An extract from The Corporate Governance Review, 11th Edition

Corporate leadership

i Board structure and practicesGeneral

A company has the option of following either a two-tier board structure (i.e., a board of directors (BOD) and a supervisory board (SB)) or a one-tier board structure (i.e., a BOD only). For a company that follows a one-tier board structure, at least 20 per cent of the members of the BOD must be independent and the company must form an internal audit committee, the members of which are drawn from the BOD (a sub-board committee).

BOD and SB members are appointed by the general meeting of shareholders (GMS), which is the highest corporate body in a company. The general director (GD) is responsible for the day-to-day management of company business.

BOD composition

In a joint stock company, the number of BOD members must not be fewer than three and not more than 11, and all must be natural persons. A shareholder or a group of shareholders holding 10 per cent or more of the voting shares of a company has the right to nominate candidates for BOD members, unless a lower holding percentage is provided in the company's charter. The election of BOD members by the GMS may be done through cumulative voting, albeit optional. This allows minority shareholders greater representation in the BOD. Cumulative voting is popular in joint stock companies.

To facilitate objective decision-making, it is further required that at least one-third of BOD members in public companies are non-executive members (i.e., not the company's GD, deputy GD, chief accountant or other managers as stipulated in the company's charter). For unlisted public companies and listed public companies that follow a one-tier board structure, at least one-fifth of the BOD members must be independent. Listed public companies are required to have at least one independent board member if the BOD comprises between three and five members, to have two independent board members if the BOD comprises between six and eight members, and to have three independent board members if the BOD comprises between nine and 11 members. Failure to comply with this requirement may subject a company to a fine of up to 150 million dong.5 We note further that the CG Code recommends that at least one-third of BOD members should be independent.

Independent members are subject to a number of restrictions, including that they must not:

  1. be employed within the same corporate group nor receive any remuneration (other than allowances);
  2. hold more than 1 per cent of the voting shares of the company;
  3. have been a manager (including a BOD or SB member) in the past five years;
  4. be a relative of a major shareholder; nor
  5. be a manager of any subsidiary.

The term of each BOD member may not exceed five years, though each may be re-elected for an unlimited number of terms. Independent members may not hold an independent position for more than two consecutive terms. Further, a BOD member of a public company is not permitted to sit on the board of more than five other companies. Failure to comply with this requirement may subject the relevant member to a fine of up to 100 million dong.

SB composition

SB members are appointed in a similar manner to the BOD and the number of SB members must be at least three and not more than five.

It is a general requirement for the head of the SB in a joint stock company to hold certain professional qualifications and serve full-time. Furthermore, any SB member must not be, among other things, a relative of any BOD member, the GD or other managers, or a manager of the company. To serve as an SB member of a public company, a person should not be employed in the accounting or finance department of the company, and should not have been a member or an employee of the company's auditor during the past three years.

ii Legal responsibilities and representationBOD

The BOD manages the business of the company and may delegate its authority. It supervises the GD and other managers. The powers of the BOD are limited by law, including when certain decisions may be taken only by the GMS. This broadly occurs when the rights of shareholders are involved, such as any dealings with shares or other equity-linked securities, or if the company enters into significant transactions. Decisions of the GMS must be implemented by the BOD. The chairman of the BOD may not unilaterally exercise the authority of the BOD without requisite BOD approval. There is a court ruling that a decision to dismiss a company's manager by the chairman without the BOD's prior approval is unlawful and was therefore annulled.6

For a company that follows a one-tier board structure, independent BOD members and the audit committee must perform a supervisory function by overseeing the implementation of management control in the company. The lack of an SB is compensated by the oversight by independent BOD members and the audit committee.

BOD members are subject to certain duties owed towards the shareholders and the company and which are fiduciary in nature, although the concept of fiduciary duty does not formally exist under Vietnamese laws and regulations. BOD members are generally required to:

  1. exercise their powers and perform their duties in accordance with the law, the charter or as authorised by the GMS;
  2. exercise their powers and perform their duties honestly, prudently, to the best of their abilities and in the interests of the company; and
  3. be loyal to the interests of the company and shareholders and not to use information and business opportunities for their own benefit.

