Corporate Governance of a Joint Stock Company: Company Secretary, Committees

1)Company secretary

For the first time, the Enterprise Law 2014 expressly contemplates the position of a company secretary for the JSC. In particular, a JSC Chairman may decide to employ a company secretary to assist the Board and the JSC Chairman in performing their activities.[1] On the other hand, the Enterprise Law 2005  does not expressly provide that a company must or may have a company secretary. However, various provisions regarding meetings and minutes of meetings of the Shareholder Meeting or the Board under the Enterprise Law 2005 refer to a secretary position.[2]

A company secretary will have the following rights and obligations:[3]

i)          to assist in convening and organising meetings of the Shareholder Meeting or of the Board;

ii)         to record minutes of meetings of the Shareholder Meeting or of the Board;

iii)        to assist Board directors in exercising their assigned rights and obligations;

iv)        to assist the Board to apply and implement principles of corporate governance;

v)         to assist the company to build up the relationship with the shareholders and protect the lawful rights and interests of the shareholders;

vi)        to assist the company to properly comply with the obligations to provide information and publicity of information and administrative procedures; and

vii)       other rights and obligations as stipulated in the charter of the company.

Having permanent company secretary is optional under the Enterprise Law 2014.  However, since various activities of a JSC require the signature of the secretary,[4] a JSC should still have a company secretary even for an ad-hoc position. It is not clear if an ad-hoc company secretary will have the rights and obligations provided in Article 152.5 of the Enterprise Law 2014.

A company secretary is not by default a management officer of a joint stock company under Article 4.18 of the Enterprise Law 2014. As such, unless the charter of the relevant company specifies otherwise, a company secretary is not regarded as a management officer of the company and is not subject to duties of a management officer under Vietnamese law.

In a Listed JSC, under Decree 71/2017,  the Board must appoint at least one person to act as the person in charge of corporate governance (người phụ trách quản trị công ty).[5] The person in charge of corporate governance must have a good knowledge of the law, and may not concurrently work for the independent auditing company which currently audits the Listed JSC.

The roles and duties of the person in charge of corporate governance include:[6]

i)          organising meetings of the Board and of the Inspection Committee and the Shareholder Meeting at the request of the Board or the Inspection Committee;

ii)         advising the Board on procedures for Shareholders Meeting and other matters between the Listed JSC and its shareholders;

iii)        advising on procedures for meetings;

iv)        attending meetings;

v)         advising on the procedures to pass the Board’s resolutions in accordance with laws;

vi)        providing information relating to finance and copies of minutes of meetings of the Board and other information to the Board directors and members of the Inspection Committee;

vii)       supervising the information disclosure of the Public JSC and reporting to the Board on such matter;

viii)      maintaining the confidentiality of information in accordance with law and the company’s charter; and

ix)        other rights and obligations under the laws and the charter of the Public JSC.

2)General Director

Appointment and removal

The General Director (Tổng giám đốc) of a JSC is appointed or removed by the Board.[7] The General Director may or may not be a Board director. A General Director has a term of office of five years and could be re-appointed for unlimited times.[8] A General Director of a JSC will be subject to the same qualification requirements for that of a Multiple LLC.[9]

Unlike the Enterprise Law 2005, under the Enterprise Law 2014, a General Director of a JSC is no longer prohibited from holding the positions of General Directors of other companies.[10] If a JSC has two or more legal representatives, then the JSC Chairman and the General Director are the legal representatives of the company.[11] Other than above, the provisions of the Enterprise Law 2014 about appointment and removal of the General Director of a JSC are similar to those of the Enterprise Law 2005.

Authorities

The authorities of the General Director under the Enterprise Law 2014 remains the same as provided in the Enterprise Law 2005.[12] In particular, the General Director of a JSC has the following rights and “obligations”, among other things:[13]

i)          To decide on all issues relating to the day-to-day business operations of the company not requiring resolutions of the Board;

ii)         To implement business plans and investment plans of the JSC;

iii)        To propose plans for organisation structure of the JSC or draft internal management rules of the company;

iv)        To propose plan to deal with profit and losses of the JSC;

v)         To appoint, remove and discharge managerial positions in the JSC, except for those under the Board’s authority; and

vi)        To decide on salary and allowances, if any for employees of the JSC.

As in the case of the Enterprise Law 2005, it remains unclear what the term “day-to-day business operation” (công việc kinh doanh hàng ngày) means.[14] One may argue that all activities of the company which are not subject to the authorities of the Board or the Shareholder Meeting should be considered as “day-to-day business operation”. On the other hand, deciding whether an activity is day-to-day business operation is a case by case decision subject to the actual business of the company. The latter view appears to be the more prudent view because under the Enterprise Law 2014:

i)          the Board has the authority to decide on any matter relating to the company which is not subject to the authorities of the Shareholder Meeting.[15] Therefore, it is difficult to know which matters are not within the authorities of the Board; and

ii)         the Board has authority to supervise and direct the General Director in conducting the day-to-day business operation of the company.[16] Based on this provision, the Board may reject any matter already decided by the General Director if the Board considers that such matter is not a day-to-day business operation of the company.

