Vietnam corporate governance rules for listed firms

Vietnam corporate governance rules for public companies now sit mainly in Decree 71/2017/ND-CP. The Government issued it on 6 June 2017, and most of it took effect on 1 August 2017. It tells public joint stock companies how to run their shareholder meetings, boards, boards of controllers and dealings with insiders. This guide shows what an investor can check when reading a company report.

What the decree covers

Decree 71 applies to public companies, which the decree defines by pointing to Clause 1, Article 25 of the Law on Securities. It covers four areas: the general meeting of shareholders, the board of directors, the board of controllers, and transactions with related persons. It replaced Circular 121/2012/TT-BTC, the older Ministry of Finance rules, on the day it took effect.

Each company must also write internal governance regulations. The board drafts them and shareholders approve them. The Ministry of Finance gives a template to help.

Sources: Decree No. 71/2017/ND-CP, English text on LuatVietnam; Grant Thornton Vietnam, tax newsletter No. 13, 2017.

Board rules to look for

A board must have 3 to 11 members. The decree asks for a balance of legal, financial and business skills, and for attention to gender. At least one third of the board must be non-executive members.

Independent members have their own floor. A listed company needs at least one third of its board to be independent. An unlisted public company that uses the board model in Article 134(1)(b) of the Law on Enterprises needs at least one fifth. If that board has fewer than five members, at least one must be independent.

Two limits start later. The board chair may not also be the general director of the same company, and this applies three years after the decree took effect, which is still ahead. A limit on how many other boards a director may sit on applies after two years. Listed companies must also name at least one person in charge of corporate governance.

Sources: Decree No. 71/2017/ND-CP, Articles 12, 13, 18 and 37; Circular No. 95/2017/TT-BTC, sample charter.

The board of controllers and audit duties

The decree speaks of a board of controllers, not an audit committee. It has 3 to 5 members. A controller may not work in the company's accounting or finance team. A controller also may not have been part of the company's audit firm in the past three years.

In listed companies, and in companies where the state owns more than half of the capital, controllers must be auditors or accountants. The head must work full time. The board of controllers meets at least twice a year. It must tell the board in writing within 48 hours if it finds a director or manager breaking the rules.

Sources: Decree No. 71/2017/ND-CP, Articles 20, 22 and 23, English text on LuatVietnam.

Disclosure duties

Companies must publish information that can affect the share price or an investor's choice. It must be regular, accurate and on time. Each company reports to the State Securities Commission and the stock exchange, and it must name a person responsible for disclosure and publish how to reach that person.

Governance facts go into the annual report and are presented at the annual meeting. Listed companies report on governance every six months. Pay for directors and managers must be shown separately in the yearly financial statements. Board members must also report their own trades in company shares.

Sources: Decree No. 71/2017/ND-CP, Articles 14, 28 to 31 and 33, English text on LuatVietnam.

Deals with insiders

Loans and guarantees to individual shareholders and their related people are banned, except for credit institutions. Loans or guarantees to board members, controllers, managers and their related people need shareholder approval. So does any deal worth 35 percent or more of total assets with insiders, with holders of more than 10 percent of common shares, or with related firms. The board can approve smaller deals, or use a lower limit if the charter sets one. Board members cannot vote on deals that benefit them or their related people.

Sources: Decree No. 71/2017/ND-CP, Article 26; Grant Thornton Vietnam, tax newsletter No. 13, 2017.

Circular 95 and a reader's checklist

The Ministry of Finance issued Circular 95/2017/TT-BTC on 22 September 2017. It took effect on 6 November 2017. It gives sample charter and governance regulation forms that companies use as a base.

When you read a public company's report, ask five plain questions:

• How many board members are independent, and does that meet the one third or one fifth floor?
• Who chairs the board, and who runs the company day to day?
• Is the board of controllers staffed by people with audit or accounting skills?
• Is pay for directors and managers shown clearly?
• Are deals with insiders listed, and were they approved by the right body?

Sources: Circular No. 95/2017/TT-BTC of the Ministry of Finance, English text on LuatVietnam.