint an independent Board director to be the head of HR committee and the compensation committe;[32] or

3.6.1.    appoint an independent Board director to be in charge of each of the above issues.[33]

3.7.       The establishment of committees of the Board must be approved by the Shareholder Meeting.[34]

Division of the company’s power

3.8.       Under the Enterprise Law 2014, each of the Board and the Shareholder Meeting has a list of specific mandatory authorities. Since the wording of the law is quite general, there may be cases where a specific matter could fall under the scope of authorities of both the Board and the Shareholder Meeting. In addition, there are cases where the Shareholder Meeting may want to decide on matters which are clearly within the authorities of the Board. The latter case is quite usual in the context of a non-Public JSC where directors of the Board are also shareholders of the company and the shareholders want to avoid having a second meeting in the form of a Board meeting to approve things which are approved by the Shareholder Meeting already.

3.9.       In the circumstances described in 7.8, one would need to determine how the power regarding a JSC is divided between the Board and the Shareholder Meeting. In particular,

3.9.1.    if a matter is subject to approval by the Shareholder Meeting and the Board, then will two approvals from the Board and the Shareholder Meeting be required or will only one approval from the Shareholder Meeting be sufficient?

3.9.2. if the Shareholder Meeting decides on a matter belonging to the Board’s authorities then will another Board’s approval be required and if so, can the Board disagree with the Shareholder Meeting’s resolution?

3.10.     Regarding the first question, on the one hand, one may argue that the Shareholder Meeting is the highest decision-making authority in a JSC. Therefore, the Shareholder Meeting’s approval on a matter would be sufficient, and it is not necessary to obtain approvals from the Board on the same issue. On the other hand, under the Enterprise Law 2014, the Board has the obligations to decide on the matters described in Article 149.2. Therefore, failure of the Board to approve a matter described in Article 149.2 could technically be considered as a breach of the Board’s obligations.

3.11.     Regarding the second question, again one can rely on the argument that the Shareholder Meeting is the highest decision-making authority and therefore could decide on any matter relating to the company include those under authorities of the Board. In addition, the general scope of authorities of the Shareholder Meeting (e.g. authority to approve development strategy of the company) could allow the Shareholder Meeting to take the position that any matter relating to the company is under authorities of the Shareholder Meeting. A similar argument about the Board’s obligation to approve the matters described in Article 149.2 also applies to the second question. However, since the Board also has the obligation to comply with decisions of the Shareholder Meeting.[35] Even if the Board must approve the matter within its authorities, presumably the Board must approve such matter in the same manner as the Shareholder Meeting approves it. This is different from certain jurisdictions where management authorities are reserved for the Board and cannot generally be decided by Shareholder Meeting.

Number of Board directors

4.1.       Under the Enterprise Law 2014, the Board of a JSC will have from three to eleven Board directors, and the charter will provide the specific number of the Board of directors.[36] This is different from the Enterprise Law 2005, which allows the charter to provide a number outside of the three-to-evelen range.[37] This is a more logical change. However, the question is whether the charter of a JSC must provide a “specific” number within the 3-11 range (e.g. 6 or 7 Board members) or the charter of a JSC can provide a range (e.g. from 5 to 10 Board members).  

4.2.       The number of Board directors in a Public JSC will also be at least three and no more than 11.[38]

Term of office of a Board director

5.1.       Similar to the Enterprise Law 2005,[39] under the Enterprise Law 2014,[40] a Board director in a JSC will have a term of office of no more than five years and can be re-appointed for unlimited times. However, unlike the Enterprise Law 2005,[41] there is no term of office for the Board of a JSC as a whole under the Enterprise Law 2014. So for the first time, staggered Board[42] in a JSC, in which only a fraction of the Board directors is elected each time instead of en masse, is expressly allowed under Vietnamese law. For a Public JSC, a staggered Board is one of the defence against a hostile takeover.

