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CORPORATE GOVERNANCE

Business Ethics

Dr. Truong Thi Nam Thang

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What is CG?

Corporate governance deals with the ways in which suppliers

of finance to corporations assure themselves of getting a

return on their investment, The Journal of Finance, Shleifer

and Vishny [1997, page 737]

"Corporate governance is about promoting corporate fairness,

transparency and accountability" J. Wolfensohn, President of

the Word Bank, as quoted by an article in Financial Times,

June 21, 1999.

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Modern Firm

AGM

BOD

Management

F1

SB

F2 F2 F2

MANAGEMENT

LEV

EL

GOVERNANC

EL

EVEL

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Why CG?

Separation of ownership & control: problem exists whenever

owners themselves do not engage in the direct management

of the firm.

Self-interest before enterprise interest: when some owners

or managers view their self-interest before the interest of the

enterprise, all shareholders and stakeholders.

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Effective CG System

Good corporateperformance

Full accountability toshareholders/stakeholders

Competitiveness in low costfinance

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Governance bodies of a Firm

AGM

BOD (SB)MB

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Corporate

Charter

ShareholderMeeting

Board of

Directors

CEO

Company

Secretary

Incentive

Schemes

The core framework of the company, both guiding &

regulating the actions of the Board & other entities in

the company

MODEL CHARTER

Sections I, II & III - Definitions, name, form,headquarters, branches, representative offices,operation term, objectives, business, operation

scopeSection IV - Charter Capital, Shares and Shareholders

Section V Organizational, management, controllingstructure

Section VI Shareholders and Shareholders MeetingsRights and dutiesRight to appoint a proxyTimely notice and agenda of MeetingRecommend issues to be included in the Agenda

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Corporate

Charter

ShareholderMeeting

Board of

Directors

CEO

Company

Secretary

Incentive

Schemes

2 FUNDAMENTAL ROLES

1. To provide leadership

2. To perform oversight over management

1. Establish overall strategies & directions

2. Develop guidelines & protective system

3. Oversee & support CEO & senior mgmt, review

recommendations & proposals

BOARD COMPOSITION

1. Executive non executive members

2. Independent members

3. Qualifications required (technical, strong character,

independent mind, practical wisdom, sound judgment)

FUNDAMENTAL OBLGATIONS

1. Full comprehension & compliance with fiduciary duties

2. Avoidance & full disclosure of conflicts of interests

3. Respect & implementation of internal policies &

established procedures

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Corporate

Charter

ShareholderMeeting

Board of

Directors

CEO

Company

Secretary

Incentive

Schemes

ROLE

1. To assist the Board of Directors and other organs

of enterprise

2. To facilitate the work of both the Chairman and

members of the Board and ensures full

compliance with the Charter and regulations

MAIN TASKS

1. Convene meetings of BOD and SB on theinstructions of the Chairman of the Board ofDirectors or of the Supervisory Board

2. Taking minutes of meetings

3. Advising on procedure of meetings

4. Providing information to the members ofthe Board of Directors, the Shareholders andSupervisory Board

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Corporate

Charter

ShareholderMeeting

Board of

Directors

CEO

Company

Secretary

Incentive

Schemes

ROLE

Appointed & Supervised by BOD

1. Accountable for the day-to-day operation and

management of the enterprise before the Board and in

compliance with the Vietnamese Law2. Must submit for approval of the Board all matters as

detailed in the Charter

RESPONSIBILITES & DUTIES1. Decide all issues relating to day to day operation

2. Organize the implementation of decisions of the BOD3. Organize the materialization of business and investmentplans

4. Propose plans on the organizational structure andinternal management rules

5. Appoint, remove or dismiss management personnelexcept those appointed, removed or dismissed by theBOD

6. Make decisions on salary and allowances for employees,including managers appointed by the CEO

7. Other rights and duties as set forth in the Charter of theCompany

SELECTION

Integrity / Competence / Character/ Industry Knowledge/

Management Philosophy

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Corporate

Charter

ShareholderMeeting

Board of

Directors

CEO

Company

Secretary

Incentive

Schemes

1. SHAREHOLDERS = Legitimate owners of firm

2. SHAREHOLDERS MEETING = supreme organ of

decision making of firm

RIGHTS OF SHAREHOLDERS

1. Attend and vote on all matters under the jurisdiction of

the GAS, each ordinary share carries one vote

2. Receive dividends

3. Prioritized for subscribing for new shares in proportion to

number of shares each hold

4. Receive a part of remaining assets in proportion tonumber of shares each hold after payments for liabilities

and shareholders of other types upon dissolution of the

Company

DUTIES OF SHAREHOLDERS

1. Pay for the subscribed shares2. Be liable for liabilities of the Company within their

contribution

3. Abide by the Charter and internal management rule

4. Observe decisions of the Annual Shareholders Meeting

and the BOD

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Corporate

Charter

ShareholderMeeting

Board of

Directors

CEO

Company

Secretary

Incentive

Schemes

Supreme organ of decision of a Enterprise, which

elects the members of the Board to direct and

supervise the operation of the enterprise

POWERS OF SHAREHOLDERS MEETING

1. Appointment and Dismissal of Members of the

BOD

2. Appointment and Dismissal of Members of the SB3. Approval of the BOD and SB reports

4. Approval of the yearly Financial Report

5. Approval of the Business Plan

6. Approval the choice of External Auditors

7. Approval of Remuneration Package of Members of

the BOD and SB8. Approval of other important decisions:

amendment of Charter, major sale of assets,

issuance of shares, etc.

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Fiduciary Duties

Duty of Care

Duty of Loyalty

Avoidance of Conflict of

Interest

1. Members of

the BOD

2. Members of the Supervisory

Board

3. CEO

4. Other Senior

Management

Personnel

Obligation to perform duties:

1. In good faith

2. In a manner that is,reasonably, believed to be inthe best interests of theenterprise

3. With a degree of care thatordinarily prudent personswould reasonably be expected

to exercise in like positions andunder similar circumstances

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Fiduciary Duties

Duty of Care

Duty of Loyalty

Avoidance of Conflict of

Interest

1. Members of

the BOD

2. Members of the Supervisory

Board

3. CEO

4. Other Senior

Management

Personnel

1. Not take for themselves a

business opportunity that the

company might use to its own

advantage

2. Not use information obtained

in their positions for their own

personal gains or for the

benefits of any other economic

3. organization or individual

4. Be obliged to disclose to theBOD any potentially

conflicting interest

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Fiduciary Duties

Duty of Care

Duty of Loyalty

Avoidance of Conflict of

Interest

1. Members of

the BOD

2. Members of the Supervisory

Board

3. CEO

4. Other Senior

Management

Personnel

Conflict = Interest (personal,family, friends, etc.) in aconstruction company that bids fora construction contract with theenterprise

Conflict = Hiring family or friendsfor position inside the enterprise

Conflict = Sell personal land to theenterprise

Conflict = Sell shares of enterprisebefore disclosure of bad financialperformance

1. Full, Timely and CompleteDisclosure

2. Abstain from voting and discussing

on the issue

3. If Contract more than 20% of the

value of the assets of the

enterprise = Approval by theShareholders Meeting

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Corporate

Charter

ShareholderMeeting

Board of

Directors

CEO

Company

Secretary

Incentive

Schemes

1. Performance Units

2. Bonuses

3. Perks

4. Share Options

o Premium Options

o Discounted Options

o Indexed Options

o Performance Vesting

Options