OECD Review of the Corporate Governance of State-Owned Enterprises in Viet Nam

13. The responsibilities of the boards of state‑owned enterprises

Abstract

This chapter reviews the responsibilities of the boards of SOEs, against the Chapter VII of the SOE Guidelines. It examines SOE board appointment and nomination framework and also looks at to what extent SOE boards are empowered to exercise objective and independent judgment in the best interest of the company.

Overarching recommendation from the SOE Guidelines

The boards of SOEs should have the necessary authority, competencies and objectivity to carry out their functions of strategic guidance and monitoring of management. They should act with integrity and be held accountable for their actions.

13.1. Board mandate and responsibility for enterprise performance

A. The boards of SOEs should be assigned a clear mandate and ultimate responsibility for the enterprise’s performance. The role of SOE boards should be clearly defined in legislation, preferably according to company law. The board should be fully accountable to the owners, act in the best interest of the enterprise and treat all shareholders equitably

The mandate of SOE boards differs by the type of SOE – whether wholly-owned, in which case opting for a Board of Members (BoM) or partially-owned, in which case having a Board of Directors (BoD). The tasks, responsibilities and powers of both the BoM (also referred to as the “members council”) and BoD are prescribed in the Law on Enterprises.

The BoM (or President, where single‑member LLCs opt for no BoM) “shall be vested with the right to manage and control the enterprise in accordance with laws and decisions made by the owner’s representative agency”. The Law enable the BoM/President to “grant their decisions after obtaining the consent from the owner’s representative agency on, intern alia, the appointment re‑appointment, dismissal, commendation, reward [and] penalties of the General Director or Director (CEO)”. They must request from the state (Prime Minister or ownership entity) to decide on these aspects for the Chair and other BoM members. They can decide without the state’s approval on the remuneration of the CEO and deputies, and the appointment and dismissal of CEO deputies. It also makes the BoM legally responsible for any violation causing any loss on or damage to the capital and assets of the enterprise (Art. 44). Additional responsibilities of the BoM of single‑member LLCs are provided in Table ‎13.1.

On paper, the law assigns the BoM, and the BoD in the case of JSCs, a clear mandate and the right to manage and control the enterprise. In practice, the need to request state approval for key decisions ends up taking intended authority away from the BoM and renders the decision-making process inefficient.

The BoM is comprised of representatives of state capital. While formally, they are not considered civil or public servants, suggesting a degree of separation between the owner and the business activities of the company, the board is in fact comprised in its entirety of state representatives or former employees of the organisation. Each SOE applies different procedures for sign-off project or investment plans, with the CEO and BoM deciding whether it can be managed within the company.

It is often the case that representatives of state capital on the BoM decide to raise sign-off to the level of the CMSC, who in turn most often opts to share the decision with other ministries – namely MPI and MOF. Indeed, in many countries large decisions or an SOE can be overseen by the state owner, but the flexibility and ad-hoc nature of allowing BoMs to decide raises questions about consistency of governance practices and room for state representative to influence business operations in their role as state representative as opposed to what is in the best interest of the firm.

While the common practice not only adds layers of bureaucracy to decision-making within the company, it also signals a lack of clear division of responsibilities between the CEO and their management team with the BOM and, in turn, between the company and the state owner. It also signals a high degree of discretion within each SOE and board as to the application of responsibilities, not to mention integral controls.

For partially-owned joint stock SOEs, the responsibilities are clearer. These SOEs seem to report, in practice, to the annual shareholder meeting. However, the mission team still has concerns about the autonomy of BoDs and SOE operational governance, given the blurred lines and channels of reporting between representatives of state capital on boards and the state owner. The table below provide an overview of the responsibilities of both BoMs and BoDs.

There is no formal concept of “shadow directors” in Viet Nam. The Enterprise Law (Clause 4, Article 56) elaborates the process for temporary appointment when the Chair of the board is incapacitated or otherwise unable to fulfil their function. This role is usually filled by the CEO/General Director. An individual of the BoM is mandated to convene a meeting to elect one of the existing members of the BoM to temporarily act as a Chair, subsequent to agreement by the other members. This remains “until there is a new decision taken by the [BoM]”. Such stipulations should also be reflected in the company charter. As far as could be discerned, there is no predetermined period of time or limit on the acting Chair. The law does not provide procedures for non-Chair members of the board.

Table ‎13.1. Obligations of Boards of Members (LLCs) and Boards of Directors (JSCs)

Board of Members		Board of Directors
Wholly-owned SOEs (single‑member LLC)	Majority-owned SOEs (multiple‑member LLC)	Majority-owned SOEs (JSC)
a) Decide the matters prescribed in the Law on Management and use of State Investment in Enterprises; b) Decide establishment, reorganisation, dissolution of the company’s branches, representative offices and dependent units; c) Decide the company’s annual business plan, policies on market development, marketing and technology; d) Organise internal audits and decide establishment of the company’s internal audit unit; dd) Other rights and obligations prescribed by the company’s charter, the LOE and relevant laws.	a) Decide the company’s annual business plan and development strategy; b) Decide increase or decrease in charter capital, time and method for raising more capital; issuance of bonds; c) Decide investments in the company’s development projects; solutions for market development, marketing and technology transfer; d) Approve contracts for borrowing, lending, sale of assets and other contracts prescribed by the company’s charter whose value are at least 50% of the total assets written in the latest financial statement (or a smaller ratio or value specified in the company’s charter); dd) Elect, dismiss the President of the Board of Members; designate, dismiss, sign and terminate contracts with the Director/General Director, chief accountant, controllers and other executives specified in the company’s charter; e) Decide the salaries, remunerations, bonuses and other benefits of the President of the Board of Members, Director/General Director, chief accountant, controllers and other executives specified in the company’s charter; g) Ratify annual financial statements, plans for use and distribution of profits or settlement of losses; h) Decide the company’s organisational structure; i) Decide establishment of subsidiary companies, branches and representative offices; k) Revise the company’s charter; l) Decide reorganisation of the company; m) Decide dissolution or file bankruptcy of the company; n) Other rights and obligations prescribed by Law and the company’s charter.	a) Decide the company’s medium-term development strategies and annual business plans; b) Propose the types of authorised shares and quantity of each type; c) Decide sale of certain types of unsold authorised shares; decide other methods of raising capital; d) Decide selling prices for the company’s shares and bonds; dd) Decide repurchase of shares as prescribed in Clause 1 and Clause 2 Article 133 of the LOE; e) Decide the investment plan and investment projects within its jurisdictions and limitations prescribed by law; g) Decide solutions for market development, marketing and technology; h) Approve sale contracts, purchase contracts, borrowing contracts, lending contracts, other contracts and transactions that are worth at least 35% of the total assets written in the latest financial statement, unless another ratio or value is specified in the company’s charter; contracts and transactions within the jurisdiction of the GMS as prescribed in Point d Clause 2 Article 138, Clause 1 and Clause 3 Article 167 of the LOE. i) Elect, dismiss the President of the Board of Directors; designate, dismiss, enter into and terminate contracts with the Director/General Director and other key executives specified in the company’s charter; decide salaries, remunerations, bonuses and other benefits of these executives; designate authorised representatives to participate in the Board of Members or GMS of another company; decide their remunerations and other benefits; k) Supervise the Director/General Director and other executives managing the company’s everyday business; l) Decide the company’s organisational structure, rules and regulations; establishment of subsidiary companies, branches and representative offices; contribution of capital to and purchase of shares of other enterprises; m) Approve the agenda and documents of the GMS; convene the GMS or carry out surveys for the GMS to ratify its resolutions; n) Submit annual financial statements to the GMS; o) Propose the dividends; decide the time and procedures for paying dividends or settling business losses; p) Propose reorganisation or dissolution of the bankruptcy; file bankruptcy of the company; q) Other rights and obligations prescribed by Law and the company’s charter.

