The Board of Directors is the heart of joint stock companies in general and public companies in particular, taking the role of operating and regularly deciding the important affairs of the enterprise. For avoidance of drailment of this “locomotive”, the enterprises cannot help but set out the management and operational rules for the Board of Directors.
On February 15, 2021, Circular No. 116/2020/TT-BTC issued by the Ministry of Finance on public company governance officially took effect. In this Circular, the template of the operational regulation of the Board of Directors (the “Operational Regulation Template“) has been introduced for the first time in convergence of many new relevant provisions of the enterprise and securities law. Accordingly, the public companies need to elaborate or update the operational regulation of the Board of Directors with the following main contents.
Members of the Board of Directors
Regarding the requirements, the members of Board of Directors need to satisfy a number of requirements in respect of qualification, experience and eligibility to establish and manage an enterprise. It is noteworthy that an individual can only be an independent member of Board of Directors for at most 2 consecutive tenures. The public companies need to refer to the Operational Regulation Template for updating this new provision according to Law on Enterprises 2020.
Regarding the election method, the group of shareholders/shareholders holding at least 10% of the common shares and the incumbent Board of Directors are entitled to nominate and introduce the candidates. The General Meeting of Shareholders shall apply the cumulative voting method to elect the members of Board of Directors, unless otherwise provided in the company’s Charter.
Regarding the rights and responsibilities, the members of the Board of Directors are vested many powers by the law and the company’s Charter, especially the right to access the information and documents about the financial situation and business activities of the company. Additionally, the members of the Board of Directors shall fully attend the meetings, report the interests and transactions related to the company and disclose information if trading company shares.
Board of Directors
The Operational Regulation Template details the rights and obligations of the Board of Directors: decision of strategy, medium-term development plan, annual business plan; decision of sale or repurchase shares; supervision and instruction to the company managers and other executive officers, etc.
Remarkably, in case of the death, missing, detainment, imprisonment or impossibility to hold longer the position due to any other reason of the Chairman of Board of Director, the Board of Director shall elect a new temporary Chairman for the continuity of its operation. It is a new point in the Law on Enterprises 2020, which was recognized in the Operational Regulation Template.
Report and disclosure of interest
Transparency is the most important requirement for public companies, that is the reason for which the Operational Regulation Template dedicates a separate chapter to this matter. Accordingly, at the end of a fiscal year, the Board of Directors must submit to the General Meeting of Shareholders (i) report on the business results of the company, (ii) the financial statements, (iii) the assessment report on management and administration of the company and (iv) appraisal report of the Board of Controllers.
Besides, the members of Board of Directors shall declare within 7 days after arising related interests about (i) the enterprises in which they contribute capital and (ii) the enterprises that their related persons jointly hold or independently hold at least 10% of charter capital. In addition, the members of Board of Directors shall explain and obtain the approval of the majority of the remaining members if they perform the works for themselves or others within the business scope of the company. Their ignorance of this procedure shall lead all of their earned income to be transfered to the company.