5.2.       Although the Enterprise Law 2014 does not contemplate a term of office for the Board of a JSC as a whole, there are still other provisions in the Enterprise Law 2014 which suggest that the Board has a term.[43] For example,

5.2.1.    Article 153.1 of the Enterprise Law 2014 provides that the Chairman of the Board of a JSC will be elected at first meeting of the term of office of the Board; or

5.2.2.    Article 114.3 of the Enterprise Law 2014 provides that a 10% Major Shareholder may convene a meeting of the Shareholders’ Meeting if the term of office of the Board has expired for more than six months and a new Board has not been elected.

5.3.       Under the Enterprise Law 2014, if the terms of all Board directors of a JSC expire then all such Board directors shall continue to act as Board directors until a new Board director is elected unless  the charter of the JSC provides otherwise.[44] So under the Enterprise Law 2014, the charter of JSC  can determine how the Board of JSC should operate after the expiration of the term of office of all Board directors. Under the Enterprise Law 2005,[45] all Board directors whose terms of office expire will remain in office until a new Board is elected and takes over the authorities of the Board. The provision of the Enterprise Law 2005 may allow an old Board to cause obstacles to the appointment of a new Board. Both the Enterprise Law 2014 and the Enterprise Law 2005 are silent as to the new Board must have at least three Board directors to replace the old Board, or it is sufficient to elect one new Board director.

Criteria of Board directors

General criteria

6.1.       Under the Enterprise Law 2014,[46] a Board director must satisfy at least the following criteria and conditions:

6.1.1.    having full capacity for civil acts, and not belong to the category of persons not allowed to manage an enterprise in Vietnam; and

6.1.2.    having professional expertise and experience in business management or in the line of business which is the main business of the company, unless otherwise stipulated in the charter of the company.

6.2.       Under the Enterprise Law 2014, a Board director of a JSC need not be a shareholder of the company[47] and may concurrently be Board director of another company.[48] On the other hand, the Enterprise Law 2014 only allows the charter to provide that a Board director does not need to have professional expertise and experience in business management or in the line of business which is the main business of the company (see 10.1.2). That said, arguably, the criteria of Board directors under the Enterprise Law 2014 should be considered as minimum requirements, and the JSC should be able to specify stricter requirements or more requirements for its Board directors.

6.3.       There is no residency requirement for a Board director, who is a foreigner under the Enterprise Law 2014. Instead, the Enterprise Law 2014 allows the charter of a JSC to stipulate the number of Board directors who must reside in Vietnam.[49] The Enterprise Law 2014 does not make clear whether a Board director must be a natural person or could also be an organisation. However, various qualifications of a Board director suggest that a Board director of a JSC should be a natural person.

Independent Board directors

6.4.       Independent Board director of non-Listed JSC (if any) and of Public Company must satisfy the following criteria:[50]

6.4.1.    Not being a person currently working for the JSC or any subsidiary of the JSC;

6.4.2.    Not being a person having worked for the JSC or any subsidiary of the JSC during the last three years;

6.4.3.    Not being a person who is currently entitled to salary or remuneration from the JSC, except for allowances which directors of the Board are entitled to in accordance with regulations;

6.4.4.    Not being a person whose spouse, parent or sibling is a major shareholder of the JSC or a manager of the JSC or its subsidiary company;

6.4.5.    Not being a person directly or indirectly owning at least 1% of the total voting shares in the JSC; and

6.4.6.    Not being a person who used to be a member of the Board or the Inspection Committee during the last five years at least.

6.5.       An independent Board director of a non-Listed JSC must notify the Board that such member no longer satisfies all the conditions applicable to an independent Board director; and such director will automatically no longer be an independent Board director from the date of failure to satisfy all the conditions. The Board must arrange for the Shareholder Meeting to elect an additional independent Board director within six months from the date of receipt of the notice from the related independent Board director.[51]

Criteria for Public JSCs

6.6.       A Board director of a Public JSC also needs to satisfy the following additional conditions:

6.6.1.    a Board director may or may not be a shareholder of the Public JSC;[52]

6.6.2.    a Board director of a Public JSC must not concurrently be Board directors of more than five other JSCs.[53]

