Mergers and acquisitions (M&A) are not just a financial transaction but a strategic decision that has the potential to fundamentally change ownership, corporate governance, and governance. For businesses that identify M&A as the focus of their value creation strategy, the role of the Board of Directors (BOD) becomes absolutely important. The Board of Directors, which is likened to the "heart" of strategic coordination, has the task of controlling risks and representing the interests of shareholders.
As the central decision-making body, the Board of Directors must ensure that the M&A process is conducted in a transparent, professional, law-abiding manner, and ultimately brings maximum benefits to shareholders, thereby enhancing credibility and attractiveness to strategic investors. If the Board of Directors operates formally or loosens control, the consequences can be huge.
1. Competence to decide on M&A under Vietnamese law[1]
The legal framework governing M&A activities in Vietnam is quite complicated, governed by many different legal norms, including the Law on Enterprises, the Law on Investment, the Law on Competition, and the law on finance and banking and the specific regulations of each specific field in which the target company conducts business.
M&A is carried out in many forms, the most common of which is direct capital contribution to the business or the acquisition of contributed capital/shares. However, forms of enterprise restructuring such as mergers and consolidations are also specified in detail in the Law on Enterprises 2020:
Merger means the transfer of all assets, rights, obligations and legitimate interests from one or more merged enterprises to a merged enterprise, and at the same time terminates the operation of the merged enterprise.
Consolidation is the transfer of all of its legal assets and interests by two or more enterprises to establish a new enterprise, resulting in the termination of operations of the old enterprises.
The Law on Enterprises 2020 emphasizes that the consolidated company or the merged company naturally inherits all the legitimate rights, obligations and interests of the merged/merged companies. Although this regulation aims to ensure that the administrative procedures for registering property ownership are only derivative and do not affect the validity of the merger/consolidation, in practice, these two methods are still rarely chosen in Vietnam.
The Board of Directors plays a decisive role in formulating policies and proposing M&A transactions. However, for transactions that change the structure of capital or large assets, the final approval authority usually lies with the General Meeting of Shareholders (AGM).
In accordance with the law and governance practices, the Board of Directors is responsible for the initial approval, consideration of the proposal, discussion and analysis to decide whether to proceed with the M&A or not. However, mergers, consolidations or sale of assets of great value (usually specified in the Charter or according to the statutory threshold) require the approval of the number of shareholders who own 65% or more of the total votes of all shareholders attending the meeting in favor[2].
Achieving a 65% approval rate is a significant governance challenge. The Board of Directors must not only ensure the legality of the transaction but also manage the relationship and mobilize the consensus of major shareholders. Shareholder disagreement, while not a direct legal risk, can derail the deal or prolong the approval process, affecting competitive advantage.
The role of the Board of Directors in M&A can be summarized as follows:
|
Type of M&A decision |
Primary approval authority |
Request approval rate (minimum) |
Main responsibilities of the Board of Directors |
|
Approval of the Merger/Consolidation Contract |
General Meeting of Shareholders (AGM) |
65% of the total votes of shareholders attending the meeting |
Prepare and submit the contract to the General Meeting of Shareholders; ensure the legality of the contract. |
|
Buying/Selling Assets of High Value |
General Meeting of Shareholders (Subject to the Charter or Law) |
65% of the total votes of shareholders attending the meeting |
Approve valuations, risk assessments, and trade recommendations. |
|
Decision on conducting appraisal and initial valuation |
Board of Directors (BOD) |
Consensus of majority of members |
DD Range Monitoring; approve professional advisors. |
|
Approval of Transactions with Related Parties (Conflict of Interest) |
Board of Directors (or General Meeting of Shareholders, depending on value) |
Majority consensus (excluding shareholders/members with interests) |
Ensure transparency and disclosure of related benefits. |
2. Specific roles of the Board of Directors in M&A transactions
The Board of Directors plays an indispensable role in strategic orientation and business development.
