The new Law on Enterprises, which took effect on July 1, introduced the concept of cumulative voting in shareholder elections.
Specifically, Article 104.3.c stated: "Voting for members of the Board of Management or Control Board shall be by accumulatively calculating votes; each shareholder shall have a total number of voting cards corresponding to the total number of shares he owns multiplied by the number of elected members of the [respective board], and shareholders can accumulate their voting cards for one or a number of candidates."
Cumulative voting is designed to empower minority shareholders in a joint stock company. An individual shareholder has the power to cast votes for multiple nominees for multiple seats on a board, or mass all of their votes on a single candidate.
For instance, a shareholder with 30 shares in a 100-share company, voting in an election for five open seats on the board, would have 150 votes (30 shares x 5 openings).
The shareholder could spread these votes among five candidates or could concentrate all 150 on a single preferred candidate, making it more likely that at least one candidate preferred by the minority shareholder would be elected. Alternately, the shareholder could vote 75 shares for each of two preferred candidates.
Cumulative voting tends to make the composition of the board more representative of proportional shareholding in a company than majority voting.
Under majority voting, a 50.1% majority shareholder would be able to elect 100% of Board members. Using cumulative voting, the same shareholder would only be able to elect around half of board members.
The introduction of cumulative voting to Vietnam is rather unique. Generally, cumulative voting, as found in most American states, has two features.
First, cumulative voting may only be used if it is specifically written into the company charter. Second, winners are based on a plurality of votes, i.e., the candidates with the most votes are elected.
The Law on Enterprises takes a different approach. First, cumulative voting is mandatory for all joint stock companies under the law. Second, Article 104.3 is awkwardly drafted, and could be interpreted to mean that a 65-per-cent majority was necessary to elect each board member.
Article 104.3 also provides for three distinct ways in which shareholder resolutions can be approved. Article 104.3.a requires that ordinary resolutions be approved by 65 per cent of participating shareholders; 104.3.b that certain special resolutions be approved by 75 per cent of participating shareholders; and 104.3.c that board members are voted for on a cumulative basis.
From all this, it becomes unclear whether the cumulative voting referred to in Article 104.3.c for electing board members refers back to the requirement of a 65 per cent majority to pass a shareholder resolution.
Officials in the Ministry of Planning and Investment have informally taken the view that a 65 per cent majority is also required to elect Board members.
This seems unworkable, however, and fundamentally inconsistent with the concept and goals of cumulative voting. At best, it seems like a recipe for deadlock, a circumstance that cumulative voting is well-designed to avoid.