Organizational structure of the company's management, operation and supervision apparatus;
Rights and obligations of shareholders (company members), mechanisms to ensure their exercise of those rights;
Powers, benefits and responsibilities of business managers and supervisors;
Mechanisms to monitor managers' behavior to limit the abuse of power over company resources for personal gain;
Corporate decision making process and procedures.
Maybe you are interested!
-
Resolving the Contradiction Between the Relatively Low Educational Level of Many Prisoners and the Requirements for Acquiring Legal Information and Knowledge -
Building and Perfecting the Legal System to Create a Favorable Environment for the Development of Modern Retail Systems -
Applying Customs Towards Building and Perfecting the Socialist Legal System in Vietnam -
Legal regime on internal management of limited liability companies under the Enterprise Law - 17 -
Overview of the Marriage Regime in the Vietnamese Legal System Through the Periods
These contents are adjusted differently and are compatible with each type of company. For types of personal companies (according to the classification of the Civil Law system), the identity (name) of the company members is the basic basis for determining their position and role in the organization and management of the company, not based on the scale of the value of the capital contribution. Most obviously, for the type of simple joint venture company, the person who manages and makes decisions about the company is the general partner, not the capital contributing member (principle of personal). Corresponding to that right, the general partner must bear unlimited liability while the capital contributing member must bear limited liability. On the contrary, for types of capital companies, the relationship between company members related to the issue of organizing and managing the company is based mainly on the scale of the value of each member's capital contribution in the charter capital of the company (principle of capital). The most important decisions of the company are also based on the ratio of the value of the capital contribution of the voters. In general, each different legal form corresponds to a different legal model of company management organization (governance model).
1.2.2. Principled requirements when developing legal regulations on corporate governance
Ensure respect for the company's business autonomy
This is a requirement arising from the basic constitutional rights of citizens and the development principle of the market economy - the principle of free enterprise.
With this requirement, the organization of internal corporate management is first and foremost under the decision of the investor. The law does not need to intervene too deeply and in too much detail in the internal relations of the company. Excessive legal intervention in these relations is sometimes counterproductive, creating rigidity and inflexibility for the company's management activities. Therefore, the law should only regulate binding basic, principled issues, establishing a "legal framework" for the organization and management of the company. With this approach, the corporate governance regime in a market economy contains mostly arbitrary regulations, which companies can freely choose to apply.
However, there are also mandatory regulations on certain issues. These mandatory regulations are of particular importance in protecting the interests of minority investors and related entities, and in preventing the self-interest and opportunism of company managers towards investors, as well as of majority investors towards minority investors and other related entities.
Ensure flexibility, adaptability and suitability to the business environment
In theory, the basic principle of establishing a legal framework for corporate governance is to aim at forming a corporate governance environment compatible with social values [23, p.54]. That is an environment that allows companies to flexibly compete with rapid changes in market forces, while still ensuring social norms and traditional business culture. Therefore, corporate governance regulations need to ensure the adaptability of the corporate governance structure to traditional business culture and rapid changes in economic life.
Furthermore, it can be seen that there is no governance structure that is absolutely suitable for all forms of association or all ownership structures [23, p10]. Therefore, the level of legal constraints on the organization and management of companies
There must also be differences between types of companies, in accordance with the capital structure and membership structure of the company. In general, corporate governance regulations need to ensure the adaptability of corporate governance structures to the conditions of their existence and development. This is also the second requirement for legal adjustment of corporate governance relations.
Ensuring the harmonization of interests of all entities involved in corporate governance
The emergence and existence of corporate governance regulations are closely linked to the need to mobilize capital, reduce costs and risks for investors. The adjustment of corporate governance laws is mainly aimed at meeting the need to ensure the rights of investors. That is also the third requirement of adjusting corporate governance laws. With this requirement, first of all, corporate governance regulations need to recognize, protect and facilitate the implementation of investors' rights. These include the right to elect and dismiss company leaders, the right to decide on important issues of the company, the right to access information related to the company's operations, the right to question the Board of Directors and the Director, the right to transfer capital and the right to sue.