Long-term strategy and vision
One of the biggest contributions of the Board of Directors is to provide a long-term vision, which the Board of Directors may sometimes lack. The CEO or head of the business unit may be pressured to achieve short-term performance, leading to overlooking long-term problems or risks in M&A. In contrast, the board helps ensure M&A decisions are driven by strategic consistency and focus on creating sustainable synergistic value in the M&A. in each specific period.
M&A must create new value for shareholders that the maintenance of the old status quo does not achieve. Synergistic benefits can include achieving scale-based efficiencies, reducing costs, modernizing technology, and increasing liquidity/market share.
The Board of Directors must approve the M&A policy proposal, including the expected benefits and strategy. It is the responsibility of the Board of Directors to appraise and challenge the assumptions about coordination made by the Board of Directors. In most transactions, it is difficult for the buyer to create net worth if the valuation lacks economic information. Therefore, the Board of Directors needs to have sufficient expertise and experience to ensure that the final valuation properly reflects the ability to achieve these resonant benefits.
Kido Group will transfer all 36.3 million shares, representing 49% of the charter capital of Kido Foods (KDF), to Nutifood Nutrition Food Joint Stock Company. Source: ZNews
Managing potential risks
The diverse experience of board members can help shed light on and prevent common risks in M&A transactions. This is especially important when Vietnam's M&A market is focusing on high-tech, semiconductor, artificial intelligence, etc. and renewable energy, areas that require deep technical expertise.
The Board of Directors must perform the role of an internal review mechanism, asking questions about all aspects of the transaction from the strategic basis to the valuation. The lack of board members with the appropriate expertise in high-tech deals can lead to a misassessment of the strategic value of the target technology or associated operational risks.
3. Some obligations of the Board of Directors in M&A activities
In M&A, the Board of Directors has the highest liability, which is determined through compliance with its authorized obligations.
Monitoring the due diligence process
Comprehensive due diligence (DD) is a mandatory step. The Board of Directors must ensure that DD is comprehensively implemented in many aspects: finance, tax, commercial, operational, legal, environmental-social-governance (ESG), human resources, information technology and cybersecurity. The purpose of a legal DD is to identify the target business that is eligible for acquisition, help with accurate pricing, negotiate contract terms effectively, and minimize post-deal legal disputes.
The Board of Directors is ultimately responsible for overseeing the DD process. Although the Board of Directors and advisors implement the DD, the Board must challenge the results of the due diligence and ensure that any potential risks are identified and addressed through the warranty and guarantee clauses in the purchase and sale agreement. Approval of a transaction when the due diligence is deficient or ignores the risks that have been warned may be considered a breach of the Board's authorized obligations.
Identifying specific risks
The Board of Directors must be vigilant against common legal risks in Vietnam. These risks include undeclared tax liabilities or financial obligations, missing or erroneous labor records (which may lead to disputes), assets that have not been transferred or are being mortgaged (especially land and machinery), and contractual disputes or the risk of sanctions. An understanding of these market-specific compliance issues is essential for the Board to ensure that DD is not just a formality but a strategic risk management tool.
Conflict of interest risk
The risk of breach of fiduciary obligations arises when members of the Board of Directors do not disclose conflicts of interest or deliberately approve transactions with subsidiaries owned by relatives. In M&A, conflicts of interest can distort the due diligence, valuation, and negotiation process, leading to losses for the company and triggering litigation from shareholders.
To mitigate this risk, the Board of Directors needs to develop a detailed code of conduct and operating regulations, require members of the Board of Directors to disclose relevant interests, and mandate not to participate in voting when there is a conflict of interest.
Internal control
Vietnamese law has clear provisions to strengthen governance. According to Clause 2, Article 156 of the Law on Enterprises 2020, public companies and state-owned companies are not allowed to have the Chairman of the Board of Directors General Director. This separation of titles provides clearer decentralization, reduces conflicts of interest and strengthens control mechanisms, especially in important financial and personnel decisions related to M&A.
