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Additionally, “International Finance Corporation” and “IFC” are registered trademarks of IFC and are protected under international law. BUSINESS Provides travel, hospitality, aviation and online travel services across Asia with sales o ces in the United States, United Kingdom, Australia, and Russia. LOCATION Vietnam SECTOR Tourism 2017 GROUP REVENUE US 62.8 million TYPE Private # EMPLOYEES Approximately 1,794 (Source: TMG) # HOTELS 11 (Source: Company Website) IFC ASSESSMENT DATE December 2014 THIEN MINH GROUP (TMG), founded in 1994 WHAT DID THEY CHANGE? and headquartered in Vietnam, is the leading integrated travel and hospitality group in Southeast Asia. A privately held travel IFC conducted a CG Assessment of TMG in December 2014. company, TMG specializes in destination management The goal was to recommend practical governance services, hospitality, aviation and online travel agent services enhancements in line with projected corporate growth and targeting domestic and international tourists. strategic objectives. Overall, the executive team, Board members, shareholders, and the senior management TMG operates several brands including Bu alo Tours, Victoria demonstrated a strong commitment to making CG Hotels and Resorts, ÊMM Hotels and Resorts, Hai Au Aviation, improvements. The company recognized the need to adopt and iVIVU.com – an online travel booking website. While the and administer the highest level of CG standards including company attracts around 90,000 tourists to the region bolstering its internal audit capabilities and formalizing its annually, it hosts over 200,000 guests across its three and management-level Steering Committee. The Board, although four-star modern hotel chain. quite functional, required diversification and reinforcement in strategic areas. This was likely to foster independence and Looking forward, the Group aims to become the leading enable its directors to be more engaged and well-positioned to integrated player in the Vietnam market with the capability to provide insightful stewardship and oversight. Although control serve some 10 million passengers by 2023 and to understand, and compliance systems were in order, the company engage and capture value from customers across customer addressed span of control and human capital issues to help journeys (or value chain) with its integrated product o erings. drive sustainability of the business. Additionally, TMG made e orts to improve its quality and frequency of disclosures. The company went beyond an Audit Committee, which was WHY CHANGE? geared for Board level reporting. It established more formal, standardized reporting mechanisms, while publishing As TMG ventured into other markets in Asia, the company’s corporate information online in a transparent manner that senior management realized that the company needed a was consistent with best practices and aligned with market stronger corporate infrastructure – including a sound expectations. framework for corporate governance – a more formalized Board decision-making process, and greater transparency. Subsequently, this would help the company to achieve sustainable growth, meet its strategic objectives, and become investor-ready. A pressing concern was with regard to Mr. Tran Trong Kien, improving and developing a stronger management control TMG Founder and Chairman of the Board environment from the group level down to the subsidiaries. While transitioning from its modest entrepreneurial roots to “My aim, as the chairman, is to create a diverse, inclusive, and becoming a leader in the tourism industry in Southeast Asia, e ective Board, which is fully informed about the business and the company’s leadership recognized that it outgrew its is able to provide the executive membership with a judicious governance and management infrastructure. So it needed to blend of challenge and support. The ongoing corporate re-evaluate its internal controls and address specific governance exercise has given TMG a unique opportunity to challenges such as key-person risks, delegation of authorities, gain access to best practices. Further, voluntary adoption of succession planning, and disclosures. Executives and Board key principles in this regard has significantly changed the members were proactive in identifying ways to address these overall management of the company and its operations. While challenges. The aim was to optimize performance and ensure we remain as flexible and agile as the market demands, our that its corporate governance (CG) practices were in sync with Board fosters an environment of open communication and international standards regardless of whether TMG continued constructive debate over strategic issues. I believe we are on as a privately held business or went public. the right track for a long-term and sustainable growth.” SUMMARY OF KEY CHANGES KEY CHALLENGES KEY CHANGES Commitment to Corporate To support TMG’s national and regional CG Commitment: Developed formal Governance expansion, the company needed to Board charters including a CG Manual make changes to its CG framework over and Company Code of Ethics and the medium/long-term. First and Conduct. Adopted a CG model similar to foremost, TMG needed to substantiate multinational firms with operations its commitment to CG by developing its across multiple