Different investors will have different positions, interests, goals and investment orientations. There will be more or less conflicts of interest between them, especially between minority investors and investors who hold the power to control the company. Therefore, when protecting the interests of investors, corporate governance law also needs to emphasize fairness between them. Because, in essence, the law itself is the embodiment of fairness. Moreover, only then can corporate governance law truly become a safe legal corridor to effectively attract investment capital. With this requirement, corporate governance regulations need to stipulate that all shareholders of the same type have the same rights, and the procedures and processes of the General Meeting of Shareholders need to be guaranteed to be fair to all shareholders who have the right to participate. At the same time, strictly regulate the conditions and procedures for transactions of shareholders holding controlling power of the company, as well as prohibit acts of abuse of power by majority shareholders to
conduct insider trading and other self-interested activities that harm minority shareholders.
In essence, the success of a company is linked to the ability to align the interests of directors, board members, other senior managers and employees with the interests of the investor. Performance-based remuneration is considered an effective tool to achieve this goal. In this respect, corporate governance regulations should create a contractual framework to encourage the efforts of key personnel in the company. These regulations should therefore not restrict the flexibility in aligning the interests of the investor with those of senior managers and other beneficiaries. Excessive restrictions can erode the entrepreneurial spirit and adversely affect the performance of the company. In addition, legal regulations should limit the excessive abuse of the investor's right to sue, which adversely affects the management of the company. In general, in addition to the requirement to protect investors' rights, corporate governance regulations also need to respect and ensure the harmony of interests of stakeholders.
Ensuring transparency and efficiency
This requirement requires the law to establish a mechanism to minimize risks and management costs for investors. These regulations should aim to limit arbitrary management of the use of capital without generating profits, as well as set strict requirements for the transfer of assets from minority investors to investors holding control of the company, or for transactions that are likely to contain elements of self-interest and other wrongful insiders at important management levels. This requires the law to clearly stipulate the powers, duties and responsibilities of management entities in the corporate governance structure, with special attention paid to the supervisory role of investors and other independent supervisory entities (not performing direct management activities). However, it is also necessary to see that investor supervision activities only become effective when investors fully grasp relevant information in a timely and accurate manner. But in reality, investors cannot grasp information without the provision of
Administrators. Therefore, to effectively protect the interests of investors, the law cannot but ensure transparency of information for investors through mandatory regulations.
In general, effective corporate governance is based on the principles of transparency, accessibility, timeliness, completeness, and accuracy of information at all levels. With increased corporate transparency, investors will benefit as they have the opportunity to be informed about the company’s business operations and financial figures. Even if the information disclosed is negative, shareholders will benefit as they have the opportunity to reduce their risk.
1.3. Factors affecting legal regulations on corporate governance
1.3.1. Economic management mechanism of each country
The economic mechanism influences the corporate governance law in both form and content. In the centralized planning economic mechanism, all business activities of the company are carried out according to detailed and unified plans set by the State. Companies (enterprises) have almost no autonomy in business activities. In the organizational relations of the company, public authorities often intervene deeply in the organization of management institutions, appointment and dismissal of executives. In Vietnam, during the period of centralized subsidy, not only for state-owned enterprises, but also for very few joint public-private enterprises, organizational relations were mainly based on administrative orders. This makes the regulations on internal corporate management organization heavily influenced by administrative orders and mainly contain legal norms in the field of public law. With such a closed economy within the framework of state planning, the role of corporate law in general and corporate governance law in particular is somewhat underestimated. Regulations on corporate governance are mainly expressed in the form of legal documents with low legal value (issued by executive agencies) and are hardly codified.
On the contrary, in a market economy, the state performs the economic management function mainly through regulating the economy at the macro level. Companies exist and operate according to the objective economic laws of the market economy. Therefore, corporate law in general and corporate governance in particular have fundamentally changed both in terms of subjects and methods of regulation compared to the centralized economic mechanism. The corporate governance regime is built with the basic viewpoint of ensuring the autonomy of the company, safety and equality among investors. Therefore, the content of these regulations is mainly to recognize and ensure the rights of investors and management entities in the company. Therefore, the corporate governance regime mainly contains legal regulations in the field of private law.
