Case study 2

Analyze Vinamilk Company corporate governance and compare it with General Electric
company corporate governance.

For this case, the corporate governance of Vinamilk and General Electric will be analyzed and
evaluated through some significant criteria as below.

Function and responsibility of Board of directors

Vinamilk: 4/5
-

Building long-term strategy and determining goals & objectives of the company
Orienting and monitoring management activities
Hiring and evaluating CEO performance
Organizing shareholders meeting and guaranteeing shareholders interests
Managing the companys share capital and assets
Publishing information and taking responsibility for the transparency of information

GE: 4/5
-

Selecting, evaluating and compensating the CEO and overseeing CEO succession
planning;
Providing counsel and oversight on the selection, evaluation, development and
compensation of senior management;
Reviewing, monitoring and, where appropriate, approving fundamental financial and
business strategies and major corporate actions;
Assessing major risks facing the Company -- and reviewing options for their mitigation;
Ensuring processes are in place for maintaining the integrity of the Company - the
integrity of the financial statements, the integrity of compliance with law and ethics, the
integrity of relationships with customers and suppliers, and the integrity of relationships
with other stakeholders.

In this section, functions and responsibilities of the Board of directors in both Vinamilk and GE
are provided consistently and clearly. This point partly contributes to create effectiveness of the
corporate governance in the 2 companies. Accordingly, for this part, Vinamilk and GE are graded
at 4/5.
Independence of directors
Vinamilk: 1/5

Requirement: at least one-third of the directors have to be independent directors

According to the Annual report 2014, Vinamilk has 6 members in the Board of director,
but there is only one independent director (Ms. Le Thi Bang Tam)

GE: 4/5
-

Requirement: GE seeks to have a minimum of ten independent directors at all times, and
it is the boards goal that at least two-thirds of the directors will be independent
At the present, GE has 16 members in the Board of directors and 15 in them are
independent directors, except only Mr. Jeffrey R. Immelt (Chairman of the Board and
CEO, GE)

In order to assure that directors are serving shareholders, global best practice recommends that at
least three-quarters of board members should be independent. For this criterion, Vinamilk has
performed ineffectively when this rate is only 1/6 that does not reach the companys requirement.
In comparison, the GE represents a great structure with the number of independent directors
account for 15/16 (93.75%).
However, both Vinamilk and GE do not have an independent chairman that is considered a
strong corporate governance practice. Specifically, Ms. Mai Kieu Lien of Vinamilk and Mr.
Jeffrey R. Immelt of GE are holding the dual role of CEO and Chairman of the Board in their
company.
According to all reasons above, for the independence of the Board criterion, Vinamilk and GE
will be graded at 1/5 and 4/5 respectively.

Size of Board and selection process

Vinamilk: 3/5
-

The minimum number of Board members is 5 and the maximum is 11 members

The Boards members term of office is 5 years
The Boards members can be voted with unlimited terms of office

GE: 4/5
-

The directors are elected each year by the shareowners at the annual meeting of share
owners. Shareowners may propose nominees for consideration by the governance and
public affairs committee by submitting the names and supporting information to:
Secretary, General Electric Company, 3135 Easton Turnpike, Fairfield, CT 06828. The
board proposes a slate of nominees to the shareowners for election to the board. The
board also determines the number of directors on the board provided that there are at least
10. Between annual shareowner meetings, the board may elect directors to serve until the

next annual meeting. The board believes that, given the size and breadth of GE and the
need for diversity of board views, the size of the board should be in the range of 13 to 18
directors.
Strong corporate governance practice says that staggered elections limits the power of
shareholders and doesn't allow changes to the board composition to occur quickly. Annual
elections force directors to make more careful decisions and be more attentive to shareholders
because they can cast a vote to keep or eliminate a director each year.
In the comparison between Vinamilk and GE, there is a significant difference about the size of
the board and the term of office. In Vinamilk, the number of directors is lower than in GE. That
may be resulted from the difference on size of the 2 companies. However, in general, with a
wider range of number of directors, GE may take a better contribution to management. Besides
that, the board of directors in GE is voted annually while in Vinamilk, the term of office of a
member is up to 5 years. This long tenure may lead to uncareful and bureaucratic decisions.

Audit committee
Vinamilk: 4/5
-

4 independent members

GE: 4/5
-

5 independent members

Best practice mandates that the audit committee consists only of independent directors, has
expertise in financial and accounting matters and has full access to and the cooperation of
management.
According available information, Vinamilk and GE has good performance in this criterion with
all of their audit members are independent and furthermore; they have good ability and
experiences in the finance accounting major.

Based on the analysis on different factors, in overall, Vinamilk has a medium level of
effectiveness in the corporate governance while the GE performs better. To contribute to the
Vinamilk, it is recommended that the company need to improve the independence of their Board
of directors, which is one of the most critical factor to create effective corporate governance.

Reference:
General Electric, Annual report 2014
General Electric, Governance principles
Vinamilk, Annual report 2014
Vinamilk, The governance regulation
Vinamilk, The operation charter
CFA Program, Corporate governance