jurisdictions. own CG and policies in alignment with international best practices. Board E ectiveness Composition: Comprised two-thirds Composition: Strengthened the executives and shareholder board functional e ectiveness of its Board by appointees, so there was a low level of gradually putting plans in place to independence. The Board needed revise and expand the Board members with relevant industry membership over time. This included expertise and multinational experience the addition of a third independent for the company to expand regionally. director with relevant industry expertise. Structure: There was a need to formalize and adopt several functional Structure: Adopted plans to establish committees. more subcommittees on the Board including Audit & Risk and Governance Roles: There was a blurred division & Organization Committees. Set up a between the Board and management, CG working group with the Corporate given the number of executives on the Secretary, CEO, and an independent Board. It was important to try to director. enforce the roles of directors as stated in the Charter. Roles: A Corporate Secretary was appointed with formal scope of work to Procedures: The TMG Board improve functioning of the Board. procedures and practices, especially on meetings, level of discussions, Board Procedures: The Board adopted materials, etc., needed improvement. procedures to ensure e ciency and good communication, thus helping Succession Planning: The company Board members to be more informed had not addressed the succession issue during Board discussions. This included of the chairman/CEO, thus exposing the more regular and frequent meetings, company to significant ‘key-person’ risk. distribution of Board papers in advance, and discussing candid issues facing the business. Succession Planning: Initiated a process of transition with a separate chairman and CEO. This way, the chairman could dedicate time to strategic matters and the CEO could focus on operational concerns. Groomed a prospective deputy CEO as part of the gradual succession plan prior to its public o ering. Management Control Structure: The company needed to Structure: Strengthened key control ensure that the right control structure functions including formalizing the was in place to deliver consistent, Executive Steering Committee and quality, and international standard establishing more structured services across all businesses regardless frameworks related to compliance, of location. accountability, finance, HR, and internal controls. Executive Committee: Though there SUMMARY OF KEY CHANGES KEY CHALLENGES KEY CHANGES Management Control was a committee of senior executives, Executive Committee: Established a the authority was vastly centralized formal management-level Steering with a top-down approach, which Committee to help take stock and undermined other management ownership of decision-making, authorities. Information exchange was oversight, human capital, and span of mostly through shared business control issues. This committee helped reporting. decentralize authority, formalize approval limits, and give the Risk Management: TMG needed to management discretion and put in place a governance structure and accountability. controls to make any key executive, especially the CEO, replicable if one of Risk Management: Developed a more them was incapacitated. With its formal risk management system and aggressive growth objectives, the proactively identified, evaluated, and company faced more complex risks. managed business risks associated with operations, E&S, health safety, financial, Human Resources: HR went through and regulatory policies. A risk register a robust expansion and TMG was frequently updated with plans to experienced a high turnover. There was develop a live register to prevent risks in a shortage of key skillsets including real time. capable General Hotel Managers and skilled hospitality professionals. The Human Resources: Developed a more company faced challenges to comprehensive understanding of the strengthen human capital management laws, benefits, insurance policies, and and reinforce mechanisms to general market practices of each incentivize and retain sta . country of operation as TMG expanded. Further, regional consolidation followed Internal Audit: The Internal Auditors due to the ASEAN integration. Aligned were not specialized in the company’s HR policies of the group with each business segments or helping with country in operation. corrective action plans. It was rather a box-ticking exercise, otherwise meant Internal Audit: Ensured the to identify risks and problems. The independence of the Internal Audit auditors reported directly to the Board function and strengthened it to validate chairman. that key risk management and governance processes worked e ectively. Formal job descriptions and audit manuals were developed. Reports to the Audit and Risk Committee and provides value-added suggestions to support business managers in their risk mitigation e orts. Disclosure and Transparency Public Disclosures: While information Public Disclosures: In anticipation of flowed in a transparent and open an IPO, it realized a public listing would manner, the company had no demand higher expectations from the standardized reporting tools or business market and regulators. Remodeled the intelligence systems. There