|Title||Does More Litigation Mean More Justice to Shareholders? The Case of Derivative Actions in Vietnam|
The derivative action recently has emerged as a promising weapon to combat corporate wrongdoing even in countries that are traditionally not litigious. However the viability of such litigation as a tool is uncertain both from a theoretical and practical perspective. At one extreme of the derivative action debate, its close linkage with good shareholder protection and securities market development is stressed. As a result, transplanting the derivation action (and shareholder litigation in general) is recommended to improve shareholder protection which in its turn helps to foster the securities market. At the other extreme, more litigation is ill-advised since it contains costs which in some cases might exceed its potential benefits or even circumvent its policy objectives.
Unfortunately, the relevance of this debate for transition economies such as Vietnam has not been sufficiently explored up to now. Transition economies possess specific features which might challenge the conventional idea of the role of shareholder litigation. This article aims to fill that gap with evidence from Vietnam. Although many legal amendments made Vietnam company law increasingly shareholder-friendly, the Vietnam investor protection index still lags behind those of other countries. Unsurprisingly, this is because of weak enforcement associated with lacking or inefficient external corporate governance mechanisms such as market for corporate control, market for managers, or institutional investors. Hence, empowering shareholders by equipping them with more litigation rights might be a possible solution to enhance the internal monitoring mechanisms for corporate misconduct. It is also expected that more shareholder litigation might compensate for inherent weak public enforcement in this country. But regardless of its promising role, the viability of the derivative action in the context of Vietnam is still an open question.
Even though more litigation theoretically might bring more justice to oppressed shareholders in Vietnam, in the sense that their rights might be better guaranteed, this justice ultimately depends on the practical institutional environment. If the legal infrastructure of a country does not support a heavy reliance on the court, enforcement through litigation might become a dormant weapon that shareholders cannot use to achieve the justice they aspire to. By using derivative action which has been more and more imported by Asian countries as an example of shareholder litigation, this article will examine the viability of a more litigious enforcement in Vietnam, and come with the conclusion of how desirable the derivative action is in the case of transition economies as Vietnam.
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