In Corporate Governance, Independent Director contributes to enhancing objectivity in decision-making, strengthening oversight of Executive Management, and mitigating conflicts of interest. However, to fulfill this role effectively, Independent Director must not only meet legal requirements but also possess professional expertise, critical thinking skills, and a strong sense of responsibility in governance practices.
Why do companies need Independent Directors?
Independent Directors not only help companies meet legal requirements but also contribute significant value to Corporate Governance:
- Enhancing objectivity: Bringing fresh perspectives and independent critical thinking to support the Board of Directors in assessing risks and making decisions.
- Strengthening professional expertise: Contributing knowledge and experience in areas such as finance, law, strategy, risk management, and ESG.
- Improving oversight effectiveness: Overseeing Executive Management, mitigating conflicts of interest, and helping protect the legitimate interests of the company and its shareholders.
- Building stakeholder confidence: Enhancing corporate credibility among shareholders, investors, business partners, and other stakeholders.
- Promoting transparent governance: Contributing to a culture of integrity, accountability, and compliance with good governance standards.
The value of Independent Directors lies not only in meeting legal requirements but also in their ability to enhance governance effectiveness and create sustainable value for companies.
Who is an Independent Director?
An Independent Director is a member of the Board of Directors who meets the independence criteria prescribed by law, particularly those relating to employment relationships, financial interests, family relationships, and share ownership. Without direct involvement in executive management, Independent Director is expected to provide objective assessments that are less influenced by Executive Management or interest groups.
According to the G20/OECD Principles of Corporate Governance (2023), Independent Directors can make important contributions to the quality of Board decisions, particularly on matters involving potential conflicts of interest, such as related-party transactions, executive appointments, remuneration, and financial reporting oversight.
Qualifications of Independent Director under Vietnamese regulations
In Vietnam, the qualifications and eligibility requirements for Independent Directors are primarily governed by the Law on Enterprises 2020 (as amended and supplemented) and corporate governance regulations applicable to public companies.
Independence criteria and requirements
Under Clause 2, Article 155 of the Law on Enterprises 2020, Independent Directors must satisfy the following fundamental requirements:
- Employment relationships: Must not currently work for, or have worked for, the company, its parent company, or its subsidiaries during the preceding three consecutive years.
- Financial interests: Must not receive salaries or remuneration from the company, except for allowances that Board members are entitled to under applicable regulations.
- Family relationships: Must not have family relationships falling within the restrictions prescribed by law involving major shareholders or managers of the company or its subsidiaries.
- Share ownership: Must not directly or indirectly own 1% or more of the company’s total voting shares.
- Previous governance positions: Must not have served as a member of the Board of Directors or Supervisory Board of the company during the preceding five consecutive years, except in cases of continuous appointment for two terms.
In addition, individuals elected as Independent Directors must meet the general qualifications applicable to Board members, including requirements concerning professional qualifications, experience in business management or the company’s industry, and other relevant legal conditions.
Number and tenure of Independent Directors
Under Point b, Clause 1, Article 137 of the Law on Enterprises 2020, joint-stock companies adopting a governance model without a Supervisory Board must ensure that at least 20% of their Board members are Independent Directors and establish an Audit Committee under the Board of Directors.
For listed companies, Clause 4, Article 276 of Decree No. 155/2020/ND-CP specifies the minimum number of Independent Directors as follows:
- Boards with 3–5 members: At least one Independent Director.
- Boards with 6–8 members: At least two Independent Directors.
- Boards with 9–11 members: At least three Independent Directors.
Under Article 154 of the Law on Enterprises 2020, the term of a Board member must not exceed five years. An individual may serve as an Independent Director of the same company for a maximum of two consecutive terms. Furthermore, Independent Directors must notify the Board when they no longer satisfy the prescribed independence criteria and requirements.
Note: Companies operating in specialized sectors, such as credit institutions, must also comply with sector-specific legislation.