was scope corporate website to include improved to better align with international online disclosures encompassing a CG standards in terms of developing an manual, an annual report, and an Annual Report, online disclosures, and investor corner including key financial information for shareholders. Even and non-financial information. though TMG’s current ownership was concentrated in three investors, its share ownership would become more di used after an Initial Public O ering (IPO), and the company would need to improve its transparency practices. SUMMARY OF KEY CHANGES KEY CHALLENGES KEY CHANGES Shareholder and Stakeholder Shareholder Protection: Shareholders Shareholder Protection: Aimed to Relations had easy access to corporate eliminate conflicts of interest and information and the Supervisory prepared to become “investor ready” by Committee was designed to protect establishing shareholder protection their interests, however the mechanisms and policies on Related independence of the Board was a Party Transactions and Conflicts of concern with primary representation Interest. Replaced the Supervisory from shareholders or executives. Committee with an Audit and Risk Committee to discuss risks and other findings openly with shareholders at Board meetings. IMPACT REPORT FOUR YEARS AFTER THE CHANGES, TMG REPORTED THE FOLLOWING RESULTS: Access to Capital As TMG continues to adopt and implement best CG practices, it gained confidence in its ability to meet Vietnam’s regulatory requirement with regard to how public companies must be governed. This, in turn, enabled the company to be one step closer to achieving its goal of going public and accessing capital through an IPO. Reputation CG enhancements sent a signal to the market about TMG’s commitment to corporate governance. Improved disclosures via the company’s website and other external communication channels increased transparency, as well as consumer and investor confidence in the business. Sustainability With the execution of numerous CG improvements over the years, TMG developed a long-term vision towards the management and scale of business. Strategies for succession planning, risk mitigation, disaster prevention, and business continuity contributed to a more sustainable and viable business plan in the long run. Board Oversight TMG’s Board clearly defined the roles and responsibilities of its members and committees, thus improving the Board’s ability to make informed decisions, provide e ective leadership to the management, and steer the course of the company. Risk Frequent discussions about potential risks – along with strategies to mitigate them – have become a part of routine debates at the Board level. These practices significantly improved TMG’s overall ability to identify and eliminate risks even before they emerged. IMPACT SCORECARD Access to Capital Profitability Reputation Organizational E ciency Sustainability Board Stewardship & Decision-Making Risk Management & Control Negligible Minor Moderate Strong Substantial Value of financing facilitated: Divestment of US 45 million (sale of Bu alo Tours in March 2017) Investment of US 13 million (by Air Asia into Hai Au Aviation in March 2017) BUSINESS Provides retail, SME and commercial banking services in Vietnam. LOCATION Vietnam SECTOR Financial 2017 PROFIT Before Tax US 363 million (65%) (Source: 2017 Annual Report) (Yr. Growth) TYPE Private # EMPLOYEES 23,826 employees (Source: 2017 Annual Report) # OUTLETS 216 branches and 4.9 million active customers (Source: 2017 Annual Report) IFC ASSESSMENT DATE September 2012 “Improved CG and greater transparency has positively impacted our IPO e orts. Our experience shows that when foreign investors look for good companies, they not only consider profitability, but also take into account non-financial factors such as CG and sustainability. In the race for capital, VPBank has paid close attention to improving its CG practices. Subsequently, that has significantly helped in securing foreign funding. We can now borrow from international lenders a lot more easily than we did earlier — a clear example of how CG has improved our overall operations, rating, and reputation.” - Mr. Ngo Chi Dung, Chairman of the Board. “Thanks to IFC’s investment, VPBank can enhance its reputation and brand value through IFC’s supervision and technical support in corporate governance, especially risk management.” - Mr. Nguyen Duc Vinh, CEO. (from Vietnam Plus, "IFC seals convertible loan of 57 million USD to VP Bank", July 19, 2017) VIETNAM PROSPERITY JOINT-STOCK proactively sought ways to implement international CG COMMERCIAL BANK (VPBANK), standards and establish itself as a well-governed financial headquartered in Hanoi, was founded in 1993 as the Vietnam institution. The bank’s leadership acknowledged that CG Joint-Stock Commercial Bank for Private Enterprises. Since improvements would help the bank address challenges to a changing its name in 2010, the bank has amassed a nationwide sustainable growth and improve internal controls, footprint with 216 retail branches over 70 Small and Medium decision-making capabilities, and strategic planning processes. Enterprise (SME) centers. Further, it has more than 470 branded automated teller machines (ATMs) and 105 cash WHAT DID THEY CHANGE? deposit machines (CDM). IFC conducted a CG Assessment of VPBank in September 2012. VPBank