The formal organization of the Board of Directors, lack of clear processes, or overlapping roles with the Board of Directors not only leads to internal disputes but also increases the risk of breaching Fiduciary Obligations. This is why companies need to develop internal charters and regulations that detail the mechanism of meetings, voting, and how to handle conflicts of interest.
4. Some procedures to be carried out by the Board of Directors
Internal approvals
M&A decisions must go through a rigorous approval process. The Executive Board or M&A Department is responsible for gathering and preparing the necessary documents, from business information, financial statements to M&A contracts, and proposing the M&A policy (expected benefits, strategy, valuation, risks).
The Board of Directors performs the initial approval, considers the proposal, discusses, and analyzes to decide whether to proceed or not. After completing the due diligence and negotiations, the Board of Directors will hold a final meeting to consider and decide on the M&A, requiring the consensus of the majority of members.
A key element to the performance of the Duty of Caution is to ensure the legal validity of the resolution. The minutes of the meeting and resolutions of the Board of Directors must fully state the contents, time, place and opinions of each member, accompanied by signatures for certification. In fact, many resolutions are declared invalid because they lack valid signatures or do not have legal records to archive. Therefore, the Board of Directors needs to have a full-time corporate counsel to participate in important meetings and review draft resolutions, especially in M&A activities, to control the legal risks that often occur in a complex and protracted M&A deal.
Information disclosure
For public companies, disclosure responsibilities are an integral part of the M&A process. The Board of Directors must supervise the Board of Directors to comply with current regulations.
Compliance with disclosure regulations helps ensure transparency of transactions and compliance with international standards. Lack of transparency or incomplete information can lead to shareholder litigation, administrative sanctions from regulators, and affect corporate reputation.
Post-merger process management
The role of the Board of Directors does not end when the deal is closed. The line between success and failure in M&A is very thin. The Board of Directors must continue to monitor the post-merger integration process to ensure that the expected synergistic benefits (such as cost effectiveness, market share increase, diversification) are actually realized in practice.
5. To effectively perform the role of the Board of Directors in M&A activities
The Board of Directors must not only act in the best interests of the majority shareholders, but also protect the interests of minority shareholders, ensuring fairness in M&A terms. Moreover, a professional board of directors makes the company more attractive to strategic investors. With the participation of international capital, strict compliance with fiduciary obligations (especially transparency and disclosure) becomes a decisive factor to maintain confidence and attract medium- to long-term capital inflows into the Vietnamese market.
The lack of professionalism or formal operation of the Board of Directors in M&A will directly lead to a breach of fiduciary duties, causing serious financial and legal losses, not only to the company but also to individual members of the Board of Directors.
In order to optimize the role of the Board of Directors and enhance the likelihood of success of M&A deals in Vietnam, businesses should, and in particular the Board of Directors, pay attention to the following issues:
Specialization and diversification of the Board of Directors: It is necessary to recruit independent members of the Board of Directors with in-depth experience in the field of legal, transactional finance, and expertise in the target industry. This helps the Board of Directors to have strategic capacity and the ability to fulfill its obligations fully.
Develop effective internal regulations: Develop and apply detailed Regulations on the Board of Directors, clearly defining the rights and obligations of the Board of Directors, meeting and voting mechanisms. The statute must require mandatory disclosure of conflicts of interest and prohibit members with interests from participating in voting to ensure transparency and avoid legal risks.
Use professional legal advisors: The Board of Directors should have a professional and experienced M&A lawyer to accompany and support throughout the M&A process to control legal risks right from the stage of drafting the resolution to signing the contract. Including the in-depth legal due diligence process of the deal and the post-merger exam strategy.
Vietnam's M&A market is witnessing great interest from foreign investors from the US, Europe, Japan, South Korea and Singapore. The shift of capital inflows into high-tech industries (such as semiconductors and renewable energy) puts great pressure on Vietnam's Board of Directors to improve corporate governance standards, in line with international standards to be able to effectively perform their role in M&A deals of their own businesses.