Source: Law on Enterprises.

Evaluations of BoMs are typically top-down – that is, driven by the competent ministry that is responsible for the nomination of the board. In the words of one Vietnamese stakeholder, “whoever nominates has to evaluate”. However, the agency bases the assessment in part on a self-evaluation done by the board in accordance with Decree 159. The mission team understands that board evaluations are pro-forma or, in other words, not leading to meaningful evaluation. The mission team suspects that this could be, in part, because BoM members know that this informs the competent ministry’s assessment that is used in turn to set remuneration for the following year.

13.2. Setting strategy and supervising management

B. SOE boards should effectively carry out their functions of setting strategy and supervising management, based on broad mandates and objectives set by the government. They should have the power to appoint and remove the CEO. They should set executive remuneration levels that are in the long-term interest of the enterprise

The overall challenge for governance of SOEs would appear to lie in the fact that the legislation is currently established in a way that affords the state, at least in the case of wholly-owned SOEs, ultimate decision-making power about board composition and representation. Various representatives of the state together manage the pool of candidates, modify within reason the criteria required for each position, assess fulfilment with the criteria, nominate board members in consultation with management of the company and eventually appoint (sometimes done by the Prime Minister). Moreover, while civil servants were banned through the 2015 legislation from serving on boards – both BoMs and BoDs – the state still appoints “group representatives of the state capital” to the board.

Vietnamese authorities suggest that state owners exercise their rights, responsibilities and obligations in compliance with the provisions of law, including the Law on Enterprises, the Law on management and use of state capital invested in production and business in Vietnam. Individual company charters are also meant to afford SOEs business autonomy and ‘self-responsibility’, suggesting that the state owner is responsible for strictly complying with the provisions of company charters. Multiple stakeholders reiterated that interference in the business activities of SOEs would be considered illegal.

There does seem to be a process for escalating decision-making from CEO to the BoM or BoD, to the CMSC (and other ministries) depending on the nature of the decision. However, as was mentioned above, the thresholds or indicators for when decisions need to be taken at which level is not made clear in legislation, though it may be found more clearly in a company charter. It can be different depending on the company. It appears that representatives of state capital, certainly on BoMs and potentially BoDs, exercise considerable influence in the operational decisions of the company, keeping close contact with their entity of origin (whether CMSC or SCIC).

BoMs in wholly owned companies are, in theory, overseen by Boards of Controllers (BoC). In reality, while the BOC is assigned equal authority to the BoM, the BoC cannot wield any authority over the BoM. A more effective ‘check and balance’ on both the BoM and executive management is the “Party Organisations” or representatives of the Communist Party that sit within each SOE. Usually, the Party Organisation is represented in leadership positions – CEO and/or the Chair of the board – but not only. They act independently within the company and can be quite effective in holding management and Boards accountable, notably around corruption or related irregularities, which are a big focus of the Communist Party.

While the activities of the Party Organisation, the SAV, and the inspectorate are said to be effective in holding SOEs accountable, the mission team remains sceptical that they are held accountable for decisions that are in the good of the company only, as it would appear that decisions of BoMs in wholly owned firms are in fact expected, in addition or instead, to be in the good of the state.

In the case of joint-stock SOEs, the BoDs are entitled to recruit and enter into a labour contract with their CEO, subject to the approval of the state owner. CEOs of wholly-owned SOEs are, according to the law, appointed by the BoM subject to approval or following the request of the owner’s representative agency (the competent ministry). In practice it may be reversed – that is, the proposals and nominations are initially made by the competent ministry based on the pool of candidates, and BoMs are consulted. In the case of company groups, the Chair and CEO/General Director positions are considered to be “high-level personnel” and thus subject to appointment by the Prime Minister, regardless of whether the company group is at the central or provincial level. In both LLCs and JSCs, it appears that the BoM and BoD contribute to the annual evaluations of the CEO – the results for which are then communicated to the Party Committee of the company and to competent authorities upon request. They factor into the BoM’s considerations regarding re‑appointments, pay raises and rewards of the executive management.

Personnel matters of SOEs are overseen by competent ministries. Guidelines on personnel management are set by the MOHA, which provides an advisor role for competent ministries about the legislation and on specific personnel issues. The mission team has the impression that together, the MOHA and competent ministry, takes on a lead role in overseeing SOE management, notably in wholly-owned SOEs.

Despite a role in overseeing management, the state is highly influential in the same, not least owing to the fact that the state and Party represents the majority of boards (100% owned by state). The OECD learned that Ministries can and do consult CEOs directly without having to go through the BoM, including for their input on drafting legislation, which raises concerns about both SOE leadership acting in the best interest of the firm as well as the state adequately separating its regulatory and ownership functions.

13.3. Board composition and exercise of objective and independent judgment

C. SOE board composition should allow the exercise of objective and independent judgment. All board members, including any public officials, should be nominated based on qualifications and have equivalent legal responsibilities

The legislation sets parameters on the composition of either type of board through a minimum and maximum of allowable members on boards: a maximum of seven for wholly-owned LLCs; between three and seven for partially-owned LLCs, and; between three and 11 for partially-owned SOEs in the form of JSCs.

