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MBA 5101, Strategic Management and Business Policy Corporate Governance and Succession Planning TRUC THANH NGUYEN Columbia Southern University MBA 5101, Strategic Management and Business Policy INTRODUCTION The general purpose of this essay is to finish the assignment of Unit II basically There are two parts They are the theory of corporate governance and succession planning; and the SWOT analysis model Firstly, with the part one, the student used the main references that were Strategic management and business policy book to answer about the responsibilities of top management and leaders in relation to corporate governance and strategic planning, the benefits of strategic management, the roles and responsibilities of the board of directors, an example of a board of directors that did not meet its responsibilities to the company (the student has used case of HP company for this), explain the Sarbanes – Oxley Act and its impact on corporate governance, a discussion of the ways the strategic audit helps corporate Besides, the student used Decision 12/2007 / QD-BTC dated March 13, 2007 of Vietnam government and Spencer Stuart to answer for the responsibilities of the board of directors too Finally, with part two, it was about the SWOT analysis model The student used case of Vinamilk Joint Stock Company to analyze about strengths, weaknesses, opportunities and threats MBA 5101, Strategic Management and Business Policy PART CORPORATE GOVERNANCE AND SUCCESSION PLANNING 1.1 The responsibilities of top management and leaders - Getting things accomplished through and with others in order to meet the corporate objectives - Multidimensional and oriented toward the welfare of the total organization - Vary from firm to firm, and are developed from an analysis of the mission, objectives, strategies, and key activities of the corporation - Are divided among the members of the top management team [CITATION Tho18 \p 92 \l 1033 ] 1.1.1 In relation to corporate governance - Executive leadership Directs activities toward the accomplishment of corporate objectives Sets the tone for the entire corporation - Strategic vision Description of what the company is capable of becoming [CITATION Tho18 \p 91 \l 1033 ] 1.1.2 In relation to strategic planning - Strategic planning staff (include: functional managers, key person…) Charged with supporting both top management and the business units in the strategic planning process Strategic planning staff responsibilities include: Identify and analyze company-wide strategic issues, and suggest corporate strategic alternatives to top management Work as facilitators with business units to guide them through the strategic planning process [CITATION Tho18 \p 94,95 \l 1033 ] MBA 5101, Strategic Management and Business Policy 1.2 The benefits of strategic management - A clearer sense of strategic vision for the firm; - A sharper focus on what is strategically important; - A improved understanding of a rapidly changing environment - Improve satisfaction - Specify the vision, mission, objectives - Recognize the strengths, weaknesses, opportinities and threats - Suggest and select decisions and actions that are appropriate for the company’s conditions - Improve organization’s performance - Get more understanding about change in business environment [CITATION Tho18 \p 38,39 \l 1033 ] 1.3 The responsibilities of the board of directors Spencer Stuart has written that a board is responsible for: effective leadership; strategy of the organization; the balance of risk and initiative; succession planning; and sustainability [ CITATION Spe19 \l 1033 ] However, laws and standards defining the responsibilities of boards of directors vary from country to country In Vietnam, the boards of directors enforce Decision 12/2007 / QD-BTC dated March 13, 2007: (1) The Board is responsible to shareholders for the Company's operations, (2) The Board is responsible for ensuring that the company's activities comply with the provisions of law and the company's Charter, equal treatment for all shareholders and concern for the interests of rights holders, (3) The Board shall formulate regulations on the order and procedures for nomination, candidacy, election, dismissal and dismissal of members of the Boards of Directors and the order and procedures for organizing the Boards of Directors meeting, (4) The Board develops regulations on the order and procedures for selecting, appointing and dismissing senior managers and processes and procedures for coordinating activities between the Board of Directors and the Board of Directors and Supervisory Board, (5) The Board is responsible for developing a mechanism for evaluating activities, rewarding and MBA 5101, Strategic Management and Business Policy disciplining members of the Boards of Directors, members of the Supervisory Board, members of the Boards of Directors and managers, (6) The Board is responsible for making and reporting at the General Meeting of Shareholders in accordance with this Regulation [CITATION Dec19 \p 8,9 \l 1033 ] 1.4 The roles of the board of directors The role of the board is to carry out three basic tasks: (1) monitor; (2) evaluate and influence; and (3) initiate and determine [CITATION Tho18 \p 77 \l 1033 ] 1.5 An example of a board of directors that did not meet its responsibilities to the company Disarray with the HP board of directors is an example of a board of directors that did not meet its responsibilities to the company Lewis Platt who was the fourth CEO, was a long time engineering employee of the company He understood the company’s situation But he was slow to recognize the importance of the internet Carly Fiorina was the new CEO She was looked outside the company She was the first woman to head a DOW 30 company But she did not understand the company’s situation [CITATION Tho18 \p 73,74 \l 1033 ] “HP had a bumpy road with CEOs but part of the issue isn’t the CEO, it’s the Board,” said Forrester principal analyst Frank Gillett [ CITATION Cal19 \l 1033 ] This is a leadership and a perception problem Specific problem is about behaviors: Dismantling and replacing tradition and symbolic practices; reneging on promises; appearing to play unfairly; un-privileging insiders 1.6 The Sarbanes – Oxley Act 1.6.1 Explain the Sarbanes – Oxley Act and its impact on corporate governance - In response to the many corporate scandals uncovered since 2000, the U.S Congress passed the Sarbanes – Oxley Act in June 2002 - This act was designed to protect shareholders from the excesses and failed oversight that characterized criminal activities at Enron, Tyco, WorldCom, Adelphia Communications,… MBA 5101, Strategic Management and Business Policy - Several key elements of Act were designed to formalize greater board independence and oversight - The Act requires that all directors serving on the audit committee be independent of the firm and receive no fees other than for services of the director - In addition, boards may no longer grant loans to corporate officers The act has also established