provides commercial and retail banking products and The bank leadership, Board members, and shareholders were services in Vietnam including deposit products, loans, committed to making CG improvements. As an initial step, the insurance products, credit cards, international payment and bank revised its charter to include CG and information remittance services, trade finance, foreign exchange, Internet disclosure policies. It also adopted CG and ethics codes. An and mobile banking, SMS banking, and e-commerce services. Annual Report was developed, which included financial and In 2017, the bank’s total assets exceeded $12 billion. The bank nonfinancial information as well as a section on governance, was selected by the State Bank of Vietnam (SBV) to pilot the which outlined its dividend and whistleblower policies. Further, Basel II implementation roadmap in Vietnam. Moving forward, VPBank took a range of concrete measures over time, which the goal is to become a leading retail bank in Vietnam, while instilled good CG in its corporate culture. For example, the BoD expanding its lending activities to import and export increased its director base from four to six, adding an element businesses, and SMEs. In 2017, the bank ventured into the of independence and diversity of expertise to the Board. The Micro SME segment, which yielded a tenfold increase in the Corporate Secretary function was strengthened and SME unsecured loan balance from 2015, when VPBank started formalized. A Risk Management Committee was established, exploring this segment. which helped to better assess and monitor risks across the bank. In addition, the delegation of the audit function to the Supervisory Board helped clearly define and separate the roles WHY CHANGE? and duties of the Board versus the various existing management committees. The HR Committee developed an As VPBank aimed to become a top-tier bank in Vietnam, it evaluation and remuneration policy, tailored for a long-term recognized the need to improve its governance framework and performance. These governance enhancements positioned the go beyond the legislative minimum. The bank demonstrated a Board to provide stewardship, oversee risk management and clear commitment to good CG, though internal policies and internal control framework, and adjust policies in line with the by-laws were compliance-driven and adopted to meet bank’s annual strategic plans. regulatory requirements. The bank’s owners and executives SUMMARY OF KEY CHANGES KEY CHALLENGES in 2012 KEY CHANGES Commitment to Corporate Even though there were internal CG Commitment: Committed to Governance policies and by-laws in place to meet implementing best CG practices and regulatory requirements, the Bank’s proactive in implementing corporate governance was primarily recommendations to strengthen its CG. compliance-driven and did not go Established principles beyond legislative beyond the legislative minimum. In its mandates. Adopted a CG improvement desire to become one of the top banks plan at the Board level and conducted in Vietnam, key shareholders and regular assessments regarding the executives recognized the need for implementation of the plan. The Bank improvement and alignment with revised its charter to include CG and international CG standards. information disclosure policies along with a CG Code and Code of Ethics. Board E ectiveness Composition: The Board’s three Composition: Added one independent non-executive directors were very director with legal/internal audit involved in the operational experience. Chairman delegated more management of the bank. There was authority to other Board members and only one independent director whose management to reinforce his independence was questionable as he independence. did operational work in the bank. The Board lacked directors who had legal, Structure: The Board segregated the risk management, and internal audit duties of directors and management, expertise. The chairman was not delegated operational issues and independent or non-executive, which removed itself from participation in was contradictory to best practices. committees at the management level. Restructured composition of Structure: Inappropriate balance committees to ensure they operated between Board and management as under the mandate of the Board and Board controlled decision-making were sta ed by suitable experts. through regular participation in Established functional Risk management level committees. The Management Committee and bank had no Board-level committees designated Audit Committee duties to and the composition, status, and the Supervisory Board. functioning of these committees needed to be addressed as they were Roles: Developed formal CG guidelines sta ed by both directors and and a Board charter to clarify and management. There was no Audit, Risk formalize roles of the Board and Management or management, and emphasized the Remuneration/Nomination important duty of the Board in setting Committees. the bank’s strategy as well as oversight. The Board also progressively transferred Roles & Responsibilities: The division its operational roles to management. It between Board and management was further stepped back from intense blurred, given the large number of participation in management-level executives on the Board. The Board committees and provided the CEO with stepped