There are no requirements in the legislation for the composition of LLCs (single and multi-member). In public companies, at least one‑third of the BoD should be non-executive. The composition for LLCs is dictated by the criteria set at the central level and tailored by the competent ministry to individual positions and companies. It appears that BoMs of wholly owned SOEs are comprised either of “representatives of state capital”1 – being representatives of either CMSC or of SCIC – or Party officials, and former employees of the company.

Moreover, in unlisted public companies and listed public companies without a BoC (instead, opting to establish an audit committee), at least 20% of the members of the BoD should be independent members. It was not possible to verify adherence to this requirement by assessing SOE websites. The Corporate Governance Code for listed companies goes further to encourage listed companies (including SOEs) to meet a minimum of one‑third independent board members.

It appears that representatives of state capital come from CMSC or SCIC and are not deemed civil servants or public officials, thereby permitting their membership on boards without conflicting with the otherwise seemingly good-practice policy of not having ‘civil servants’ on boards. Party members also serve on Boards, for instance as in 100% owned PVN. It has a total of seven board members, including: Chair (cum Secretary of the Party Committee of the National Oil and Gas Group); Member (cum Deputy Secretary of the Party Committee); CEO/General Director of PVN; five full-time members.

The BoM may also have company-internal staff that have been put through a career pipeline, as described below. In this case, it appears that employees then lose their status as employee of the company and become full time members of the board. It is considered a promotion. BoMs can accept external candidates, but this appears to be a second-best option, occurring usually when no decent internal candidates are present or when the company is in dire financial trouble. The mission team understands that there are currently no independent external board members – that is, external to the company or to the state. The lack of details on this subject reflects the difficulty in accessing information about board composition and a general lack of transparency about SOE boards. Where information about boards is available online, the mission team sees a heavy predominance of male board members in Vietnamese SOEs.

For JSCs, whether listed or unlisted, the BoD should have between three and 11 members on five‑year terms. In unlisted JSCs, the BoD is comprised of the Chair, and employee or state representatives and may have a Deputy Chair in larger companies (as is the case for instance with SCIC). In listed SOEs, at least one‑third of the BoD should be non-executive members. Moreover, in unlisted public companies and listed public companies without a BoC (instead, having an audit committee), at least 20% of the members of the BoD shall be independent members. The Corporate Governance Code for listed companies goes further to encourage listed companies (including SOEs) to meet a minimum of one‑third independent board members. Independent board members can only be elected up to two continuous terms.

Table ‎13.2 provides an overview of the information found on the websites of ten large SOE websites about the Board, demonstrating that SOEs provide very little information about their boards on their websites – particularly but not only those of SOEs 100% owned by the state – that indicates non-compliance with the disclosure requirements mentioned here and outlined in Section 12.1. Based on the information provided on company websites, it could be verified only for Vietnam Dairy that its Board of Directors adheres to the good practice established in the Corporate Governance Code of having 30% independent members (including those that sit on the Audit Committee), with the rest being comprised of non-executive members (40%) and executive members (30%). It is not to say that the other listed firms do not adhere, but the information is not available on their websites. Vietnam Dairy’s Board of Directors has foreign representation – which was not explicit but was verifiable for Vietcombank, Saigon Beer-Alcohol-Beverage Corporation and Vietnam Airlines (all listed).

Table ‎13.2. Board-related disclosures in ten large SOEs

Tabulated from websites of 10 large SOEs (6 of the top 10 largest listed SOEs, 1 listed, and 3 wholly-owned by the state)

	Board of Directors (JSC) /Members (LLC)	Management	BoC	Names	Photos	Information on appointments	Information on roles in other companies	Background information on individual	Independent representation explicit?
Top 10 large, listed SOE
Commercial Bank for foreign trade of VN JSC – Vietcombank	x	x	x	x	x			x
PetroVietnam Gas JSC (Pvgas)	x	x	x	x				x
Viet Nam Dairy Products JSC	x	x		x	x		x		x
Bank for Investment and Development of Viet Nam JSC (BIDV)	x	x	x	x	x			x	x
Vietnam Rubber Group	x	x		x	x
Saigon Beer-Alcohol-Beverage Corporation	x	x	x	x	x
Listed
Vietnam Airlines	x	x	x	x				x
100% owned by State
State Capital Investment Corporation (SCIC)		x	x	x	x	x		x
Petrovietnam (PVN)		x	x	x	x
Vietnam Electricity (EVN)		x		x	x

Source: Author research from SOE websites.

As discussed in previous chapters, the state owner is not only responsible for nominating board members of single‑member wholly owned SOEs, but also the appointing, reprimanding, awarding, dismissing and sanctioning them. The state moreover appoints the CEO and the Controllers. The Prime Minister appoints the Chair of the board for economic group. For instance, Members of BoM of EVN (a wholly owned economic group) are appointed by the owner’s representative agency (CMSC). The Chair of EVN’s board is appointed by the Prime Minister per CMSC’s request, following a review by MOHA given their role in managing high-level positions of the state. Similarly, the Chair of the BoM of VNR is nominated by the CMSC to the Prime Minister for appointment, re‑appointment, dismissal, commendation and discipline in accordance with law. Other members of its board are appointed, re‑appointed, dismissed, rewarded and disciplined by CMSC.

State authorities propose a list of nominees to the SOE board, which then deliberates prior to accepting or rejecting the nomination. If a potential applicant is accepted by the board, this acceptance will be shared with the state authority after which the appointment will be made. There are regulations that guide the nomination process that include nomination criteria, the preparation process and the official appointment procedure (Decrees 97/2015/NĐ-CP, Decree 106/2015/NĐ-CP). All potential applicants must follow this process.

Nominations are meant to be guided by the general criteria for appointments that are found in Decree No. 159/2020/ND-CP dated 31 December 2020, of the Government on management of title holders, positions and representatives of state capital in Vietnam. The criteria are established at the central level (Decree 159), by MOHA in co‑operation with CMSC and MPI and is applicable to all SOEs at the central and provincial levels. They should be translated into company charters. Competent ministries reserve the right to adjust criteria depending on the positions within the company, under the condition that they are not in conflict with the Decree 159 as established by the MOHA in co‑ordination with CMSC. This suggest a degree of flexibility that is warranted for tailoring criteria to individual positions, sectors and expertise. Specifications may be laid out in the Company Charter, but the mission team understands that the criteria can be further tailored beyond what appears in the company Charter. Given the lack of transparency of the process and lack of public posting of positions, it would be difficult to determine whether criteria were manipulated to favour one individual or group of individuals over another. In case of being a Party member, there are additional criteria and conditions according to the Party’s regulations.