In addition, a Public JSC must limit the number of Board directors who also hold executive positions in the company to ensure the Board’s independence.[54] At least one-third of the Board directors of a Public JSC must be non-executive directors.[55] At least one-third of the Board directors of a Listed JSC must be independent directors.[56]

Appointment and removal of Board directors

Board nomination rights

7.1.       Article 114.2(a) of the Enterprise Law 2014 generally provides that a 10% Major Shareholder will have the right to nominate candidates to the Board. In addition to the issues relating to forming a 10% Major Shareholder, the Enterprise Law 2014 does not have a mechanism to allocate different nomination rights to different 10% Major Shareholders. Article 114.4 only generally provides that based on the number of directors of the Board, a 10% Major Shareholder will have the right to nominate one or more candidates for Board directors as decided by the Shareholder Meeting. Where the number of candidates nominated by a 10% Major Shareholder is lower than the number of directors they are entitled to nominate as decided by the Shareholder Meeting, the remaining candidates will be nominated by the Board, and other shareholders. Therefore, in theory, under Article 114.2 of the Enterprise Law 2014, a shareholder holding 80% voting rights and a shareholder holding 10% voting right may have the same nomination right to nominate one candidate for Board Member.

7.2.       Decree 71/2017 provides that shareholders or a group of shareholders of a Public JSC who have been holding voting shares for a period of at least six consecutive months may nominate candidates as Board directors.[57] The nomination rights attached to such shareholders or groups of shareholders will be in accordance with law and charter of the Public JSC. Again, Decree 71/2017 also does not have a mechanism to allocate different nomination rights to different 10% Major Shareholders. The Board of a Public JSC will nominate additional candidates for Board directors if the number of candidates nominated is not sufficient.[58] 

Appointment

7.3.       Under the Enterprise Law 2014,[59] the Shareholder Meeting has the authority to appoint and dismiss directors of the Board. Appointment of a Board member may be made either by:[60]

7.3.1.    a cumulative voting process; or

7.3.2.    a different voting process or mechanism as provided by the charter of the JSC. Presumably, the most common voting mechanism would be a 51% simple majority.

7.4.       Under cumulative voting principle,[61] whenever a JSC elects new Board directors,

7.4.1.    each shareholder will have a number of votes equal to the number of new Board directors to be elected times the number of voting shares held by such shareholder and such shareholder may cash all or some of his/her votes for any candidate;

7.4.2.    the persons appointed to be Board directors will be determined based on a count from the highest number down to the lowest number of votes starting with the candidate with the highest number of votes until all the number of members as required by the company charter have been appointed; and

7.4.3.    if two or more candidates receive the same number of votes for the last position of Board director, there will be another vote taken on such two or more candidates or the Board director will be appointed in accordance with the voting rules or the company charter.

The intended effect of cumulative voting principle is to allow certain minority shareholder(s) to be able to elect at least one Board director by placing all their votes on one candidate rather spreading their votes for many different candidates.[62]

7.5.       While the Enterprise Law 2014 is silent, the selection method described at 11.4.2 implies that a resolution of the Shareholder Meeting at a meeting of the Shareholder Meeting appointing a Board director does not need to be approved by at least 51% votes of the attending shareholders. This is consistent with the cumulative voting mechanism. However, if the cumulative voting is to be done via collecting written opinions of the shareholders, then there is still a risk that the written resolution of the Shareholder Meeting appointing a Board director still needs to be approved by at least 51% votes of the shareholders.

7.6.       The last two requirements described at 11.4.2 and 11.4.3 are provided in the second sentence and the last sentence of Article 144.3 of the Enterprise Law 2014. Since the words “unless otherwise provided by the charter” only appear in the first sentence of Article 144.3 of the Enterprise Law 2014, presumably, these two requirements will need to be complied with even if a JSC does not choose to use cumulative voting principle.

7.7.       Article 144.3 of the Enterprise Law 2014 allows the charter of a JSC to provide for a method of electing Board directors different from the cumulative voting method. This provision could give a JSC substantial flexibility in determining how a Board director could be elected in its charter (e.g. voting by a show of hand instead of voting by the number of votes held by each shareholder).