into the realm and authorities full autonomy over operation. of the CEO, and the rest of the management team. The Board had Corporate Secretary: Enhanced tight control over decision making of function of the BoD O ce and provided key operational issues through regular specialized training in legal and CG participation in several committees topics. Amended the by-laws in order (Ex-co, ALCO, Credit, ITSC, Product), to enhance the scope of services of the which are usually established and BoD O ce and separate the Corporate operated at the management level. Secretary function from that of an administrative assistant. Revamped the Corporate Secretary: The bank did not BoD’s scope to ensure adequate CG have a dedicated Corporate Secretary. principles were being followed, periodic Instead, there was a BoD O ce, which updates were provided to the Board on covered basic Corporate Secretary regulatory issues, and new director SUMMARY OF KEY CHANGES KEY CHALLENGES in 2012 KEY CHANGES functions. The BoD O ce’s scope of orientation was in place. work was limited. Procedures: Introduced formal, Procedures: The Board lacked transparent policies on orientation and formalized orientation, evaluation, and remuneration. Clearly defined annual remuneration policies. Typically, there Board evaluation process. Required was no advance notice for agendas or invitations, agendas and Board papers distribution of Board papers. Also, there to be distributed with a five-day was no CG Code or Code of Ethics. advance notice. Revised the charter and by-laws to include CG practices. Succession Planning: The bank had Developed a CG and Code of Ethics. not adopted a formal succession plan at the Board or management level to Succession Planning: Developed a minimize key-person risk. formal succession plan at the management level and considered plans for the chairman and CEO. Management Control Structure: The Board’s oversight of the Structure: Established C-level positions control environment needed to be to strengthen the control culture and clarified and improved. The bank’s environment, and to ensure that framework of internal control was controls were built-in and exercised by concentrated around front o ce senior management. operations and authorization limits for credit approvals. Audit/Internal Audit: Revised and updated role and practices of the Audit/Internal Audit: There was no Supervisory Board to comply with local Audit Committee functioning under the regulations, provide financial oversight Board’s purview. The Supervisory Board to the Board, and perform similar duties assumed the role of the Audit typical of an Internal Audit Department. Committee. However, technically it was accountable to the General Meetings of Risk Management: Established a Risk Shareholders (GMS) rather than the Management Committee. Hired a Chief BoD, and needed enhancement to Risk O cer, who directly reports to the oversee Internal Audit and risk CEO, and is also a member of the Risk mitigation functions. Management Committee. Developed systematic, centralized approach for Risk Management: The risk identifying, prioritizing, mitigating, management framework was reporting, and monitoring material risks decentralized and managed at the across the bank. transactional level without a systematic approach to formalizing risk mitigation Human Resources: Developed and and monitoring procedures. The bank approved senior management lacked expertise to adequately oversee evaluation policies and risk management. performance-based remuneration plans. Human Resources: Senior management performance evaluation Compliance: Created a whistleblower was informal and there was lack of a policy to enable confidential reporting transparent annual bonus system. of breaches of conduct or violations to the Head of Compliance department Compliance: The bank did not have a and the Head of Supervisory Board. whistleblowing policy. Financial Reporting: Modified policy Financial Reporting: The bank’s BoD – on selecting the external auditor to not the GMS – selected the external enable the GMS to assume that role. auditor. Financial statements were While following the Vietnamese based on Vietnamese Accounting Accounting Standards to comply with Standards (VAS). local regulations, the bank also adopted the International Financial Reporting Standards (IFRS). SUMMARY OF KEY CHANGES KEY CHALLENGES in 2012 KEY CHANGES Disclosure and Transparency Public Disclosures: Disclosure of CG Public Disclosures: Disclosed more related materials on the website was comprehensive information online limited. Annual Reports and reports in about the Board, committees, the “Investor” section of the website Supervisory Board, remuneration were only available in Vietnamese. No policies, and financial statements. quarterly financial information about Included a CG section in the Annual the bank was published online. Report and published it on the website in English. Restructured “Investor” Disclosures: The bank did not have section of the website to provide formalized disclosure policies that relevant CG-related content in English. regulated information sharing with shareholders, stakeholders, investors, or Disclosures: Developed internal other interested parties. by-laws on information disclosures. Disclosed a CG section in the Annual Conflicts of Interest/RPTs: The bank Report and published