The state uses an elaborate process of preparing individuals through a career pipeline. The mission team understands this process applies largely to employees of companies, but it may also apply to those in the public sector demonstrating potential, in the eyes of the state or the Party, for promotion. Thus some, if not all, board appointments in wholly-owned SOEs are made based on a pool of candidates that have been sought out or recruited and prepared in advance of a potential appointment.

Individuals need to be subject to a “master plan” in order to be “promoted”. They are subject to evaluations on performance and can be planted in pool and subjected to training for promotion in the future. Such a promotional track gives rise to concern about the allegiance that individuals have to the process and the state for their career track, and its implications for their acting in the best interest of the firm. At the same time, the mission team was informed about the need for training of board members at least in wholly-owned firms.

Coupled with a commentary about room for improvement in the professionalism of BoMs, the mission team believes that there may be a current dearth of skills and expertise needed at the board level. This may be because other criteria is weighted differently – for instance, position within or loyalty to the Party. Viet Nam may wish to amend its criteria or process of applying criteria or look further afield for the candidate pool for those with relevant experience as well as knowledge – a mix of soft and hard skills needed – in order to professionalise BoMs.

In theory, if the SOE board refuses a nomination the candidate will not be appointed. However, the mission team was not informed of such a disagreement ever occurring. According to one SOE, it strictly assesses the nomination documents for positions in the BoM and management team, to ensure compliance with the system of regulations – that is, regulations of both the Party and the State on personnel issues/work. More often however, it would appear that SOEs accept the state’s nominations, particularly considering that many come from the pre‑determined pool of candidates.

It is worth noting that the mission team was informed of the intentions to establish new guidelines on nominations processes. In the perspective of one stakeholder, the idea is for SOEs to be able to attract higher quality candidates into the SOE governance structure to improve performance and operations. They suggested that at the moment this cannot be achieved for many reasons, not least that nomination processes “are burdensome and very complicated”. Beyond this, interviewed ministries were not able (or willing) to elaborate on what that would look like and what the changes would be.

As mentioned, the Vietnamese legislation disqualifies civil servants and public officials from serving on boards. Prior to 2015, this was common practice to have representatives of various ministries present on boards. Currently, the state is represented on boards through “representatives of state capital” that come from CMSC or SCIC and potentially others, where their employees are not considered public officials or civil servants. Thus, while the legislation suggests, on paper, absence of state presence on boards, the state is very much present.

As mentioned, the rights and obligations of BoMs and BoDs is elaborated in the Enterprise Law, as well as Decree No 159/2020/ND-CP (on personnel) and company charters. The members of the board of directors and the management of SOEs must take individual responsibilities for the damages caused to the SOEs due to their decisions and direction according to the extent of damages determined by the competent agency/individual after excluding objective influencing factors (while in private companies, the owners or shareholders are affected by their own decisions). The determination of compensation and/or criminal liability of SOE leadership members is based on the will and behaviour (intentionally violating the regulations or neglect in management) as evaluated, determined, and concluded by the judicial authorities.

According to CIEM, there have been quite a few cases where BoM members were removed from their position, particularly in the context of the fight against corruption. Law 69 and Decree 159, elaborates on the cases where chair of board can be dismissed. In two consecutive years if they fail to fulfil, they will be dismissed (violation laws, corruption), and in reality, there have been many cases and members of board.

The mission team learned from one SOE about the concern that specialised board committees raises regarding the understanding of collective liability and individual responsibility of members of the BoD. More importantly, this perception suggests that the default culture of a unitary direction of a board – without dissenting opinion or with diversified tasks – could be considered to pose an issue for the efficacy of the boards. Otherwise, clarification on responsibilities of specialised committees, and their implications for the collective liability and responsibility of the rest of the board, could be important for mitigating resistance to the good practice of having strong board committees that can serve to improve the professionalism of boards.

13.4. Independent board members

D. Independent board members, where applicable, should be free of any interests or relationships with the enterprise, its management, other major shareholders and the ownership entity that could jeopardise their exercise of objective judgment

As mentioned, there exist very few written requirements regarding the ideal composition of boards of wholly-owned SOEs. While it appears that the law theoretically allows the state to add independent members to its pool of candidates, the mission team understands that there are no externals (that is, external from the company and from the state) sitting on boards of wholly-owned companies.

The Enterprise Law establishes that board members must not be a current employee of the company or its subsidiaries, but the mission team has learned that many board appointments in wholly-owned companies come from within. Presumably, once an individual is promoted from within, they lose their status as an employee of the company. While the law technically prohibits civil servants and other public officials from sitting on boards, but the state is represented instead by “group of representatives of the state capital”, which the OECD would indeed consider as state officials.

In public companies, as was mentioned, at least one‑third of the BoD should be non-executive members. Moreover, in unlisted public companies and listed public companies without a BoC (instead, having an audit committee), at least 20% of the members of the BoD shall be independent members. The Corporate Governance Code for listed companies goes further to encourage listed companies (including SOEs) to meet a minimum of one‑third independent board members. Independent board members can only be elected up to two continuous terms.

13.5. Mechanisms to prevent conflicts of interest

E. Mechanisms should be implemented to avoid conflicts of interest preventing board members from objectively carrying out their board duties and to limit political interference in board processes

The 2018 Law on Anti-Corruption of Vietnam provides an official legal definition of a conflict of interest, according to which: “Conflict of interest is a situation in which the interests of a person holding a position of authority or authority their relatives affect or will improperly influence the performance of their duties or public duties” (Clause 8 Article 3). Persons holding “a position of authority” include representative of the state capital share in the enterprise, and persons holding managerial titles or positions in enterprises or organisations, along with civil servants, soldiers and defence workers, among others.

