Comparison with other jurisdictions Flexibility in choosing corporate governance structures Although Vietnam's corporate law adopted Anglo-American legal principles,
common law jurisdictions like the US grant businesses greater flexibility in choosing corporate governance structures. The LOE, however, imposes mandatory internal governance structures. This has been criticised for failing to give companies the latitude to adapt their corporate governance structures to suit their needs. Anglo-American law allows directors to delegate their powers to a sub-committee or another person. Meanwhile, in Vietnam, subcommittees can be established to assist the BOM, but the latter cannot delegate its powers to the former. The imposition of mandatory corporate governance structures without delegation of powers leads to less flexibility and efficiency.
Separation of supervisory and management bodies Internal governance structures are important in supervising the company managers. In US, the supervisory body is often subsumed within the single-tiered
board of directors, whereas in Vietnam, the IC is an independent body. Through separation of supervisory and management functions, the Vietnamese corporate law model, at least theoretically, ensures that the BOM is held to a greater degree of accountability by an independent checking mechanism. However, there is no hierarchy for the Vietnamese IC and BOM. This contrasts with the German two-tiered board model for SCs, with an
Aufsichtsrat (supervisory board) which is hierarchically superior to the
Vorstand (management board). Because the IC is not recognised as a superior institution, it has limited authority over the BOM. In practice, many supervisors are low level employees within the company. Although institutionally independent, the members of the IC are, in reality, dependent on their employers for their livelihoods, and therefore serve as a weak check against mismanagement by the BOM or Director.
Vesting of executive powers In Vietnam, executive powers are vested solely in the Director while in Germany, executive powers are shared equally amongst members of the Vorstand. This encourages consensus decision-making in German companies as responsibility is shared amongst all members of the Vorstand. This can be further contrasted with Japan, where the corporate law does not designate any positions for corporate officers (the Vietnamese equivalent of Director) and executive powers are largely retained within the Board of Directors (the Vietnamese equivalent of BOM).
Problems Understanding corporate governance and role of management structures Corporate governance in Vietnam is seen more as a management framework rather than a system for accountability and protecting minority shareholders. In particular, the LOE does not clearly mandate the separation of ownership and management. Separation of ownership and management promotes
accountability by allowing managers to be objectively appraised. On the other hand, owners who serve as managers will be more likely to pursue their own interests, possibly at the expense of the interests of minority shareholders.
State-owned enterprises Following the introduction of LOE, SOEs were converted to single-organisation-owned LLCs. However, the state retains many powers and is directly involved in management decision-making. Government officials are thus selected to run companies for political reasons. Their lack of business expertise and
profit motive has led to inefficiency and mismanagement of large
state-owned enterprises. Furthermore, since only up to three supervisors can be appointed, there is limited monitoring on the company managers. In 2010, the state-owned shipbuilding firm
Vinashin ended in
bankruptcy, following mismanagement and false reporting of
financial statements. This reflects the inadequate monitoring and auditing mechanisms for SOEs.
Investor protection The LOE is increasingly recognizing the interests of minority shareholders by introducing new avenues for them to hold the management accountable. Nonetheless, with stringent prerequisites including higher shareholding requirements and the need to show evidence before minority shareholders can call for a shareholders' meeting, investor protection in Vietnam is still limited compared to other jurisdictions. Other shortcomings of the LOE include limited opportunities for shareholders to request a meeting, no imposition of legal responsibilities on board members who approve unfair transactions, no shareholders' rights to sue those in the corporate governance structure (for SCs), and a shortage of provisions to require disclosure obligations and directors to avoid
insolvent trading. ==See also==