1.3.2. Level of socio-economic development of the country.
As with the relationship with other legal institutions, the level of socio-economic development is the basis for determining the content of the Law on Companies in general and the corporate governance regime in particular. This can be seen through the process of formation and development of corporate management models. The history of the birth of the business type called the first company originated from the need to combine capital to expand the scale of operations and enhance business capacity. That only happened in a certain socio-economic condition. This business association initially occurred between people who had close and trusting relationships with each other, creating personal companies, typically partnerships. Because the company was formed based on mutual trust, partnerships had a simple organizational structure, and management relationships were based on agreements between members. Later, when the level of commodity production developed to a higher level, the need for association to expand business scale as well as to disperse risks in the face of fierce market competition was no longer limited to people who knew and trusted each other. They expanded to include people who did not know each other, forming capital companies, the peak of which was joint stock companies issuing shares to the public. From the association of capital between people who were not close to each other, arose the need for a management and supervision mechanism of investors.
with the amount of capital invested in the company is getting stronger and stronger. The problem of ensuring the control of investors and the equality between them makes the organizational structure of the company tighter and tighter. Because of that, the corporate governance regime also becomes tighter.
1.3.3. Institutions supporting the Company Law.
This can be completely proven by the legal practices of countries around the world. In countries with dynamically developing stock markets such as the UK and the US, market information is relatively perfect, stock prices are a factor reflecting corporate governance capacity and creating strong pressure on corporate administrators. Therefore, to adapt to the requirements of preserving and increasing shareholder value in the face of rapid market sensitivity, the Company Law creates a flexible mechanism with full necessary power as well as responsibility for the Board of Directors. In particular, the Chief Executive Officer (CEO) is given many supreme powers [87], [33]. In addition, the perfect supervision of the market by supporting institutions along with the characteristics of decentralized ownership have helped potential and existing shareholders reduce unnecessary costs for monitoring the management and operation of the company. With this effective support, the need to regulate shareholder supervision activities by the Company Law is therefore less complicated and detailed [32, pp. 2-6]. Corporate governance activities are concentrated under a strong Board of Directors structure that performs both supervisory and executive functions. Shareholders only have the right to vote for approval but do not have the right to propose lending money to Board members, selling assets outside of normal business operations, etc. [9, p. 212]. The participation of collective representatives of employees in corporate management is also not mandatory.
On the contrary, in the Federal Republic of Germany, with the aim of decentralizing the power of large corporate owners and creating a sustainable structure for resolving disagreements within the company, the governance model requires the participation of employees in the Supervisory Board and the Company Council [36, pp. 210, 211]. With the support of the Resolution Law, about 1/3 to 1/2 of the members of the Supervisory Board
The Supervisory Board does not exercise executive functions like the Board of Directors in American companies. The Supervisory Board elects the company's Executive Board and supervises their operations. In addition, the Company Council represents the company's employees in dialogue with the employer to resolve issues related to workers' income and employment. This is a consequence of the development of legislation on the protection of workers' rights in Germany.
1.3.4. Business customs and culture in each country.
As a component of the superstructure, business culture is closely related to corporate law in general and corporate governance regulations in particular. It plays a dominant role in corporate governance laws. Therefore, the business culture of each country is considered the source of differences in corporate governance regulations between countries (the “path dependence” theory) [42]. Researching this issue, there is a viewpoint that: “… Obviously, culture, religion, habits and philosophy of life significantly influence the business organization model. For nearly 150 years, Asians have begun to accept the corporate model, but the management style of Asians, although showing signs of integration, still has its own characteristics compared to the business style of Europeans and Americans ” [26, p.231]. Indeed, the business characteristics of Eastern people are based on family relationships, friendship and trust. Their business philosophy makes agency costs not the focus of private companies. The internal management of the company is organized in a family style, with the investor also being the operator, or dividing the management work among family members; the administrator collects all information and reveals it little by little to his subordinates to ensure his paternalism [26, pp.301, 366, 367]. On the contrary, Americans manage companies based on information transparency, loyalty and prudence of the administrator towards shareholders; the corporate governance model is strongly influenced by the decentralization and restraint of organizational theory.