The Law outlines what constitutes cases of conflicts of interest (Article 29). These include when an aforementioned person of authority is determined to have a conflict of interest following clear signs that such person belongs to or will fall into one of the following cases:

• Receive money, property or other benefits from agencies, organisations, units and individuals related to the work they handle or under their management

• Establish and participate in the management and administration of private enterprises, limited liability companies, joint-stock companies, partnerships and co‑operatives, unless otherwise provided for by law

• Advising other domestic and foreign enterprises, organisations and individuals on jobs related to state secrets, work secrets or jobs falling within their competence or participating in settlement

• Using information obtained through their positions and powers for personal gain or to serve the interests of other organisations or individuals

• Arrange their spouse, father, mother, child, brother, sister or younger brother to hold the position of manager in personnel organisation, accounting, treasurer, storekeeper in the agency, organisation or application. position or transact, purchase and sell goods and services, sign contracts for agencies, organisations or units of which he is the head or the deputy of the head

• Contributing capital to enterprises operating within the lines of business that they directly perform the state management of or letting their spouses, parents and children do business within the lines of business directly performed by them. performing the state management

• Sign contracts with enterprises owned by spouses, fathers, mothers, children, brothers, sisters, or to have enterprises owned by spouses, fathers, mothers, children, brothers and sisters, younger siblings participate in bidding packages of their agencies, organisations or units when assigned to perform transactions, purchase and sell goods and services, sign contracts for that agency, organisation or unit

• Having a spouse, father, mother, child, brother, sister or younger brother who has rights and interests directly related to the performance of his or her duties and public duties

• Interfering with or improperly influencing the activities of competent agencies, organisations, units and individuals for self-seeking purposes”.

The monitoring mechanisms and approaches to managing conflict of interest differ depending on the company form or the individual position. The MOHA asserts that “target personnel” (for instance, board chair and CEO) are subject to the aforementioned anti-corruption regulations that make prescriptions on asset declaration and management both before appointments are made and throughout incumbency. In the case of joint-stock SOEs, a monitoring mechanism should be established as follows:

• Declare all existing or potential conflicts of interest before engaging in a transaction, activity, or relationship which leads to reporting requirements.

• Declare existing or potential conflicts of interest during recruitment.

• Require all employees of the enterprise who frequently engage in contracts regarding sales, services, raw materials, assets, or products to declare any existing or potential conflict of interest on an annual basis.

• Refrain from joining the BOD of any customer, supplier, or competitor.

• Consult the compliance team on how to address a conflict of interest instead of relying on their own interpretations, which may be inconsistent case by case.

A further mechanism to manage conflict of interest is the disclosure of related benefits, required for partially-owned joint-stock companies is covered in Box ‎13.1. This mechanism however is not required of single or multi-member LLCs. It appears, notably based on the challenges raised to autonomy of internal audit and of the board, that Vietnamese SOEs in the form of LLCs would benefit from more comprehensive requirements on managing conflict of interest.

Box ‎13.1. Disclosure of related benefits for SOEs in the form of joint-stock companies

Per Article 164 of the 2020 Law on Enterprises: Disclosure of related benefits.

Unless more stringent requirements are prescribed by the Company’s Charter, the company’s related benefits and persons shall be disclosed as follows:

1. The company shall compile and update a list of its related persons in accordance with Clause 23, Article 4 of this Law, their contracts, and transactions with the company.

2. Board members, Controllers, Director or CEO, and other managers of the company shall declare their related interests, including the following information:

a) Names, enterprise identification numbers, headquarters addresses, and business lines of the enterprises they own or have shares/stakes in; the ratio and time of owning or holding the shares/stakes

b) Names, enterprise identification numbers, headquarters addresses, and business lines of the enterprises their related persons own, jointly own, or have separate shares/stakes that are worth more than 10% of the charter capital.

3. The information specified in Clause 2 of this Article shall be declared within seven working days from the day on which the related interests are brought about; any amendment or supplement shall be notified to the company within seven working days from its date of occurrence.

4. The list of related persons and interests mentioned in Clauses 1 and 2 of this Article shall be archived, disclosed, reviewed, extracted, and copied as follows:

a) The company shall announce the list of related persons and interests at the annual GMS.

b) The list shall be archived at the company’s headquarters; the list may be archived in part or in full at the company’s branches where necessary.

c) Shareholders, their authorised representatives, members of the BOD, BOC, the Director or CEO, and other managers shall reserve the right to review, extract, and make copies of the list in part or in full.

d) The company shall enable the persons specified in Point c of this Clause to access, review, extract, and make copies of the list and must not obstruct them in the process. Procedures for reviewing, extracting, and copying the list shall be specified in the Company’s Charter.

5. When members of the BOD, the Director or CEO do business within the company’s business lines in their own names or others’, they shall explain the nature and contents of such business to the BOD and BOC and may only proceed if it is accepted by the majority of the remaining members of the BOD. Otherwise, all incomes from such business shall go to the company.

Such regulations should be combined with requirements for fulfilment of responsibilities by management and board members that are detailed in legislation (Law on Enterprises, and Decree 159/2020/ND-CP) as well as company charters. For instance, EVN’s Charter prescribes obligations of the Members’ Council of EVN, including regulations against abusing one’s position and power to use EVN’s capital and assets for personal gains or other people’s gains.

The Law assigns the line manager the responsibility of supervising the performance of the duties and public official duties of an individual, when there are grounds to believe that a person has a conflict of interest that does not guarantee the correctness, objectivity and honesty in the performance of tasks and official duties. They do so by monitoring performance among other things. When it comes to monitoring the conflict of interest of board members, the accountability is less clear.

According to the state audit office (SAV), Vietnamese legislation on conflict of interest, notably the Anti-Corruption Law, is clear in terms of publicising, inviting and determining who is in charge of managing individuals when conflicts are detected, the need to report, how to invite a review and when sanctions are called for.

The SAV reiterated the difficulty of detecting conflict of interest. It informed the mission team that there have been cases of conflict of interest that arose in the course of an audit, for instance, when it detected that a CEO signed a contract with an enterprise to which it had family relations. The SAV asked the person in charge to deal with the situation, revisit the contract to ensure and confirm the conflict, and to suspend the contract. They described this as an irregular event. A key part of conflict of interest management is the ability to effectively manage and address conflicts, while being transparent about the ramifications. It appears that line managers or other individuals responsible for their colleague in conflict have substantial discretion in dealing with the conflict. It is unclear how those in charge are themselves accountable for accurate dealing with conflict of interest situations in their company or on the board.

The potential for conflict of interest writ large as regards the state’s role as an economic actor raises concerns about their presence on boards. The exclusion of civil servants and public officials from line ministries may help to address this issue, but the fact remains that the state is represented through the CMSC and/or the SCIC. Indeed, for wholly-owned SOEs, the “Members Council [BoM] is the direct representative of the owner”.