The CG Code further supplements this and provides that BOD members should 'act in good faith, with due diligence and care, and in the best interests of the company and shareholders'.

The BOD is obliged to establish internal regulations for its operation. We note that the CG Code goes further by recommending that the BOD should set up a system that provides, as a minimum, criteria and processes to determine the performance of the BOD, the individual members or its committees on the basis of, among other things, feedback from the shareholders.

BOD members are also subject to disclosure obligations with regard to related party transactions and any interest held in other companies (in addition to the disclosure requirements of securities markets discussed below in Section III). Failure to comply with these disclosure obligations may subject the relevant BOD members to a fine of up to 100 million dong. The CG Code recommends that the BOD adopt a written policy on related party transactions and the BOD must generally ensure that related party transactions are conducted in accordance with market standards.


The SB is a specific corporate body and not a sub-board committee. The SB performs oversight of the BOD and the GD with respect to management of the company. The SB has the power to review, inspect and evaluate the effectiveness and efficiency of the company's internal control systems, internal audit and risk management. It is able to request information and conduct investigations and, therefore, is intended to act as a warning bell, among other things. Nonetheless, the SB does not usurp the authority of the BOD to manage the business of the company and is generally restricted to ensuring that legal requirements are complied with. In practice, the SB's role is fairly limited for private companies though more pro-active for public companies.


The GD, a role akin to managing director or chief executive office, is responsible for the day-to-day management of company business. Each company has only one GD, who may also be the legal representative of the company. If the GD serves as the legal representative of the company, he or she has the authority to contract on behalf of the company or to represent the company in legal proceedings involving the company. The GD generally has the authority, among other things, to decide on day-to-day business matters of the company, except those falling within the BOD's power, to implement the BOD's decisions and to appoint other managers of the company. The GD is responsible to the BOD and is supervised by the BOD. Failure to obtain requisite BOD approval prior to executing matters that fall within the BOD's powers may subject the GD to a fine of up to 100 million dong.

The GD is appointed and removed by the BOD and cannot serve a term exceeding five years, though may be reappointed for an unlimited number of terms.

Audit committee

The Law on Enterprises contemplates the audit committee as a sub-board committee. The audit committee is required for companies that follow a one-tier board structure. The committee's main role is to inspect, review and supervise the company's accounting and audit function. The audit committee's role is preventative as well as reactive. In practice, the role of the audit committee in Vietnamese companies remains rather blurred.

The committee must consist of at least two members. Its head must be an independent BOD member and the other members must be non-executive BOD members.

iii Compensation

The BOD determines the remuneration of the GD and other managers, and the remuneration of both BOD members and SB members is determined by the GMS. The CG Code clarifies certain criteria for remuneration of the BOD members by determining the roles, performance and incentives in favour of the BOD members and recommends that a committee be set up to deal with this. Compensation committees have become more common in public companies. Excessive executive pay has not attracted much controversy in Vietnam although, as with other jurisdictions, this can be a topical issue.

The remuneration of BOD members and executives is usually calculated by a remuneration committee and approved by the BOD or the GMS (as the case may be). The basic annual fee of the BOD chairman is often one-and-a-half to three times higher than other BOD members. The non-fixed remuneration package is the most popular approach (more so for independent members) and includes the basic annual fee, combined with committee fees and fees for additional BOD activities. Another structure used is the single fixed remuneration package, whereby only a single fixed fee is paid for all assignments. The least popular is the pro bono approach, whereby no annual fee is payable, but BOD members are paid a nominal business fee for each activity.7 Compensation is usually in the form of cash, although share, and cash and share combinations do occur.8

iv Sub-board committees

The BOD may form sub-board committees to assist with certain special matters. It is not unusual for public companies to set up committees having specific functions for its governance, for example a human resources committee. The CG Code proposes that the BOD be proactive in establishing certain committees, such as a competent risk management committee and others to oversee, for example, corporate governance, nominations and remuneration. In practice, it is not unusual for companies (especially those engaged in financial services, partly because of sector requirements) to have a strategy committee, a personnel and remuneration committee, a risk committee and an audit committee, whereas a nomination committee is less common.9