Ensuring Principles Are Consistent With Modern Corporate Governance Structures

Personal responsibility is inevitable. Criminal acts prescribed by law are associated with normal business activities such as: smuggling crimes, tax evasion crimes, violations of regulations on exploitation, protection of forests and forest products, environmental pollution crimes, terrorism financing crimes, money laundering crimes, etc. In addition, the responsibility of legal entities is not excluded in this case. In other words, the provision that a corporate legal entity must bear criminal responsibility, in addition to the criminal responsibility of the individual representative, is essentially an additional subject responsible for the same criminal act committed by an individual. Of course, the criminal responsibility of these two subjects only arises and is linked together at the same time when the criminal act is committed in the name of a commercial legal entity; is committed for the benefit of a commercial legal entity; is carried out with the direction, management or approval of a commercial legal entity and the statute of limitations for criminal prosecution has not expired. From the organizational theory, the action of the agency that plays the role of managing and directing the legal entity is considered the action of the legal entity, which is the theory that explains the application of this responsibility.

2.6.2. Ensure principles are consistent with the modern governance structure of the enterprise

The activities of the legal representative are inseparable from but always closely linked to corporate governance. Therefore, the principled guidelines in building good corporate governance practices always have criteria for controlling the activities of managers and representatives. The framework of the Code of Corporate Governance of the Organization for Economic Cooperation and Development (OCED) is built on four core principles: fairness, responsibility, transparency and accountability [27; p. 15]. In enterprises, the legitimate interests of shareholders and company members need to be protected in parallel with controlling conflicts of interest between those who hold the right to manage and operate the enterprise and the interests of the enterprise, the interests of employees, creditors, partners as well as the consumer community... To ensure that, those who hold the power of the enterprise must ensure compliance with the law and the assigned authority. From that close relationship, the trend of modern business management will also have an impact on the activities of the representative.

of the enterprise. There are a number of contents associated with determining effective corporate governance that need to be ensured, specifically:

The representative model associated with corporate governance must be harmonious, aiming at the common goal of protecting the common interests of the enterprise, not protecting the interests of shareholders or the group interests of managers due to information asymmetry. Representatives have the ability to access more valuable information and bring personal benefits compared to minority shareholders, employees or creditors of the enterprise. Representatives of the enterprise must not abuse the information of the company or the business opportunities of the company to gain profits for themselves and their relatives. This group of obligations includes (i) the representative avoiding participating in transactions that may conflict with the interests of the company, not allowing the representative of the company to receive benefits from third parties (such as commissions, bribes that affect the quality of business operations and reputation of the enterprise) or requiring the disclosure of related interests when establishing transactions. When a representative participates in business negotiations with a partner, realizes the profit from the transaction and cooperates with the partner to implement it privately in his/her own capacity, it is also considered a breach of duty, even though such an act affects the company's profits, but does not affect the actual amount of money that the company suffers from losses. Only when the company has considered and rejected the transaction, the representative's acceptance as his/her own business project or the company is not able to actually realize that business opportunity, will the representative not be held responsible. That solution has been proven in the case law of the UK and the US (Appendix 1, 2). For that reason, it is necessary to realize the regulation prohibiting representatives from using their representative power to participate in agreements that pose a great risk to the business activities of the enterprise. However, the prohibition of competition must be limited in time and space, and must be proportional to the scope of the business activities of the enterprise. When violating this obligation, the legal representative must compensate for damages. To arise liability, conditions must be met such as damage occurred, violation, fault and causal relationship between the behavior and damage occurred.

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Consideration of these four conditions will be addressed by the judge on a case-by-case basis.

The mechanism for monitoring the performance of the legal representative is an important factor in corporate governance. The obligations to act with care in the best interests of the company are imposed on both the legal representative and the business manager. This is reflected in the fact that the representative must attend meetings and receive full information to have a plan to handle tasks related to the company because, after all, they are the first to be legally responsible for the business. In case of suspicion of dishonest and unbiased documents, the representative must have the right to look up information and the right to review financial documents and supervise the company.