Legislation regarding conflict of interest in Vietnamese SOEs focuses on the conflicts of individuals, and notably on conflicts they have related to their kin, at least for wholly-owned SOEs. It does not refer to the conflict of interest that a representative of the state might bring in prioritising interests of the state over the company. In other words, the concept of conflict of interest does not apply to the conflict that can arise between the regulatory and business management functions of government more broadly. In this regard, the OECD and other international observers such as the World Bank have in the past pointed to problems related to conflict of interest specifically with regards to the state’s role as owner of SOEs and as policy makers. Stakeholders have pointed to actual and perceived conflicts of interest as an impediment to investment by private entities thereby reinforcing the dominance of SOEs in the market (OECD, 2018[1]). Perceptions of conflict of interest can be damaging, and the lack of separation between state functions appears to remain a complicating factor for investment in Vietnamese SOEs.

13.6. Role and responsibilities of the Chair

F. The Chair should assume responsibilities for boardroom efficiency, and when necessary, in co‑ordination with other board members, act as the liaison for communications with the state ownership entity. Good practice calls for the Chair to be separate from the CEO

The term of office of the Chair (and other members of the BoM) shall not exceed five years. According to the Enterprise Law, the Chair of the BoM of a one‑member LLC cannot concurrently act as the Director and the CEO (Art. 93). Likewise, it also prohibits the Chair of a publicly traded BoD or an enterprise where the State holds over 50% of charter capital or voting shares cannot act as the CEO (Art. 156). Indeed, as provided by Mobiphone (100% state‑owned), “the Members’ Council Chairperson cannot hold the position of General Director at the same time as prescribed in Decree No. 159/2020/ND-CP”. The Party members may fill the position of Chair and in addition of CEO, with each SOE having a “Party Organisation”, “Cell” or “committee” that can be represented in other or additional functions within the SOE. While aligned with good practice, keeping the positions separate may have the added benefit for the Party insofar as it can allow for multiple Party members or state representatives to fill important and influential posts in SOEs at one time.

In wholly-owned SOEs the representative of state capital at the enterprise level is the point of contact between the ownership entity and the BOD. This could be the BoM Chair, given that the position of often filled by the representative of state capital (and/or a Party member). In the case of company groups, the Chair and CEO positions are considered to be “high-level personnel” and thus subject to appointment by the Prime Minister. Thus, while the Chair should assume responsibilities for boardroom efficiency and act as a liaison with the state ownership entity, it appears that this will depend in practice on who is filling the position of Chair at a given time in a given SOE.

13.7. Employee representation

G. If employee representation on the board is mandated, mechanisms should be developed to guarantee that this representation is exercised effectively and contributes to the enhancement of the board skills, information and independence

Employee representation on boards, for both wholly-owned and partly-owned SOEs is not mandated. In practice, employee representatives do not hold positions within boards. As mentioned, it is common that BoMs are comprised of individuals that worked previously within the company, but member positions are not reserved for employees as is seen elsewhere. These individuals, as part of the pool of candidates viable for eventual board positions, apparently will have received training as part of the career path. In the case of JSCs, employee representatives may become members of the BoD if they are voted in as part of the shareholder’s meeting. If BoD members cannot attend meetings themselves, they can authorise someone else to attend on their behalf to speak, but it is unclear whether employees are allowed. Such representation is prescribed in Articles 138, 141, and 142 of the Civil Code.

13.8. Board committees

H. SOE boards should consider setting up specialised committees, composed of independent and qualified members, to support the full board in performing its functions, particularly in respect to audit, risk management and remuneration. The establishment of specialised committees should improve boardroom efficiency and should not detract from the responsibility of the full board

Specialised board committees are not required for limited liability SOEs (understood to be the case for both single or multi-member). Joint-stock SOEs can either opt for the establishment of a Board of Control or an Audit Committee – the latter of which tracks closely in terms of function as an audit committee outlined in international standards (Box ‎13.2)

Box ‎13.2. Audit Committees of select joint-stock SOEs

The following applies to joint-stock SOEs that opt to establish an Audit Committee (as opposed to having a Board of Controllers)

An Auditing Committee shall comprise two or more members. The Chairperson of the Auditing Committee must be an independent board member. Other members of the Auditing Committee must be non-executive board members.

The Auditing Committee shall ratify resolutions, make decisions by voting at the meeting, and collect inputs in writing or other forms prescribed by the Company’s Charter or its operating regulation. Each member of the Auditing Committee shall be entitled to one vote. Unless a higher ratio is prescribed by the Company’s Charter or the operating regulation of the Auditing Committee, the decision of the Auditing Committee shall be ratified if it is approved by the majority of the attending members. In case of a tie in the number of votes, the one that the Chairperson of the Auditing Committee sides with will prevail.

The Auditing Committee has the following rights and obligations:

a) Inspect the accuracy of the company’s financial statements and make official announcements about the company’s finance

b) Review the internal control and risk management system

c) Review transactions with related persons subject to the approval by the BOD or the GMS; offer recommendations on these transactions

d) Supervise the company’s internal auditing unit

e) dd) Propose independent auditing company, payment, and terms in the contract with the auditing company to the BOD before it is submitted to the annual GMS for approval

f) Monitor and evaluate the independence and objectivity of the auditing company and effectiveness of the audit, especially when the company uses non-audit services of the auditing company

g) Supervise the company’s compliance with law, requests of the authorities, and other internal regulations of the company.

Source: Law on Enterprises.

The BoD (of JSCs) may establish its subcommittees to take charge of development, human resources, remuneration, internal audit, and risk management policies. The number of members per subcommittee is determined by the BOD to consist at least three members including BOD members and external members. Independent BOD members or non-executive BOD members should constitute the majority of subcommittee members, one of whom should be appointed as the chair of the subcommittee per Decisions made by the BOD. The operations of the subcommittees must adhere to the regulations prescribed by the BOD. The resolutions of the subcommittees shall only be effective should the majority of their members attend and cast their votes at the subcommittee meetings. The establishment and operation of BOD subcommittees are prescribed in International Regulations on corporate governance of a publicly traded enterprise.