The role of Independent Director in Corporate Governance
Independent Directors not only contribute to a well-structured Board but also play an important role in improving its effectiveness through oversight, constructive challenge, and participation in key governance decisions.
Enhancing objectivity in Board decision-making
By bringing independent perspectives, Independent Directors help evaluate and critically assess major decisions, including business strategies, significant investments, mergers and acquisitions (M&A), and corporate restructuring. Their contributions help the Board adequately consider risks and long-term implications.
Overseeing Executive Management and mitigating conflicts of interest
Independent Directors help strengthen objectivity in the oversight of Executive Management, particularly on matters involving potential conflicts of interest.
For example, when reviewing related-party transactions, Independent Directors may request clarification of valuation methodologies, transaction terms, and the benefits to the company before the Board makes its decision.
Contributing to the protection of shareholders’ interests
In companies with concentrated ownership structures, Independent Directors help balance the interests of different shareholder groups and limit the influence of controlling shareholders over governance decisions.
However, Independent Directors are not representatives exclusively of minority shareholders. They have a responsibility to act in the legitimate interests of the company and all shareholders.
Participating in specialized Board committees
Independent Director may assume important roles in specialized Board committees, such as the Audit Committee, Nomination Committee, or Remuneration Committee.
Under Article 161 of the Law on Enterprises 2020, the Chair of the Audit Committee under the Board of Directors must be an Independent Director. The G20/OECD Principles (2023) also recommend strengthening the involvement of Independent Directors in responsibilities that may give rise to conflicts of interest.
The role of the Lead Independent Director (LID)
In accordance with good governance practices, companies may appoint a Lead Independent Director (LID) to strengthen coordination and independent perspectives within the Board.
The LID typically performs the following roles:
- Coordinating activities: Serving as the primary liaison between Independent Directors and the Chair of the Board.
- Strengthening constructive challenge: Chairing separate meetings of Independent Directors and consolidating their views on matters involving potential conflicts of interest.
- Enhancing oversight effectiveness: Supporting the evaluation of the Board’s and Board Chair’s performance and communicating shareholder concerns when necessary.
This is a voluntary governance practice rather than a mandatory requirement under Vietnam’s general legal framework. It aims to strengthen independent voices and promote a balance of power within the Board.
Rights and duties of Independent Director
In principle, Independent Director has the same rights and duties as other Board members under the Law on Enterprises 2020, relevant legislation, and the company’s Charter.
Rights of Independent Director
Key rights include:
- Access to information: Requesting necessary information and documents relating to business operations, financial conditions, and other relevant matters to fulfill their responsibilities.
- Participation in discussions and voting: Expressing opinions, raising questions, and voting on matters within the Board’s authority.
- Requesting Board meetings: Requesting the Chair of the Board to convene a meeting in accordance with applicable laws.
- Participation in oversight: Performing responsibilities within specialized Board committees and other oversight activities as prescribed.
Duties and responsibilities of Independent Director
Under Article 165 of the Law on Enterprises 2020, Board members are responsible for exercising their rights and fulfilling their duties honestly, prudently, and loyally in the interests of the company and its shareholders. They must not abuse their positions or use the company’s assets, information, or business opportunities for personal gain.
For listed companies, under Clause 3, Article 277 of Decree No. 155/2020/ND-CP, as amended by Decree No. 245/2025/ND-CP, each Independent Director must prepare an assessment report on the Board’s activities.
Importantly, independence does not exempt directors from legal liability. Therefore, Independent Directors must proactively review documents, seek clarification of information, and fully discharge their oversight responsibilities.