it online in had not adopted by-laws on RPTs. English. Associated rules were fragmented and referred to in the charter and BoD Conflicts of Interest/RPTs: Adopted regulations by repeating the wording of internal by-laws on RPTs to increase the current legislation. clarity regarding associated policies. Shareholder and Stakeholder Shareholder Policy: Rights were not Shareholder Policy: Amended the Relations clearly described in the bank’s Charter. bank’s charter with a clear list of rights, There was no dividend policy. including provisions declaring equitable treatment of all shareholders. A Minority Shareholder Protection: dividend policy was created and Minority shareholders were permitted published online. to attend general meetings and receive information, but their impact on the Minority Shareholder Protection: business was insignificant and their Provided a detailed explanation of the activism was low. cumulative voting procedure in the charter and notes to shareholders. Ensured shareholders were given an opportunity to exercise their right to elect a BoD member. The bank recently introduced a formal Investor Relation Department to e ectively facilitate all investor communication in a professional manner. IMPACT REPORT FIVE YEARS AFTER THE CHANGES, VPBANK REPORTED THE FOLLOWING RESULTS: Access to Capital Investors, customers, and financial institutions recognized VPBank’s CG enhancements, which improved the bank’s ability to substantially increase deposits from the domestic market as well as its access to nearly $1billion in both o shore and international debt financing since 2016. In addition, in 2017, VPBank raised 22 percent capital from o shore and international fund managements. Profitability Profitability increased by 900 percent since 2012. CG has been a contributing factor in VPBank’s growth and surge in net profits. Reputation The commitment and implementation of best CG practices have inspired confidence and improved trust among VPBank’s customers and partners. CG has certainly had a significant impact on the bank’s reputation in both the local and international markets. Organizational E ciency By clarifying roles, responsibilities, and authorities of Board members, its committees and management, VPBank runs more e ciently and the Board is more functional as a whole. Sustainability By actively focusing on mitigating risks and applying international standards for risk management, VPBank is confident of achieving its short to long-term objectives in a sustainable and realistic manner. Board Oversight The Board has been setting the vision, direction, risk appetite, and culture of the bank more e ectively. Following improvements in the bank’s corporate governance, the Board is able to provide better strategic guidance and play a stronger leadership role in terms of operation. IMPACT SCORECARD Access to Capital Profitability Reputation Organizational E ciency Sustainability Board Stewardship & Decision-Making Risk Management & Control Negligible Minor Moderate Strong Substantial Value of financing facilitated: US 158 million in syndicated loans from IFC and US 604 million from other funding sources (World Bank, JICA, and commercial bank financing). On August 11, 2017, VPBank o cially announced its listing on the Ho Chi Minh City Stock Exchange (HoSE) under the ticker VPB. VPBank was valued at nearly VND 52 trillion (US 2.3 billion), making it one of the top 10 listed firms by market capitalization. With more demanding requirements for corporate governance and customer service quality, the listing presents the bank with both opportunities, and makes it one of the most professional, transparent, and e cient financial institution in Vietnam. BUSINESS Manufactures and distributes milk-based dairy products in Vietnam and abroad. LOCATION Vietnam SECTOR Food and Beverage (Dairy) 2017 PROFIT (Yr. Growth) US 456 million (9.8%) (Source: 2017 Annual Report) TYPE Publicly listed # EMPLOYEES 7,845 (Source: 2017 Annual Report) # BRANCHES 16 (Source: 2017 Annual Report) IFC ASSESSMENT DATE January 2011 Vietnam Dairy Products Joint Stock Company WHAT DID THEY CHANGE? (Vinamilk) provides milk and dairy products in Vietnam and internationally. Established in 1976 as a state-owned company, In 2012, Vinamilk joined the Asia Corporate Governance it o cially went public on the Ho Chi Minh City Stock Association (ACGA). Subsequently, it committed to Exchange (HoSE) in 2006. Subsequently, it became the implementing best corporate governance practices as outlined country’s largest dairy company as well as the largest public in IFC’s 2010 manual for Vietnamese public companies , and company in terms of market capitalization listed on HoSE made exemplary e orts to establish the highest standards of (ticker symbol VMN). Vinamilk was further chosen as the first governance among its peers. CG was still relatively new in the ever Vietnamese representative for Forbes’s 50 Best Listed country and the region. To start with, Vinamilk strengthened Firms in the Asia Pacific 2016. the functional e ectiveness of its Board and appointed a Corporate Secretary to support CG implementation across the With a nationwide presence across Vietnam, Vinamilk mainly company. A more rigid definition of Board independence was produces and distributes condensed milk, powdered milk, fresh adopted, and in April 2017, Vinamilk o cially