7.8.       Under the Enterprise Law 2014, cumulative voting for the appointment of Board directors becomes optional rather than mandatory as in the Enterprise Law 2005.[63] Cumulative voting is in favour of minority shareholders. The changes under the Enterprise Law 2014 about cumulative voting, voting thresholds (see 4.23 and 4.25) and other changes are intended to make minority protection under the Enterprise Law 2014 less aggressive and, hopefully, more practicable in Vietnam context.

Removal

7.9.       A Board director may be dismissed (miễn nhiệm) if he/she:[64]

7.9.1. fails to maintain the qualifications of a Board director (see 10);

7.9.2. fails to participate in activities of the Board for six consecutive months, except in the case of an event of force majeure; and

7.9.3. tenders a written resignation.

7.10.     The charter of a JSC may provide for other cases where a Board director could be dismissed. A Board director could also be removed (bãi nhiệm) by a 51% simple majority of the Shareholder Meeting.[65] It is not expressly clear under the Enterprise Law 2014 if the Shareholder Meeting could remove a Board director without cause. However, since Article 156.2 uses a term different from Article 156.1 of the Enterprise Law 2014 (remove vs. dismiss), presumably the Shareholder Meeting could remove a Board director without cause.

7.11.     The provisions on removal of Board directors in the Enterprise Law 2014 are similar to those under the Enterprise Law 2005. And therefore, it remains unclear:

7.11.1. about the difference between “dismissed” and “removed”; and

7.11.2. whether a Board director will be dismissed automatically in the scenarios provided in paragraph 11.9 or a resolution by the Shareholder Meeting is still needed. For example, if a Board director is dead then it is not clear if the Shareholder Meeting still needs to dismiss him/her or the JSC can exclude the deceased Board director from the calculation of quorum and voting in subsequent Board meetings without a dismissal decision by the Shareholder Meeting.

7.12.     If (i) the number of Board directors are reduced by more than one-third of the number of Board directors specified in the charter of a JSC or (ii), in case the JSC is organised as a Single Board Structure, the number of independent directors of the Board is reduced below the number required by law, then the Board must convene a meeting of the Shareholder Meeting to appoint additional Board directors.[66]

Requirement for Public JSCs

7.13.     Decree 71/2017 provides more detailed procedures for appointment of Board directors of a Public JSC. In particular, if the candidates for Board directors of a Public JSC are known before a meeting of the Shareholder Meeting, background information regarding each Board director must be disclosed on the website of the company.[67] The disclosed information should include:[68]

7.13.1. professional skills;

7.13.2. working experiences;

7.13.3. other information as required by the Charter of the Public JSC; and

7.13.4. “interest related to the company” (lợi ích có liên quan tới công ty), if any.

Each candidate must undertake that the disclosed information about him/her is true, correct and “reasonable”.[69]

Meetings of the Board

Regular and irregular meetings

8.1.       Similar to the Enterprise Law 2005, the Enterprise Law 2014 refers to irregular and regular meetings of the Board.[70] However, there is no clear definition of regular or irregular Board meetings under the Enterprise Law 2014. Under the Enterprise Law 2014,[71] the JSC Chairman must convene a Board meeting when he/she deems necessary but at least once a quarter. By implication, an irregular meeting of the Board is the meeting convened by the JSC Chairman at the request of others (see 12.3). Unlike a meeting of Shareholder Meeting, the Enterprise Law 2014 does not distinguish the authorities of a regular or irregular Board meeting. So in practice, the term is not legally important.

Board meeting location

8.2.       A meeting of the Board could be held in the company’s head office or in one or more other locations.[72] There is no requirement that a Board meeting of a JSC must be held in Vietnam.