Corporate governance requires professional supervision of representatives and managers. The scale and type of enterprises are growing rapidly, deeply affecting the lives of each individual in society, so establishing this monitoring channel is even more important. In the context of corporate governance, there is a separation between the ownership of company members and the right to manage the enterprise, conflicts of interest are inevitable. Representatives want to achieve short-term goals, consolidate their position and safety in corporate management while capital contributors want to maximize profits. The State advocates sustainable development of companies, responsible to society, and to related third parties. Basic conflicts are divided into cases such as: representatives do not try to fulfill their obligations; performing acts that hinder the company and its members/shareholders in business activities as well as changing representatives and self-trading (taking advantage of legal privileges to compete or even embezzlement). Therefore, establishing a monitoring mechanism is necessary to ensure that the role of the legal representative is always in the right role, in accordance with the interests of the parties. This monitoring mechanism is implemented by many methods, including legal regulations and self-regulation agreements within the company or in other words, civil methods. Each method has its own advantages and limitations, but in summary, generalizing, establishing a harmonious monitoring mechanism using the principles of corporate governance in economics is a requirement.

necessary. Lawmakers need to determine the method of regulating legal relations based on the principle of protecting which subjects to establish effective supervision regulations and methods for each issue. Because if regulated by rigid law, it will affect businesses, but if regulated by too many civil principles, it will easily lead to arbitrariness and agreements that benefit the members participating in that agreement, not the third party involved.

2.6.3. Ensure the principle of protecting third parties in the legal representative relationship of the enterprise

The establishment of a representative model of an enterprise must ensure the principle of protecting third parties in their relations with the enterprise. This principle is reflected in issues such as: handling transactions beyond the representative's authority, determining the enterprise's responsibility to third parties when there is a violation by the representative.

The law stipulates the direction of handling transactions that exceed the authority of the representative or do not have the authority of representation, which needs to clearly identify the criteria for identification as well as the accompanying legal consequences. Exceeding the authority of the legal representative in the enterprise is the case where the representative has established. performed the transaction on the basis of a decision exceeding the authority as prescribed by the company's charter or legal limits. This concept is stated on the basis that the legal representative is also the person holding the right to manage the enterprise. In essence, the representative of the company has entered into a transaction based on the scope of authority that person has, although the right to represent in that matter is under the authority of another entity in the enterprise. However, when separating the right to represent and the right to manage, this concept does not accurately reflect the true nature of exceeding authority. If the legal representative performs a transaction that is not within the legal capacity of the enterprise, this is not an excess of representative authority because at this time, the representative is performing an act of representing the enterprise as it is. Based on the function of representing the enterprise, for the benefit of the enterprise, that act is not an excess of authority. If the representative correctly performs the signing of a transaction that is inherently under the authority of another entity, then the violation here does not belong to the act of signing (representative authority) but to the act of deciding.

transaction (management rights). This issue needs to be clearly analyzed to avoid misunderstanding that the case of exceeding the authority of the manager is understood as exceeding the authority of the representative.

If we separate the representative right and the management right as in the current model of Vietnam, only the management right can define the limits of the fields or transactions established according to the hierarchy of power in the enterprise. For the representative right, the nature is to transact on behalf of the enterprise with a third party without limits. In other words, the representative right is the full representative authority, it is difficult to define the authority. This is shown in the details of the 2020 Enterprise Law, which only has legal regulations regulating the authority of the manager in the enterprise, there are no regulations on the authority of the representative even though the titles of these two entities are separated. Therefore, to understand exactly the excess of representative authority here, it must be the case that the representative has not acted in accordance with his role and position, leading to damage to the enterprise. Therefore, the criteria for considering the excess of representative authority are determined based on a comparison of the benefits achieved and the damage to the enterprise when the legal representative does not act.

From a theoretical perspective, enterprises following the independent legal representative model will have to work very hard to prove the excess of representative authority because the representative authority is simply a legal representation for the management decisions of the enterprise made to the outside. Meanwhile, the true nature of the new management authority is easy to define the boundary of excess of authority because of the separation in the management field or management level according to authority. With an enterprise that only has one representative, independent of the hypothetical theoretical approach, the representative has full authority to act on behalf of the enterprise, the proof is even more impossible.

The case of lack of representative authority occurs when the representative represents the company and acts on behalf of the company without having the representative authority. This is a transaction established when the individual is not appointed to become the legal representative or when the legal representative has been dismissed. In this case, the individual is deprived of power and therefore cannot bind the company to the responsibility for the transactions established. The nature of power here is lack of power.

The reason why this transaction is invalid is because the representative does not have the authority to sign the contract - a prerequisite for the existence of a contract.