Differences between Executive Directors, Non-executive Directors, and Independent Directors
Within the Board of Directors, members can be distinguished based on their involvement in executive management and their degree of independence from the company.
| Criteria | Executive Director | Non-executive Director (non-independent) | Independent Director |
|---|---|---|---|
| Concurrent positions | Also holds an executive position, such as CEO or Deputy CEO | Does not hold an executive position | Does not hold an executive position |
| Primary role | Participates in governance and directly manages business operations | Participates in strategic direction, decision-making, and oversight | Participates in governance, with an emphasis on independent oversight and constructive challenge |
| Independence | Does not meet the criteria for Independent Directors | Does not fully meet the independence criteria | Meets the prescribed independence criteria |
| Key contribution | Executive experience and in-depth understanding of business operations | Strategic direction and oversight of executive management | Enhancing objectivity, overseeing conflicts of interest, and balancing shareholder interests |
Key distinction: Independent Directors are also Non-executive Directors, but they must satisfy additional independence criteria relating to employment relationships, ownership, financial interests, and family relationships.
Factors affecting independence and effectiveness
Meeting legal requirements is a necessary condition, but the independence and effectiveness of Independent Directors are also influenced by several factors:
- Relationships and interests: Business, professional, or personal relationships and interests may affect objectivity.
- Quality of information: Incomplete or untimely information may limit oversight effectiveness.
- Professional competence: A lack of relevant knowledge and experience may weaken directors’ ability to evaluate and critically assess matters.
- Governance culture: An environment that discourages differing opinions may limit independent voices.
- Level of commitment: Insufficient time and a lack of proactivity may affect the quality of directors’ performance.
These factors demonstrate that independence should be considered from two perspectives: formal independence under legal requirements and substantive independence in thinking, judgment, and action.
How can companies strengthen the role of Independent Director?
To enable Independent Directors to fulfill their roles effectively, companies should focus on both director selection and the mechanisms supporting their performance.
- Selecting directors based on competency needs: Assess the Board’s competency matrix, identify expertise gaps, and select candidates aligned with the company’s strategy, scale, and risk profile.
- Ensuring access to information: Provide complete and timely documentation and establish mechanisms for direct communication with Executive Management and relevant functional departments when necessary.
- Clarifying roles within Board committees: Define oversight responsibilities, reporting requirements, and coordination mechanisms among Independent Directors, specialized committees, and the Board.
- Evaluating performance effectiveness: Assess the quality of contributions, the ability to provide constructive challenge, and oversight outcomes rather than relying solely on meeting attendance rates.
- Strengthening training and professional development: Regularly update knowledge of corporate governance, legislation, finance, risk management, ESG, and emerging issues.
These measures help companies move beyond compliance with Board composition requirements toward improving governance effectiveness in practice.
Conclusion: From meeting independence criteria to substantive independence
The role of Independent Directors extends beyond meeting legal requirements. It is also reflected in their oversight capabilities, critical thinking, and commitment to responsible governance practices.
To support Independent Directors and companies in strengthening governance effectiveness, CGS Vietnam has contributed to the development of the “Practical Guide for Independent Directors”, in collaboration with the Vietnam Independent Directors Association (VNIDA) and the VNIDA Corporate Governance Research Institute (VNICG), with technical support from Indochine Counsel.
The guide provides practical guidance covering the journey from candidacy and appointment to fulfilling Board responsibilities, managing conflicts of interest, and developing the competencies of Independent Directors.
Learn more and download the guide at: Practical Guide for Independent Directors – VNIDA, VNICG, and CGS Vietnam
References:
- Law on Enterprises 2020, as amended and supplemented, particularly Articles 137, 154, 155, 157, 161, and 165.
- Decree No. 155/2020/ND-CP, as amended and supplemented by Decree No. 245/2025/ND-CP.
- OECD (2023), G20/OECD Principles of Corporate Governance, Chapter V – The Responsibilities of the Board.
- VNIDA–VNICG–CGS (2025), Practical Guide for Independent Directors.
About CGS Vietnam
CGS Vietnam Consulting Joint Stock Company provides specialized advisory services in Corporate Governance, Sustainability (ESG), Risk Management, and Internal Audit. Backed by a team of experienced professionals with deep expertise in international best practices, CGS Vietnam partners with businesses to strengthen corporate governance, enhance management capabilities, meet investor expectations, and achieve long-term sustainable growth.
Contact CGS Vietnam:
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