Similar to the discussion about “obligations” of the Shareholder Meeting (see 3.3 - 3.5), it is not whether the General Director can delegate his/her authorities to other persons given that these are also the General Director’s obligations. That said since the General Director is an individual, it has clearer rights under the Civil Code 2005 to authorise another person to act on his/her behalf.

As such, to ensure a flexible operation, the charter of a JSC should clarify what will constitute “day-to-day business operation” and whether the General Director is allowed to delegate his/her authorities to his subordinates.

3)Inspection Committee

Authorities

Under the Enterprise Law 2014, the Inspection Committee has the following rights and “obligations”, among other things:[17]

i) to supervise the Board and the General Director;[18]

ii) to inspect the reasonableness, legality, truthfulness and prudence in management and administration of business activities;[19]

iii) to inspect the completeness, legality, truthfulness, consistency and appropriateness of the company’s operational and financial reporting;[20]

iv) to review, inspect and evaluate the effectiveness and efficiency of systems of internal control, internal audit, risk management and early warning of the company;

v) to notify the Board upon discovery of a Board director or the General Director who is in breach of the obligations of a manager of the company;[21]

vi) to attend and participate in discussions at meetings of the Shareholder Meeting, the Board and "other meetings'' of the company;[22] and

vii) to use an independent consultant or the internal audit department of the company to perform the assigned duties.[23]

The Inspection Committee of a Public JSC has certain additional authorities and obligations including:

i) if the Inspection Committee is aware of any violation of a Board director, the General Director, or another company officer, the Inspection Committee must notify the Board within 48 hours and request the relevant person to remedy the violation;[24]; and

ii) the Inspection Committee will be in charge of proposing and recommending the independent auditing company for the Shareholder Meeting of the Public JSC to approve.[25]

Access to information

To assist the Inspection Committee in exercising its authorities, similar to the Enterprise Law 2005, the Enterprise Law 2014 also allows Inspectors to access to information concerning a JSC. In particular,

i) the invitation notices to a meeting, written opinion form to obtain opinion from Board directors and enclosed documents must be sent to Inspectors at the same time and in the same manner as for Board directors;[26]

ii) resolutions and minutes of meetings of the Shareholder Meeting or of the Board must be sent to Inspectors at the same time and in the same manner as for shareholders and Board directors. This is a new addition under the Enterprise Law 2014;[27]

iii) reports of the General Director for submission to the Board or other documents issued by the JSC will be sent to Inspectors at the same time and in the same manner as for the Board directors;[28] and

iv) inspectors have the right to access files and documents of the JSC retained in the head office, branches and other locations; have the right to access locations where managers and employees of the JSC work during working hours.[29]

4)Composition of Inspection Committee

A JSC's Inspection Committee must have from three to five members.[30] Unlike the Enterprise Law 2005, a JSC under the Enterprise Law 2014 has no discretion to adjust the number of members of Inspection Committee as used to be provided in the Enterprise Law 2005.[31] A Public JSC is also subject to the same requirement about numbers of Inspectors.[32]

An Inspector has a term of office of five years and can be reappointed for unlimited times.[33] There is no longer a term of office applicable to the whole Inspection Committee as in the Enterprise Law 2005. As such, now, a JSC may also have a staggered Inspection Committee. If the terms of office of all Inspectors end at the same time, then these members will continue to exercise the authorities of the Inspection Committee until new Inspectors are appointed.[34]

The Inspection Committee of the JSC must have a head inspector (Trưởng ban kiểm soát) who must at least be a professional accountant working full time at the JSC.[35] The head inspector is appointed by a simple majority vote of the Inspection Committee. At least half of the Inspectors must reside in Vietnam.

An Inspector must satisfy the following conditions, among other things:[36]

i) not being the wife or husband, father, adoptive father, mother, adoptive mother, children, adopted children, sibling of any Board director, the General Director, or other managers; and

ii) not concurrently holding other managerial positions in the JSC.

An Inspector needs not to be a shareholder or an employee of the JSC. However, the charter of a JSC may provide other conditions and qualifications of an Inspector.[37]

An Inspector of a Public JSC must also satisfy the following additional requirements, among other things:[38]

i) an Inspector must not work for the accounting or finance departments of the Public JSC;

ii)         an Inspector must not be an employee of the independent auditors preparing financial statement of the Public JSC for the last 3 consecutive years.

