Corporate Governance in Vietnam
Legislation and related regulations
In Vietnam, corporate governance is primarily governed by the Enterprise Law and its guiding documents. Public companies are required to comply with other corporate governance rules as provided under the following legislation:
- Law on Securities No. 54/2019/QH14 passed by the National Assembly dated 26 November 2019 (the “Securities Law”), which became effective from 1 January 2021;
- Decree No. 155/2020/ND-CP of the GOV guiding the implementation of a number of articles of the Security Law with a chapter VIII specifically focused on corporate governance of public companies (“Decree 155”);
- Circular No. 116/2020/TT-BTC of the MOF dated 31 December 2020 providing guidelines on corporate governance applicable to public companies in Decree 155, which includes, among others, standard templates of charter internal regulation on corporate governance and regulation on the operation of the BOD, the supervisory board and the audit committee, for public companies’ reference (“Circular 116”);
- Circular No. 96/2020/TT-BTC of the MOF dated 16 November 2020 on information disclosure obligations on the securities market (“Circular 96”).
The laws and guiding regulations listed above constitute the main legal framework regulating corporate governance in Vietnam. In addition to statute, the SSC issued the Vietnam Corporate Governance Code of Best Practices for Public Companies (the “CG Code”) in 2019. Though not mandatory, public companies and listed companies are encouraged to follow the CG Code to adopt appropriate corporate governance practices.
Forms of Corporate / Business Entities
- In Vietnam, the Enterprise Law provides for four types of enterprises:
- Private enterprises (also known as sole proprietorships);
- Partnerships;
- Limited liability companies (LLCs): There are two types of LLCs including single-member LLC (SM-LLC) with one member and multi-member LLC (MM-LLC) with up to 50 members;
- Joint stock companies (JSCs): include private joint stock companies (private companies) and public joint stock companies (public companies). A public company is a JSC which falls into one of the following circumstances: (1) it has a paid-up charter capital of at least VND30 billion and at least ten (10) percent of the voting shares held by at least 100 investors not being major shareholders; or (2) it has successfully completed its initial public offering (IPO) by registration with the State Securities Commission (the “SSC”).
Board Structure
JSCs are entitled to select either of the following models of organization of management and operation:
- Model 1 (Two-tier Board Structure) - In case a JSC has less than 11 shareholders and the shareholders being organizations together own less than 50 percent of the total shares of that JSC, it is not required to have a Supervisory Board.
- Model 2 (One-tier Board Structure)- In case a JSC has at least 20 percent of the Board of Directors members must be independent members and there must be an internal audit committee under the Board of Directors.
Corporate governance frameworks for state-owned enterprises (SOEs)
Vietnam established the Commission for the Management of State Capital at Enterprises (CMSC) – a ministry-level entity – with a view to improving efficiency, facilitating equitisation and separating ownership of the country’s largest 19 SOEs and state corporate groups from the state’s regulatory function. It enacted a new Enterprise Law, subsequent Decrees and circulars to guide the streamlining of the SOE sector. The number of SOEs has been reduced from 12 000 in 1990s to around 2 100 today thanks to the government’s extensive divestment and equitisation programmes.
In terms of next steps, the government recently announced its intention to revise Law No. 69/2014/QH13 on Management and Utilisation of State Capital to bring it more in line with the SOE Guidelines as well as a 5-year roadmap to adopt International Financial Reporting Standards (IFRS). It has also recently made substantial commitments by signing Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and EU-Vietnam Free Trade Agreement (EVFTA) which would necessitate further reforms in the SOE sector in the years to come.
Despite these achievements and the continuing reform agenda, Vietnam still faces many challenges in further improving SOE governance and efficiency. State-owned enterprises still account for one-third of gross domestic product and dominate many of the sectors such as energy, transport, telecommunications and finance. While the government has made great strides in establishing and implementing a legal regulatory framework for state ownership, it is still a work in progress, with a lack of institutional and capacity for enforcing relevant laws. Vietnam has yet to develop a concrete and unified ownership policy. The policy framework for state ownership builds on a number of documents delineating state ownership rights and responsibilities across government representatives.
More remains to be done to assure a strong, autonomous role for SOE boards of directors. The processes applied by governments to nominate and appoint SOE board members are often influenced by the degree to which the state has professionalised its enterprise ownership function, the size of the state’s ownership stake in an SOE, and the balance between commercial and non-commercial priorities. Politically motivated ownership interference leads to unclear lines of responsibility and a lack of accountability and efficiency losses in the corporate operations.
The existing mix of in-company state and Party control procedures with business practices aspiring to meet international standards creates substantial challenges to effective internal control of SOEs – particularly but not only in those 100% owned by the state. It appears that one of the most effective corporate ‘checks and balances’ is the Party Committee, which may be providing disincentive for the true adoption of international practices in internal audit and corruption-risk management.
Corporate Responsibility
Circular 96 requires public companies to report on environmental, social and corporate governance issues in their annual report (e.g., greenhouse gas emissions, energy consumption, water consumption, compliance with the law on environmental protection, policies concerning employees, responsibility for local community, investments and other community development activities). Additionally, the CG Code recommends that the Board of Directors ensure disclosure of key non-financial information, including environmental and social reporting. Significant recommended practices under the CG Code include that the Board of Directors should ensure that:
- a relevant information is prepared in accordance with globally accepted standards, such as those issued by the International Integrated Reporting Council, the Global Reporting Initiative or the Sustainable Assurance Standards Board, and subject to independent verification;
- and b appropriate governance policies and processes are in place to monitor the quality of information.
It is expected that Vietnamese companies will follow a global trend of increased corporate social responsibility, partially driven by investor requirements in the context of public companies as well as broader public concern. Receiving investments from development finance institutions such as the International Finance Corporation or Asian Development Bank will also require local companies to apply a higher level of corporate social responsibility (including environmental, social and corporate governance matters).
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Sources:
OECD (2022), OECD Review of the Corporate Governance of State-Owned Enterprises in Viet Nam, Corporate Governance, OECD Publishing, Paris, https://doi.org/10.1787/a22345d0-en
The Corporate Governance Review Eleventh Edition 2021 by The Law Reviews
VIETNAM Corporate Governance Guide May 2022 by Indochine Counsel Business Law Practitioners