The protection of third party rights is also reflected in the provisions on the liability of enterprises to third parties. From a theoretical perspective, it is necessary to explain why enterprises are liable to third parties while the person performing the transaction is the legal representative. The legal liability of enterprises for the actions of the legal representative is established based on the principle of law: better respond to the protection of the interests of the person concerned by choosing the official subject to be replaced. Accordingly, enterprises are legally liable for the actions that the legal representative has committed to perform on behalf of the enterprise. This principle is found in Australian law and is also known as the “deep pocket theory”. Accordingly, enterprises have better economic resources than the legal representative, so they have enough money to pay for the risks arising when the person causing damage acts in the role of the enterprise [89]. In US law, the theory used to explain this issue is “alternative liability theory”, in which the enterprise is responsible for the actions of its representative when acting on its own behalf. This responsibility is transferred according to the presumption that the enterprise is also at fault in performing the management and supervision of the representative because the enterprise has the best access to information. Therefore, the basis for binding the enterprise’s responsibility is the causal relationship that is still shown here [70]. From the perspective of research on the approach to organizational theory, the study of the British Company Law 2016, amended in 2018, shows that each company is a separate legal entity and must perform its actions through its executive body. The actions, knowledge and intentions of individuals – part of the organization – are considered as the actions, knowledge and will of the company itself. Thus, the corporation is responsible for real-world events, essentially treating the actions, knowledge, and intentions of individuals as those of the corporation. That line of reasoning effectively merges legal, personal, and corporate purposes into one.

entity. Therefore, there is only a two-party relationship: the company and the third party and the legal entity is naturally liable to the third party. [59].

The principle is determined when the enterprise compensates a third party in two cases: first, the legal representative performs according to the systematic instructions of the enterprise. Second, the case where the legal representative performs their work but performs incorrectly due to the subjective factor of the representative causing damage during the performance of the work. Here, the general principle determines that the representative is not responsible to the third party for the transactions that they have performed on behalf of the enterprise and is only responsible to the company and before the law for such violations in the direction that the representative must be directly responsible to the third party in the following cases: (i) The information of the transaction is not disclosed by the legal representative or is partially disclosed while the obligation is not allowed to conceal information; (ii) The legal representative knows that he does not have the authority or exceeds the authority of representation. The representative makes the third party believe that they have full authority to represent, they must be responsible for the contracts performed; (iii) The representative signs the contract as an individual.

The principle of protecting third parties is reflected in the first requirements such as the disclosure of the identity of the representative. The mandatory condition before appointment is to disclose the identity, but in case of no timely disclosure of the identity (often encountered when changing the legal representative) or there is an error in the procedure for disclosing the identity of the legal representative, the validity of the contract signed by the representative is still binding on the enterprise. Because the representative has acted based on the function of the enterprise, during working hours and serving the interests of the enterprise, that action is considered to be representing the enterprise. This principle is appropriate because the lack of disclosure of the identity is not an act exceeding the authority of the representative but an act violating administrative regulations or, in some cases, violating internal regulations on the disclosure of the right of representation.

CHAPTER 2 CONCLUSION

Through studying the theoretical aspects of the business ethics, it can be seen that:

1. Legal representation of an enterprise is a form of representation prescribed by law due to the legal characteristics of a company with legal status. From the approach of legal theories: hypothetical theory and realistic theory, organizational theory, agency theory or contract theory, the position of legal representation of an enterprise is explained differently. However, there is a common point that can be affirmed: Legal representation is an indispensable form of representation for an enterprise.

2. Through the analysis of the legal representative of an enterprise in comparison with the laws of two legal systems: England, America, France, Germany, it can be seen that the legal representative of an enterprise has the following basic characteristics: being a necessary representative of the enterprise; legality; always protecting the legitimate interests of the enterprise; choosing a person with the authority to represent from within the enterprise; the representative can be an individual or a legal entity.

3. The legal representative model of enterprises between countries has differences in the distribution of representative rights, representative authority and principles on the limitations of representative rights affecting bona fide third parties.

4. Legal representative of an enterprise is a form of representation prescribed by law, therefore, contents such as appointment criteria, scope of authority, obligations and legal responsibilities are stipulated in legal documents. The law on this issue is influenced by factors such as the theoretical basis of representative relations, socio-economic conditions as well as standards of modern corporate governance, therefore, the principles regulating the legal representative relations of enterprises must be ensured in the process of building and perfecting the law.

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