An Inspector of a Public JSC having more than 50% of charter capital held by the State must be an auditor or an accountant.[39]

5)Appointment and removal of Inspector

Appointment

 Similar to Board directors (see 11.3), under the Enterprise Law 2014,[40] the Shareholder Meeting has the authority to appoint and dismiss Inspectors of a JSC. Appointment of an Inspector may be made either by:[41]

i) a cumulative voting process; or

ii) 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.

Removal

An Inspector may be dismissed (miễn nhiệm) if he/she:[42]

i) no longer satisfies the criteria and conditions to be an Inspector;

ii) does not exercise his or her rights and duties in six consecutive months, except in case of force majeure;

iii) tenders a written resignation notice and such notice is approved; and

iv) falls into other scenarios stipulated in the charter of the JSC.

An Inspector may also be removed (bãi nhiệm) if he/she:[43]

i) fails to fulfil his/her assigned duties properly;

ii) seriously breaches or repeatedly breaches his/her obligations; or

iii) is removed by a resolution of the Shareholder Meeting.

Similar to a Board director, it is not clear what the difference between dismissal and removal under the Enterprise Law 2014 is. Unlike the Enterprise Law 2005, the Enterprise Law 2014 requires a resignation notice by an Inspector to be approved. However, it seems impractical to "force" someone to continue a job that he/she is no longer interested in.

6)Meetings of the Inspection Committee

The Enterprise Law 2014 is silent on how meetings of the Inspection Committee of a JSC should be conducted or how the Inspection Committee will make decisions (e.g. quorum requirement, voting threshold and voting rights of each Inspector). Presumably, all of these missing pieces should be covered in the charter of the JSC.

The Inspection Committee of a Public JSC is required under Decree 71/2017 to meet at least twice a year.[44] The quorum for a meeting of the Inspection Committee of a Listed JSC includes at least two-thirds of the members of the Inspection Committee.[45] The minutes of meeting of the Inspection Committee must be signed by all attending Inspectors and the secretary of the meeting.[46] The Inspection Committee of a Public JSC may require Board directors, the General Director or auditors of the company to attend a meeting of the Inspection Committee to provide response to the Inspection Committee’s questions.[47]

7)Status of Board directors, General Director and Inspector

General Director

Under the Enterprise Law 2014, the General Director of a JSC may be regarded as an employee working under an employment contract signed with the JSC. This is because:

i)  The Board will appoint one Board director or hire another person to be the General Director;[48]

ii)  A General Director must operate in accordance with, among other things, the “employment contract” signed with the JSC;[49]

iii) A General Director will receive “salary” (tiền lương) from the JSC.[50] The use of the term “salary” for payment to a General Director under the Enterprise Law 2014 clearly indicates that the General Director should be considered as an employee of the JSC; and

iv) The regulations on work permits which apply to foreigners working in Vietnam generally requires a General Director of a JSC being a foreigner to obtain a work permit.[51]

If a General Director is regarded as an employee of the JSC, then the following issues may arise from the appointment or removal of the General Director:

i) It is not clear if the General Director being an employee of a JSC is optional and mandatory. In other words, it is not clear if a JSC can appoint and have a General Director without having to sign an employment contract with the JSC; and

ii) Under the Enterprise Law 2014, the General Director may have a term of office of up to five years. However, under the Labour Code 2012,[52] an employer can only sign a fixed term employment contract of no more than three years.[53] Otherwise, the JSC must sign an indefinite term employment contract. However, once an indefinite term employment contract is signed, it would be very difficult for the JSC to terminate the employment contract under the Labour Code 2012 after the term of office of the General Director expires.

Board director

On the other hand, the Enterprise Law 2014 is not clear about the status of a Board director of a JSC in his/her relationship with the JSC in addition to the constitutional role under the Enterprise Law 2014. It appears that a Board director is generally not regarded as an employee of the JSC. This view is based on the following:

i) the Enterprise Law 2014 uses the term remuneration (thù lao) as opposed to salary when it refers to amounts payable to Board directors of a JSC; and

ii) The regulations on work permits which apply to foreigners working in Vietnam do not require a Board director of a JSC being a foreigner to obtain a work permit.[54] This implies that the employment regulations do not consider the work of a Board director to be subject to employment law.

If a Board director is not generally regarded as an employee of a JSC, it remains unclear whether the Board director could function as a Board director purely based on the appointment of the Shareholder Meeting or whether the Board director must or could enter into a service contract with the JSC. While this question may not be important for a Board director who is also a major shareholder in the JSC, this may be important to independent Board director who has no substantial financial stake in the JSC.

Inspector

It is not clear if an Inspector of a JSC is regarded as an employee or just an officer appointed by the Shareholder Meeting of the JSC. This is because the Enterprise Law 2014 uses both terms “salary” and “remuneration” when it refers to the amount payable by the JSC to an Inspector.[55] If an Inspector of a JSC could be an employee of the JSC, then the issues applicable to a General Director will also apply to the Inspector (see 20.2).