The Decree No. 71/2017/ND-CP on corporate governance guidance of PICs, legally enforceable on 01 August 2017, has been made in line with the latest Corporate Law (2014) and has replaced Circular No. 122/2012/TT-BTC.
The government’s guideline aims to reach international best practices on this issue, and improving efficiency and effectiveness of Boards of Directors (BoD) and Boards of Management (BoM) of these companies.
The corporate governance charter now must be approved by the shareholders through the annual general meeting, instead of the BoD as stipulated in Circular No. 121. They are also given the rights of access to further information on actual operations and performance of the company.
In order to ensure independence, transparency and effectiveness of BoD operations, several changes are made on the BoD member composition, BoD committee and assessment of BoD performance. One striking point is that from 2020, chairman must not hold the director/general director position of the same PIC at the same time. Also, from 2019, BoD members of one PIC must not simultaneously hold the BoD member position of more than five other companies.
To guarantee professional capability and qualifications of the supervisory board, the head of the board must be a registered/ recognized accountant or auditor, and must work full time at the company.
The Decree also introduces new regulations to foster business activities and enhance the transparency of information provided by PICs.
Many transactions (lending and/or issuing guarantees) with related parties, once forbidden, are now allowed and defined clearly. The threshold for approval of transactions is also regulated. According to Degree No. 71, the BoD can only approve those transactions whose value must not exceed 35% of total asset value.
The new degree also requires PICs to disclose its corporate governance model within 24 hours of changes, and publicize its director and other managers’ incomes.