Persons convening a Board meeting

8.3.       In addition to the JSC Chairman, the following persons can request the JSC Chairman to convene a meeting of the Board:[73]

8.3.1.    the Inspection Committee;

8.3.2.    an independent Board director. This is a new change compared to the Enterprise Law 2005;

8.3.3.    the General Director;

8.3.4.    at least five officers (người quản lý). It is not clear if the reference to managers in this clause means (a) company officers (người quản lý công ty) designated by the Enterprise Law 2014 or (b) managers who are below the General Director but have some executive authority. Interpretation (b) seems to be more logical because company officers designated by the Enterprise Law 2014 all have similar or higher rankings as the General Director; and

8.3.5.    at least two executive Board directors (thành viên điều hành). There is no definition of executive Board directors under the Enterprise Law 2014. Presumably, this is intended to refer to Board directors who also hold other executive positions in the company and who are not independent Board director.

Notice of Board meeting

8.4.       Under the Enterprise Law 2014,[74] the JSC Chairman must convene an irregular Board meeting within seven business days (instead of 15 days under the Enterprise Law 2005) after receiving a request of meeting from the persons who may convene a Board meeting (see 12.3). The notice of meeting must be sent at least three (instead of five under the Enterprise Law 2005) business days before a Board meeting unless otherwise provided by the charter.[75] So unlike a meeting of the Shareholder Meeting (see 4.11), there is no minimum advance notice requirement for sending a notice of Board meeting which can be sent as late as one day before the Board meeting.

Quorum of Board meetings

8.5.       Under the Enterprise Law 2014,[76]

8.5.1.    the quorum for a Board meeting at the first call is three-quarters of the total number of Board directors which is the same as in the Enterprise Law 2005;[77] and

8.5.2. if the quorum at the first call of a Board meeting is not present, then the Board meeting will be reconvened for the second call within seven days (or a shorter period provided in the charter) after the date of the first call and the quorum for the Board meeting at the second call is more than half of the total number of Board directors which is the same as in Decree 102/2010.[78]

8.6.       Both the Enterprise Law 2014 and the Enterprise Law 2005 do not clearly exclude Board directors, who are not entitled to vote on a matter presented to the Board, from the calculation of a quorum of a Board meeting. In addition, if a Board meeting is to consider two or more matters and a Board director does not have voting rights over one matter then it is not clear under the Enterprise Law 2014 if such Board director will be counted towards to the required quorum. Both the Enterprise Law 2014 and the Enterprise Law 2005 are also not clear about what would happen if, at the second call of a Board meeting, a quorum is not present.

Attending a Board meeting

8.7.       Under the Enterprise Law 2014,[79] a Board director will be deemed to attend and vote at a Board meeting in the following cases:

8.7.1.    such director directly  attends and votes at the meeting in person;

8.7.2. such director authorises another person to attend the Board meeting if so approved by the majority of the directors of the Board. However, it is not clear if the Board directors giving approvals here mean all Board directors or only the Board directors who attend the meeting;[80]

8.7.3.    such director attends and votes at the meeting via an online conference or other electronics means; and

8.7.4.    such member sends his or her written vote to the meeting by mail, fax or email. Where a written vote is sent to the meeting by mail, it must be enclosed in a sealed envelope and delivered to the JSC Chairman at least one hour prior to the opening of the meeting.[81] Written votes shall be opened only in the presence of all persons attending the meeting. However, there are no specific procedures for dealing with votes sent via fax or email for the Board meetings.

8.8.       The new provisions of the Enterprise Law 2014 about the attendance of a Board meeting would likely make the operation of a Board meeting more flexible and practical. Similar to a meeting of the Shareholder Meeting (see 4.15), the Enterprise Law 2014 also does not deal with the scenario of partial attendance by a Board director due to, for example, failure of communication links, or failure to cast votes on all matters set out in the agenda of the meeting.

Voting threshold

8.9.       A decision of the Board will be passed if it is approved by more than half of the attending Board directors unless the charter requires a higher percentage.[82] Now the Enterprise Law 2014 expressly recognises the ability of the charter of a JSC to require a Board decision to be subject to a higher-than-simple-majority threshold. Therefore, this new addition under the Enterprise Law 2014 should provide more comfort to shareholders or investors who have agreed to a higher-than-simple-majority voting threshold for a decision of the Board under the Enterprise Law 2005.