As mentioned previously, one joint stock SOE raised concern that the presence of specialised committees actually creates confusion around the collective liability of the board and of individual responsibilities of board members. Though beyond the scope of this review, this could be reflected upon in order to ensure that specialised board committees can be leveraged to improve the capacity of the board and the quality of board decision-making. The market should be provided with a complete and clear picture of their objectives, tasks, and composition. The mission team was informed that such information is especially important in cases where the BoD opts to establish the Audit Committee. Other committees under the BOD often include the nomination committee and the remuneration committee. The responsibilities of other BOD members and the BOD as a whole should be specified as well.

In LLCs, there are multiple units or departments that support the functioning of the BoM. Some SOEs refer to these as Board committees, but these are not the same as specialised board committees established by international standards, as they are comprised of individuals that are under the management of the General Director or other member of executive management. The most common supporting department is the “Inspection and Audit Committee” (or similarly called). Companies may establish others on a needs-basis, as Viet Nam Airlines has done for its committee for strategies and for human resources or the EVN has done with its General Affairs Department and Development Strategy Department. As these are not specialised board committees, their working procedures are not defined nor disclosed.

13.9. Annual performance evaluation

I. SOE boards should, under the Chair’s oversight, carry out an annual, well-structured evaluation to appraise their performance and efficiency

Limited liability companies may conduct self-evaluations on what appears to be a voluntary basis. Indeed, certain SOEs confirmed that they conduct a self-evaluation on an annual basis, evaluating their performance and sending this to the line ministers that was responsible for their appointment (the line ministry). Line ministers consider and decide on the final result of evaluation. Line ministries uses self-evaluations, to the extent they are submitted, to prepare annual evaluations of individual SOE boards – as a whole as well as of members including the Chair – that informs considerations on remuneration, discipline, nomination and dismissal. Evaluations are said to be qualitative and mechanistic in nature but lacking in quantitative information according to CMSC. Moreover, evaluation of boards is a challenge insofar as boards’ self-evaluations are not systematic. The approach is VIMC and is detailed in Box ‎13.3.

Box ‎13.3. Board evaluations in joint-stock companies: the case of VIMC

Vietnam National Shipping Lines rebranded in 2020 when it became a joint-stock company, known thereafter as Vietnam Maritime Corporation (VIMC). It evaluates both the executive board and board of Directors (BoD) proceeds on an annual basis. The VIMC BoD currently has three members, all of whom are male.

The Board of Management (Executive Board) of VIMC is evaluated on an annual basis following the steps below:

• Step 1: In preparation for the evaluation of Party members, at the end of the year, the Executive Board of VIMC has a meeting to discuss, provide inputs, and conduct a (temporary) evaluation on its members based on the estimated business performance in the year.

• Step 2: After the audited financial report is available, the Director General and Deputy Directors write their self-reflection on the performance achieved given the tasks assigned and rate themselves (based on the figures from the audited financial report and evaluation criteria prescribed in the Government’s Decree No. 159/2020/ND-CP).

• Step 3: The Executive Board holds a discussion to provide inputs and propose the rating for each of its members. Afterwards, it submits a report on the discussion outcomes to the BOD of VIMC.

• Step 4: The BOD of VIMC: (i) evaluates the Director General and (ii) evaluates the Deputy Directors based on the inputs provided by the Director General.

• Step 5: The evaluation/rating results are documented and communicated with each member of the Executive Board and the Party Committee of VIMC as well as competent regulators (upon request). Such results provide the rationale for VIMC to consider its appointment, pay raise, and reward towards members of the Executive Board.

The BOD of VIMC is evaluated on an annual basis following the steps below:

• Step 1: In preparation for the evaluation of Party members, at the end of the year, the BOD of VIMC has a meeting to discuss, provide inputs, and conduct a (temporary) evaluation on its members based on the estimated business performance in the year.

• Step 2: After the audited financial report is available, BOD members write their self-reflection on the performance achieved given the tasks assigned and rate themselves (based on the figures from the audited financial report and evaluation criteria prescribed in the Government’s Decree No. 159/2020/ND-CP).

• Step 3: VIMC reports the self-reflection results in writing to CMSC, which will then evaluate and rate each member of the BOD. The evaluation/rating results are documented and communicated with each BOD member and prove the rationale for VIMIC to consider its appointment, pay raise, and reward towards BOD members.

Source: VIMC responses to the OECD questionnaire.

In practice, the mission team was informed during the fact-finding missions that in effect, there is very little accountability for board performance, particularly for LLCs compared to JSCs and private firms. Moreover, the predominance of representatives of state capital on boards could give rise to incentive for board members to underreport or for line ministries to avoid a high degree of scrutiny in assessing the board.

There are other mechanisms at play meant to ensure performance and efficiency of boards, namely the BoC, the Party Organisation within the company (which can manifest in the Chair and CEO positions), but also internal audits and external audits by the SAV or third-party external auditors, as well as the government inspectorate. In reality, the BoC is not sufficiently placed in the hierarchy nor sufficiently independent to provide such oversight. As posited above, the BoC can be in practice subsumed to the BoM (its relationship to a JSC’s BoD, where existing, is less clear) despite being assigned an equal authority in the Law and in company Charters. In effect, it is the Party Organisation that might be most effective in directly monitoring the behaviour and action of boards – particularly through Party members that are not fulfilling the Chair or CEO position (CEOs are most often members of the boards) and that are otherwise “somehow independent” within the company. However, as raised already in this chapter, the mission team is not confident that such monitoring also takes into account prioritisation of performance over other state‑interested criteria for board decisions.

13.10. Internal audit

J. SOEs should develop efficient internal audit procedures and establish an internal audit function that is monitored by and reports directly to the board and to the audit committee or the equivalent corporate organ

As previously explained, parent companies that are wholly or majority-owned by the state are required to have in place an internal audit unit or function (as of 1 April 2021, two years after the issuance of Decree No. 05/2019/ND-CP). The Decree establishes roles and responsibilities of internal audit and related stakeholders. It has been recently supplemented with guidance to support compliance, issued by the Ministry of Finance. That includes guidance on sample internal audit regulations for corporate use (Circular No. 66/2020/TT-BTC) and the recently-issued Vietnamese Standards and Code of Ethics for Internal Auditing (Circular No. 08/2021/TT-BTC).

The law aims to provide assurance over the functioning of internal controls of an entity and assigns objectives, details on audit planning processes and requires establishment for qualifications of internal auditors, making much of the law appear to fall to be in line with international standards. Indeed, the mission team was informed that the law generally aims to support Vietnamese companies in aligning with international good practice in internal audit and enhancing corporate governance. This could prepare SOEs to better navigate a transition from Vietnamese accounting standards, currently applied, to IFRS in pursuit of the five‑year roadmap that at least certain SOEs are working towards.