achieved the one milk, soya milk, yogurt, ice-cream, cheese, fruit juice and third independent director requirement. The terms of beverage, and other milk-based products. Vinamilk also reference, director authorities, and Board procedures were exports its products to 35 countries with a focus on new clearly documented and reinforced. In a few years, the markets in Africa and South East Asia besides traditional company’s overall commitment to good corporate governance markets in the Middle East . In 2017, the company’s total resulted in the development of a detailed Code of CG and production volume was over 250 SKUs with a total export committee charters for its Audit, Strategy, Remuneration, and volume of nearly 17,000 tons of milk powder. Nomination Committees. In an e ort to streamline risk mitigation and internal audit activities, Vinamilk emerged as a The company’s vision is to become a global brand in the food regional role model yet again by replacing its Supervisory and beverage industry, inspiring consumers’ trust in its range Board with an Audit Committee. The company was one of nutrient and health products. among the top listed firms to receive a high ranking in the annual ASEAN CG Scorecard Assessments as well as the Annual Report Awards — organized by the Stock Exchanges WHY CHANGE? and the Vietnam Investment Review — in terms of public disclosure of both financial and nonfinancial information As Vinamilk aimed to establish itself as a leading sustainable online. brand, its leadership realized the need to significantly improve its corporate governance framework to emerge as groundbreakers. With the growth of business in Vietnam and abroad, the Board and senior management recognized that adopting best CG practices would help diversify the experience Ms. Le Thi Bang Tam, of directors, align risk and internal control functions, be more Chairwoman transparent, and improve brand recognition, thus inspiring consumer confidence. Meanwhile, with no clearly defined roles “Corporate governance is key to our long-term strategy for and responsibilities for its directors and functional committees sustainability and growth as a regional dairy producer in or a CG manual to guide the company, Vinamilk was in want Southeast Asia. Over the years, we have established a robust of change. A top listed company on HoSE, Vinamilk was ready corporate governance framework, which continues to serve as to go beyond compliance and improve its CG framework for a the regional role model for corporate governance in ASEAN. distinctive edge in the sector. This, consequently, strengthens our Board and management accountability, inspires trust among stakeholders in the market, and promotes long-term interest of our shareowners.” According to the 2017 Annual Report of Vinamilk. The Corporate Governance Manual was published by IFC in collaboration with the State Securities Commission of Vietnam in 2010. SUMMARY OF KEY CHANGES KEY CHALLENGES KEY CHANGES Commitment to Corporate Vinamilk recognized the importance of CG Commitment: Developed and Governance good CG, and the Board was committed executed CG policies and codes, and to formalized processes and procedures, established a part-time Corporate and established better CG practices. Yet, Secretary to drive CG implementation the company needed to take action to within Vinamilk. make real changes in the governance of the business. Board E ectiveness Composition: The Board needed to Composition: The Board made diversify the experience of its substantial changes to its composition membership, provide greater by increasing directors and adding stewardship and oversight, and recruit independent members to meet the independent and diverse directors. local regulatory requirements. Committees: There was no Audit Committees: Established a fully Committee, which led to issues of functional Audit Committee, which led overseeing risk governance and internal to revising and expanding Board controls. membership, including sourcing insightful members with relevant Roles: The Board needed to better industry expertise to serve on the Audit, define roles and responsibilities for the Strategy, Nomination, and general leadership of the company as Remuneration Committees. well as direction of its management. Members were not proactively involved Roles: Responsibilities and authorities in the risk management or audit were clearly defined in a CG manual function. and charters, which enabled directors and management to make informed Procedures: Meetings were held decisions. Duties, scope of work, and frequently, but there was no regular accountability were clarified in the schedule and they were initiated by by-laws and the chairman’s management. Preparations for Board responsibilities were documented. meetings were decentralized and administered by various individuals, Procedures: The Board established primarily from management. Also, there clearer procedures for meetings and were no adequate policies for shared board papers in advance to give remuneration of Board members. directors su cient time to plan. Board meeting policies were well documented Succession Planning: No formal in the CG manual, which more succession plan was adopted at the e ectively managed expectations and Board or management level. enabled Board members to engage in more tactical and e ective debate. Succession Planning: Developed a succession plan with respect to the replacement of key management personnel. The aim was to ensure business continuity and establish a formal process of authority delegation in the normal course of business or during emergency situations. Management Control Risk Management and Audit: The Risk Management and Audit: Risk Management function was not Evaluated the regulations over the aligned with the Internal Audit function. company’s risk governance and internal Control policies were responsive, but controls in order to set up a more only when issues cropped up, and not in formal system to mitigate risks and line with international standards. enable management to take corrective action. The Risk Management Committee was combined with the Audit Committee and chaired by an SUMMARY OF KEY CHANGES KEY CHALLENGES KEY CHANGES Management Control independent director. By-laws were formally established and members with audit and risk experience were recruited to develop and implement a structured annual audit plan. Disclosure and Transparency Disclosure of Information: No prior Disclosure of Information: information disclosure policies were Documented a disclosure of established, and financial statements information policy in its CG code were not prepared in accordance with including principles on transparency, IFRS. confidential information, insider information, information security, related party transactions, and disclosure of information to shareholders. Shareholder and Stakeholder Shareholder Protection and Shareholder Protection and Relations Dividend Policy: There were policies Dividend Policy: Developed formal on shareholder rights and dividends, but provisions in its CG Code on rights of they were not extensively documented shareholders of the company, equitable in a CG Code. treatment of shareholders, and GMS resolutions. Adopted clearer and consistent principles in the by-laws on the Dividend Policy, which ensured the payout ratio was transparent. IMPACT REPORT EIGHT YEARS AFTER THE CHANGES, VINAMILK REPORTED THE FOLLOWING IMPACTS: Access to Capital IFC’s investors recognized the improved access to quality financial and nonfinancial information, resulting in better access to low-cost capital sources. Vinamilk received more favorable interest rates from both domestic and international financial institutions, and saved approximately $4.8 million in terms of the total borrowing interests from 2015 to 2017. In addition, Vinamilk has always attracted foreign investors and it reached the maximum cap of the foreign ownership limit (FOL) of 49 percent between the end of 2011 and 2016. The FOL was then progressively increased to 59.8 percent at the end of 2017, after the FOL was removed to allow foreign shareholders to buy the shares divested by the State Capital Investment Corporation, a major local (State) shareholder of Vinamilk. Profitability The average compound annual growth rates (CAGR) of net profit after tax and total assets from 2011 to 2017 are 16 percent and 14.3 percent respectively. This sound financial outcome was catalyzed by governance enhancements, a key factor that improved the company’s overall e ectiveness. Reputation Vinamilk’s reputation has meaningfully improved due to increased consumer and investor confidence in the company, given enhancements in management, disclosures, and the overall stewardship in business. Organizational E ciency Organizational e ciency improved as a result of a centralized management model and a strong distribution system, which streamlined and automated operations. Sustainability The company has taken concrete steps to develop and implement a personnel succession plan and talent management program with specific career pathways geared to create future leaders at Vinamilk, thus contributing to long-term sustainability and loyalty. Board Oversight Vinamilk’s Board and management make more informed, insightful resolutions on corporate-wide issues and hold more e ective discussions that foster strategic decision-making. Risk Risk mitigation and internal control systems have improved considerably, resulting in more proactive measures and assessment of potential risks, thus enabling the company to take corrective action in a timely manner. IMPACT REPORT IMPACT SCORECARD Access to Capital Profitability Reputation Organizational E ciency Sustainability Board Stewardship & Decision-Making Risk Management & Control Negligible Minor Moderate Strong Substantial Value of financing facilitated: Increase of foreign ownership from 49 percent at the end of 2016 to 59.8 percent at the end of 2017 Contact Us: About IFC Corporate Governance Group Chris Razook Corporate Governance Lead The Group brings together sta from investment and advisory operations into a +852-2509-8512 single, global team. This unified team advises on all aspects of corporate crazook@ifc.org governance and o ers targeted client services in areas such as increasing board e ectiveness, improving the control environment, and family businesses Nguyet Anh Nguyen governance. The Group also helps support corporate governance improvements Corporate Governance O cer and reform e orts in emerging markets and developing countries, while +84-24-3934-2282 leveraging and integrating knowledge tools, expertise, and networks at the global nanh2@ifc.org and regional levels. ifc.org/corporategovernance