8.10.     Unlike a decision of the Shareholder Meeting (see 6.1), the Enterprise Law 2014 does not have a provision about the validity of a Board decision.

Board meeting minutes

8.11.     The Enterprise Law 2014 contains similar changes regarding minutes of Board meetings as in the case of minutes of meetings of Shareholder Meeting (see 4.34). In particular, minutes of meeting of the Board:[83]

8.11.1. needs not to be included in a minutes book (sổ biên bản) as in the case of the Enterprise Law 2005;

8.11.2. may now include voice or other digital recordings;[84] and

8.11.3. needs not to have signatures of all Board directors as in the case of the Enterprise Law 2005.[85] Instead, minutes of Board meeting now only require signatures of the chairing Board director and the minutes recording person.[86] The changes under the Enterprise Law 2014 should now remove the ability of a Board director to block a Board meeting to proceed just by refusing to sign minutes of a Board meeting.

8.12.     A Vietnamese version of minutes of Board meeting now expressly prevails a foreign language version of the same in case of inconsistency.[87] This is not good news for JSCs which are controlled by foreign investors.[88] Under the Enterprise Law 2005, a Vietnamese version and a foreign language version of minutes of meeting of the Board have equal validity.[89]

8.13.     Other contents of minutes of Board meeting include:[90]

8.13.1. Name, address of the head office, and enterprise code number;

8.13.2. Purpose, program, and agenda of meeting;

8.13.3. Time and location of meeting;

8.13.4. Full names of each Board director attending the meeting or other persons authorised to attend the meeting and method of attending the meeting; full names of members not attending the meeting and reasons for not attending;

8.13.5. Issues discussed and voted on at the meeting;

8.13.6. Summary of opinions of each Board director attending the meeting during the process of the meeting;

8.13.7. Result of voting, indicating members who agree, who do not agree and who abstain from voting; and

8.13.8. Approved resolutions.

Information rights of a Board director

8.14.     To help a Board director making decisions, the Enterprise Law 2014 allows a Board director to request the General Director, and the Deputy General Director, and the managers of units in a JSC to provide information and documents on the financial situation and business operations of the company and of units in the JSC.[91] The charter of a JSC will provide procedures for a Board director to exercise his/her information rights under the Enterprise Law 2014. The provisions regarding information right of a Board director under the Enterprise Law 2014 are similar to those under the Enterprise Law 2005.

Chairman of the Board

Appointment and removal

9.1.       The Board will need to elect one of the Board directors to be the JSC Chairman.[92] This is different from the Enterprise Law 2005 which allows the JSC Chairman to be elected either by the Shareholder Meeting or the Board.[93] A JSC Chairman can concurrently be the General Director of a JSC[94] except where he/she is:

9.1.1.    the Chairman of a Public JSC;[95] or

9.1.2.    the Chairman of a JSC of which the State owns more than 50% voting rights.[96]

The Board may also remove the JSC Chairman.[97]

Authorities

9.2.       The authorities of the JSC Chairman mainly relates to the operation of the Board including:[98]

9.2.1.    to prepare working plans and programs of the Board;

9.2.2.    to prepare the program, agenda, and documents for meetings of the Board;

9.2.3.    to convene and preside over meetings of the Board;

9.2.4.    to monitor the implementation of resolutions of the Board;

9.2.5.    to chair meetings of the Shareholder Meeting; and

9.2.6.    to have other rights and obligations in accordance with law and the charter of the company.

9.3.       Where the JSC Chairman is absent or is not able to perform his or her duties, he or she must authorise another Board director to exercise the rights and perform the authorities of the JSC Chairman in accordance with the principles stipulated in the charter of the company.[99] Where no person is authorised, the remaining Board directors must select one Board director to hold the position of the JSC Chairman temporarily. The authorities of the JSC Chairman under the Enterprise Law 2014 are mostly the same as those under the Enterprise Law 2005.[100]