NEW CRITERIA FOR BEING AN INDEPENDENT DIRECTOR IN A VIETNAMESE PUBLIC JOINT STOCK COMPANY

Decree 71/2017 replaced Circular 121/2012 on corporate governance of public join-stock company (Public JSC) since 1 August 2017. Decree 71/2017 does not have its own criteria for being an independent director but refers to the criteria under the Enterprise Law 2014. The table below compares the old criteria of an independent director in a Public JSC with the new criteria under the Enterprise Law 2014. Although in some areas, the Enterprise Law 2014 provides stricter criteria, the Enterprise Law 2014 contains certain major omission (e.g., including omission to exclude managers of an affiliate or representatives or related persons of a major shareholder in a Public JSC from acting as an independent director of a Public JSC).

This post is contributed by Ha Thanh Phuc, a trainee at Venture North Law.

No.

Old criteria under Circular 121/2012

New criteria under Decree 71/2017 and the Enterprise Law 2014

Comments

1.

1.1 Being a non-executive Board director

1.2 Not being a person currently working for the Public JSC;

1.3 Not being a person having worked for the Public JSC for the last three years

The new criterion under Decree 71/2017 is stricter than the old criterion since it covers all “persons working for the Public JSC”. On the other hand, under Circular 121/2012, non-executive director means a director who is not a Director (General Director), Deputy Director (Deputy General Director), Chief Accountant and other managers appointed by the Board.

2.

2.1 Not being a related person (người liên quan) of Director (General Director), Deputy Director (Deputy General Director), Chief Accountant and other managers appointed by the Board

2.2 Not being a person whose spouse, parent, sibling, or child is a manager of the Public JSC

The new criterion is similar to the old criterion despite some minor difference.

3.

3.1 Not being a Board director, Director (General Director), Deputy Director (Deputy General Director) of a company that is a subsidiary, an affiliate of the Public JSC or a company controlled by the Public JSC;

3.2 Not being a person currently working for a subsidiary of the Public JSC;

3.3 Not being a person having worked for a subsidiary of the Public JSC for the last three years;

The new criterion excludes a broader range of persons than the old criterion. However, the new criterion omits to exclude managers to “affiliates” of the Public JSC from acting as independent Board director of a Public JSC. This is a major omission.

4.

4.1 Not being a major shareholder or representative of a major shareholder;

4.2 Not being a person directly or indirectly owning at least 1% of the total voting shares in the Public JSC;

The new criterion does not exclude “representatives” of a major shareholder from acting as an independent Board director of a Public JSC. This is a major omission. However, the new criterion lowers the threshold from 5% to 1%.

5.

5.1 Not being a related person of a major shareholder of the Public JSC;

5.2 Not being a person whose spouse, parent, sibling, or child is a major shareholder of the Public JSC.

The new criterion seems to forget excluding related persons of an institutional major shareholder from acting as an independent Board director of a Public JSC. This is a major omission.

 

6.

6.1 Has not worked for law firms or auditing firms of the Public JSC for the last two years

6.2 No equivalent criterion

 

7.

7.1 Not being a major customer/supplier or related person of a major customer/supplier, who has an annual transaction value with the Public JSC exceeding 30% of the total revenue or total value of goods and services purchased by the Public JSC for the last two years.

7.2 No equivalent criterion

 

8.

8.1 No equivalent criterion;

8.2 Not being a person who is currently entitled to salary or remuneration from the Public JSC, except for allowances which directors of the Board are entitled to in accordance with regulations;

This new criterion seems to be duplicate with criterion 1.2.

9.

9.1 No equivalent criterion.

9.2 Not being a person who used to be a member of the Board or the Inspection Committee for the last five years at least.