Large Scale Public Company and The Story of Management
Large scale public company is a public company that has capital contributed by the owners from 120 billion Vietnam dong or more in the most recent year financial report has been audited. What is the public company?
- Large scale public company – Who are you?
Large scale public company is a public company that has capital contributed by the owners from 120 billion Vietnam dong or more in the most recent year financial report has been audited (Clause 2 Article 2 of Circular No 155 on October, 6, 2015 of the Ministry of Finance which guides the information disclosure on the stock market, hereinafter referred to as “Circular No 155”). What is the public company?
First of all, about the meaning of “Public company” under the laws of Vietnam, is a joint stock company in one of the following three types of:
(a) The company has implemented offering share to the public;
(b) The company whose shares are listed on the Stock Exchange or Securities Trading Center;
(c) The company whose shares are owned by at least one hundred investors, excluding professional securities investors and those who have capital charter donated from 10 billion Vietnam dong or more (Article 25 Law on Securities).
Thus, only one of three factors above, the joint stock company will be regarded as public company. According to the statistics of Securities Commission, at the time of December, 31, 2015, Vietnam has nearly 2000 public company, including nearly 700 listed companies.
Thus, large scale public companies are public companies which have large capital or/and ability to mobilize capital from stock market. When becoming a public company in general and large scale public company in particular, companies must comply with the following obligations: (i) disclose information under the provision of Circular 155, (ii) comply with the principles of corporate management according to Circular No 121/2012/TT-BTC on July, 26, 2012 regulates on corporate management apply on public companies (hereinafter referred to as “Circular No 121”), (iii) make registration, centralize securities in Central Securities Depository.
- Large scale public company and the story of management
Unlike ordinary joint stock company, large scale public company must maintain a more special and tougher management structure, specific:
Firstly, for the Board of Director of large scale public company:
- The company must have the Board with the minimum number is 5 members and a maximum of 11 members;
- The structure of the Board of Director members need to ensure balance between members holding executive positions with Independent members, including at least one third of the total Board of Director members are Independent members;
- Members of Board of Director of a company can’t currently be a member of the Board of 5 other companies, except for members of the Board of Director of companies in the same group or companies operates under the group companies, including a holding company or a subsidiary, economic group or a representative of the fund management companies, securities investment companies (Article 30 of Circular No. 121).
Secondly, the company must have management regulation full of content under the provision of law and that regulation must be public disclosed on the company official website and the State Securities Committee (Article 32 of Circular 121).
Thirdly, establish and maintain the structure of the subcommittees that assist the Board in accordance with the law, in particular: Subcommittees development policies, Subcommittees personnel, Subcommittees salary and bonus and other special Subcommittees according to the Resolution of the General Meeting of Shareholders. In particular, Subcommittees personnel and Subcommittees salary and bonus shall have at least 1 Independent Board member as Chairman. In the event that companies do not establish Subcommittees, Board of Director elects Independent Board member to charge each issue such as salary and bonus, personnel (Article 32 of Circular 121).
In practice, in order to ensure enough three requests above is not simple, especially the request about maintaining one third of the Board members must be the Independent Board member, which means that member must meet the following conditions:
- Member of the non – executive Board and not related to the Director (General Director), Deputy Director ( Deputy General Director), Chief Accountant and other managers who are appointed by the Board;
- Not a member of the Board of Director, Director (General Director), Deputy Director ( Deputy General Director) of subsidiaries, associated companies, companies are controlled by Large scale public company;
- Not the major shareholder or the representative of the major shareholder or related person of company major shareholder;
- Not working in Organization that provides legal advisory services, audit in the company in the most 2 recent years;
- Not the partner or related person of partner who has annual transaction value with the company from thirty percent or more of the total revenue or total value of goods, purchase service in the most 2 recent years.
(Clause 3 Article 2 of Circular 121)
With the number of the Independent Board accounted for one third of the total members of the Board, i.e. numbers of independent members are at least 4/11 members are independent members, the Decision of the Board must always be agreed by at least 2 members of the Independent Board. As a company administrator, independent members will make the decision independently, objectively, not affected by factors such as ownership or directing relation, operation… However, about the owner, few businesses would like to have the participation of too many “strangers” in the process of management, operation. Although this is the international standard and the large – scale public companies need to maintain in order to improve management ability as well as transparency in the operation, but in the view of the fact in Vietnam, this formalistic issue is still popular.
In the banking sector, the State Bank also requires the Independent Board members with experiences, expertise in the field of Finance, Banking, Accounting and Auditing. Each members of the Board have only 5-year term so that after 5 years, members of the current Board are no longer independent and shall look for a replacement member due to breach the conditions about have never worked for a bank before (Article 50 of the Law on Credit Institution 2010). This is also necessary to minimize the influence of “boss” to the decisions of the independent members. Banks are now maintaining this structure because if not, there will not be eligible to register for business license or open network.
For other area, the law has not have any other binding regulations to make sure that these requests are enforced. Decree No 108/2013/ND-CP dated September, 23, 2013 of the Government guidelines on sanctioning of administrative violations in the field of securities that not mention about any sanctions for the cases of public company which does not maintain the requirement on the management above. General intangible, requirements about management for public companies are formalistic and lack of reality, even when international integration, public companies would like to play in international playing field, must comply with the international standards of management, including three core issues above.
Written by Mai Hoang - Lawlink Vietnam's Contributor.