The Decree requires companies to decide whether internal audit would manifest as a function or department and to situate it in the organisational structure. Companies are meant to clearly define: (i) the roles and responsibilities between the BoM/BoD and BoC regarding internal audit; (ii) the reporting mechanism for internal audit to the BoM/BoD vs. the BoC; and (iii) the differences between the BoC and the internal audit function/department. The Decree provides the BoM and BoD with authority to establish rules for internal audit – including responsibilities and activities of internal audit. They should be established through company-specific internal audit regulations.

The Ministry of Finance provided an example of the way in which a BoM might situate the internal audit unit within the company:

• The internal audit department is established by an SOEs’ Board of Directors (for JSCs)/Board of Members (for LLCs)/President (for certain one‑member LLCs). The Board of Directors/Board of Members/President of the company directly manages the internal audit department (or through the Audit Committee (JSC) or body authorised by the Board of Directors/Board of members/President of the company).

• The person in charge of internal audit will report professional issues to the Board of Directors/Board of Members/President of the company (or through the Audit Committee / authorised body).

• The person in charge of internal audit will report daily administrative work (for example, notifying the audit schedule, travel problems, or business trip expenses) directly to the General Director/Director or person authorised by the General Director/Director.

• The person in charge of internal audit has the right to report and discuss directly with the Board of Directors/Board of Members/President of the company when necessary.

• The person in charge of internal audit will periodically report to the Board of Directors/Board of Members/President of the company (or through the Audit Committee or authorised body) regarding the purpose, authority and responsibility, as well as the performance of the internal audit department in relation to its plans. The report also includes significant risk and control issues, fraud risks, governance issues and other matters as necessary or as required by the Board of Directors and the Board of Directors/Board of Members/President (or the Audit Committee or authorised body).

A more concrete example comes from wholly-owned Electricity Company (EVN), the BoM issued regulations on internal audit, financial supervision and control prior to the issuance of the 2019 Decree (Decision No. 44/QD-EVN of February 2018). Internal auditors report to team leaders and the Head of the “Internal Audit and Financial Supervision Department” (presumed to be the same as the “Internal Control Board” discussed in 5.3). Audit results are first approved by designated “members of the BoM in charge of this [Internal Audit and Financial Supervision] Department before being submitted to the BoM. Moreover, Regulation 44 prescribes the reporting procedures for each stakeholder within EVN (internal auditors and controllers) and in its audit and supervisory system more broadly that includes companies under other corporate forms.

These approaches reflect certain elements of good international practice – namely insofar as the head of internal audit appears to report functionally to the BoD/BoM and administratively to executive management, but there are multiple concerns about the autonomy of internal audit and thus the ability for it to effectively carry out its role of assurance, as elaborated below:

• Many SOEs opt to have the internal auditor report to – and potentially sit as a member on – the Internal Control Board (see Chapter 5). This body “serves” the BoM, which gives the Internal Auditor access to the BoM. However, it also raises questions about the subservience of internal audit to the BoM/BoD and the autonomy it is afforded in practice. At least wholly-owned BoMs are comprised of state and Party officials, and often the CEO. One SOE said that its “internal auditing system was developed to enable the Members’ Council [BoM] to directly perform its role as the owner’s representative in the conservation and development of State capital and assist the General Director [CEO] and [executive] leaders in implementing specific goals of protecting its assets, thus ensuring information credibility, legal compliance, and operational performance”. The focus of this particular company is first and foremost on supporting the state’s conservation of capital, not supporting the company in the achievement of its objectives. While potentially subtle, it highlights the general impression the OECD has that the informal relationships between different control bodies hinders the autonomy of internal audit. Insofar as some JSCs, or certainly listed firms, have more diverse boards, internal audit reporting lines may be left more autonomous.

• The OECD was informed that, at least in certain cases for wholly-owned SOEs, CEOs have been known to hire and fire the internal auditor. This is directly in conflict with the good international practice of having such decisions be left to the board so as to protect the internal audit function from repercussions of auditing the management of the company.

• Each SOE currently has the discretion to establish rules to protect the autonomy of SOEs. This means that protections for internal auditors vary by company, or that they are even non-existent (as was suggested during an interview). On paper, the expectations for internal auditors are standard: they are responsible for complying with standards relating to individual objectivity, professional proficiency, professional prudence, and standards relating to the discharge of their job responsibilities. The head of internal audit also has additional responsibility for the overall compliance of the audit activities in accordance with internal audit standards and must report directly to the highest level of management. However, in order for internal audit to be able to meet these standards in the execution of their functions, it is critical to have responsibilities clearly delineated and reporting lines that support autonomy – and these are called into question in Viet Nam (see also Section 12.3).

Moreover, the mission team has been informed that many SOEs still lack the capacity and resources to effectively implement the new legal provisions. In some cases, internal audit in large SOEs can serve as a narrower “cross checking” function of the accounting department despite a broad set of objectives. While some SOEs are permitted to outsource internal audit entirely, others seem to do so on an ad-hoc basis for certain audit subjects.

Where the internal audit function exists, auditors are allowed to maintain a “rapport” with independent external audit (Article 20). In the case of VIMC, it is the “Internal Auditing Board” (also known as the “Internal Control Board” referred to above) that works in consultation with the external auditors – whereas in many other countries this role would be reserved for the Audit Committee donning the appropriate Committee status. However, it appears that for most companies such engagement rarely happens in practice, and internal auditors’ engagement with external audit is limited to following the latter’s work during the execution of the annual audit of financial statements.

References

[1] OECD (2018), OECD Investment Policy Reviews: Viet Nam 2018, OECD Investment Policy Reviews, OECD Publishing, Paris, https://doi.org/10.1787/9789264282957‑en.

Note

← 1.  Clause 6, Article 3 of Law No. 69/2014/QH13 dated 26 November 2014, of the National Assembly stipulates “.. 6. Representative of state capital invested in joint-stock companies, limited liability companies’ term of two or more members (hereinafter referred to as the representative of the state capital portion) who are individuals authorised in writing by the owner’s representative agency to exercise the rights and responsibilities of the state owner’s representative for the state capital invested in joint-stock companies or limited liability companies with two or more members”.