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Ten years ago, Vietnamese dairy firm Vinamilk already occupied an enviable position: it was one of the biggest public companies listed on the Ho Chi Minh City Stock Exchange, and its name was synonymous with the country’s dairy industry. But Vinamilk’s leaders were concerned with what the company lacked: an advanced corporate governance framework to promote long-term efficiency. Without it, the company’s prospects for sustainability promised to be far less rosy than its past.

So in 2012, Vinamilk joined the Asian Corporate Governance Association (ACGA) and committed to implement corporate governance best practices as outlined in IFC’s Corporate Governance Manual for Vietnamese public companies. The idea of corporate governance—a system of rules, principles, and processes by which a company is directed and controlled—was relatively new in Vietnam at that time. Vinamilk’s board decided to lead by example.

“Corporate governance is key to our long-term strategy and growth,” says Le Thi Bang Tam, Chairwoman of Vinamilk’s Board of Directors. “Over the years, we have established a robust corporate governance framework that is in sync with international best practices. This strengthens our Board and management accountability, and inspires trust among stakeholders in the market. It also promotes long-term interest of our shareowners.”

Results back up this belief. Vinamilk experienced an average annual revenue growth rate of 13.5 percent from 2012 to 2017, while its net profit rose 12 percent per year on average. Tam says that this is a credit to the improved corporate governance framework implemented following IFC’s recommendations. And closing the year 2017, Vinamilk’s profit after tax was a record high: over VND 10 trillion (about $456 million).

The corporate governance framework implemented by Vinamilk has helped the company boost its revenue and profit.


Feeding Results

Vinamilk’s efforts to establish high standards of governance were deliberate and thorough. In early 2017, Vinamilk became one of the first listed companies in Vietnam to set up an audit committee under the Board of Directors—a popular oversight mechanism in the rest of world that is still rare in Vietnam. Now chaired by an independent director, the new audit committee has the power, resources, and independent status to effectively support the Board of Directors in fulfilling its oversight function.

Vinamilk is also among a few listed companies out of Vietnam’s 700 listed firms with independent directors comprising one-third of total members. Alongside relevant industry expertise and insight, independent outside directors act in the company’s best interest and are free from conflicts that can compromise their judgment.

Improvements in company operations followed quickly. Chairwoman Tam says that 2017, the first year of the advanced governance model applied at Vinamilk, ended “with the company continuing to consolidate its leading position with impressive growth, both in revenue and profit.”

A Better Way to Do Business

Vinamilk’s new approach to disclosure policies also differentiates it from its local corporate peers. The company is one of a few companies in Vietnam that has adopted best practices in disclosure and transparency to catch up with other members of the Association of Southeast Asian Nations (ASEAN).

A disclosure of information policy was documented in its corporate governance code, including publishing both financial and non-financial information online. Improved transparency has resulted in better access to low-cost capital sources for Vinamilk, helping save about $4.8 million from 2015 to 2017. Vinamilk continues to be able to attract foreign investors: nearly 60 percent of its stake was held by foreign shareholders at the end of 2017.

These changes contributed to better results. Vinamilk’s return on equity hit a record 44 percent in 2017—roughly double its corporate peers’ level. This makes the company one of the most profitable food and beverage businesses in the region.

IFC launched its Vietnam Corporate Governance Project in 2008 to help Vietnamese companies adopt corporate governance best practices that enhance value and sustainability. The 2010 publication of the Vietnam Corporate Governance Scorecard and the Corporate Governance Manual, in partnership with the State Securities Commission of Vietnam, the Global Corporate Governance Forum, and the Swiss State Secretariat for Economic Affairs (SECO), expedited corporate governance improvements in the Vietnamese corporate sector.

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Published in September 2018