formal procedures for “Whistleblowers” Firms are prohibited from retaliating against anyone reporting wrong doing - Both the CEO and CFO must certify the corporation’s financial information - The act bans auditors from providing both external and internal audit services to the same company - It requires that a firm identify whether it has a “financial expert” serving on the audit committee who is independent from management [CITATION Tho18 \p 87 \l 1033 ] 1.6.2 The ways the strategic audit helps corporate - A strategic audit provides a checklist of questions, by area or issue that enables a systematic analysis to be made of various corporate functions and activities - Note that the numbered primary headings in the audit are the same as the numbered blocks in the strategic decision – making process - Beginning with an evaluation of current performance - A strategic audit can help determine why a certain area is creating problems for a corporation and help generate solutions to the problem - A strategic audit asks many of the critical questions needed for a detailed strategic analysis of any business [CITATION Tho18 \p 58 \l 1033 ] MBA 5101, Strategic Management and Business Policy MBA 5101, Strategic Management and Business Policy PART II SWOT MODEL The SWOT analysis of Vinamilk Dairy Joint Stock Company is based on the company's latest annual report: STRENGTHS Strong brand Effective marketing The largest market share in the country Wide distribution network Farm system according to international standards Managing working capital well Strong financial potential Research and development activities performed well Farm operations are equipped with modern equipment and technology High quality human resources WEAKNESSES Dependence on imported raw materials Domestic material purchasing stations have not made the most of their position Cooperation strategies with farmers have not been implemented effectively Market share of powdered milk has increased but has not competed with foreign milk yet The flow of milk from plants has not been focused on production to meet the increasing market demand of consumers Customer sources in rural areas have not been fully exploited The communication department is still inadequate in troubleshooting After sales are not highly appreciated by customers Security information system is not really good Inheritance human resources have not been paid attention to MBA 5101, Strategic Management and Business Policy OPPORTUNITIES THREATS Policy to encourage and support the development of dairy farming Policy to develop milk processing industry The young population is high, with an increase in income, which tends to improve health and height Geographical and climate characteristics are favorable for cows to grow well Modern technology Transportation system is expanded and improved Communication system developed Barrier to high dairy industry Abundant human resources, low manpower costs Measures to prevent diseases for cows are focused The world economic situation is more volatile and challenging Export markets face many risks Growth of the dairy industry reduced heat The competition is fierce due to the tax reduction for imported milk Psychology like to use customers' foreign goods Change in consumer trends Domestic raw materials have not high stability Distribution system reduced Evaluation criteria and loose milk quality inspection process 2.1 Strengths 2.1.1 Strong brand - Vietnamese consumers trust to use for over 43 years - On May 22, 2018, Kantar World Panel published its 6th year Brand Footprint report, in which Vinamilk continues to surpass foreign and domestic brand to keep its position as the No brand Vietnam 2.1.2 Marketing - Programs of advertising, PR, Marketing combined with social work have high efficiency 2.1.3 The largest market share in the country - The product portfolio is diversified, targeting a wide range of customers: high-end, special treatment, popular lines for adults and young children Vinamilk is the largest dairy company in Vietnam with a market share of 46%, which accounts for 48.7% market share in liquid milk market, 85% market share MBA 5101, Strategic Management and Business Policy 10 for condensed milk and yogurt Show that Vinamilk is able to set selling prices in the market 2.1.4 Extensive distribution network, combining many modern and traditional distribution channels: - 208 distributors and more than 250,000 retail outlets on nationwide Available in most supermarkets and convenience stores on nationwide Special customers: hospitals, restaurants, hotels, business The chain of "Vietnam Dairy Dream" increased to 426 points Customers belong to the school with “Sữa học đường” program 2.1.5 Farm system according to international standards - Imported purebred breeds directly from Australia, USA and New Zealand The dairy farm system is designed according to modern technology in the world such as USA, Sweden and Israel 2.1.6 Managing working capital well - The company maintains a high level of cash capital value to ensure adequate capital demand for planned production activities Accounts receivable from customers accounted for 16% of total short-term assets (2018), inventories accounted for 27% of total short-term assets (2018), short-term liabilities accounted for 10.7% of total capital resources (2018) 2.1.7 Strong financial potential - While many businesses are facing difficulties because of loan interest rates, Vinamilk has a quite safe capital structure, the debt / total assets ratio is 30% (2018 ) 2.1.8 Market research and development activities - - Vinamilk's product research and development department actively conducts research and cooperates with market research companies to understand sales trends and activities, consumer feedback and media as well informed about food and beverage issues From there, provide the most suitable products for customers The R&D department also focuses on social responsibility, ensuring that all activities go hand in hand with the business philosophy Organize nutrition examination and counseling with the School Milk Program MBA 5101, Strategic Management and Business Policy 11 2.1.9 Farm operations are equipped with modern equipment and technology - There is a system for detection of estrus and management of cow's health There is a center for embryo transfer There is Silo system that provides automatic concentrate Has automatic cooling system and super soft rubber mattress There are solar systems 2.1.10 Leadership and management good and experienced : - Vinamilk has a good, experienced and ambitious leadership team that is proven by sustainable business profits with a sustainable development strategy 2.2 Weaknesses 2.2.1 Dependence on imported raw materials - Account for 60% of input materials Therefore, input costs are so strongly affected from the world milk price and exchange rate fluctuations 2.2.2 Domestic material purchasing stations have not made the most of their position - Some purchasing points must accept payment policies that are not conducive to the company 2.2.3 Cooperation and cooperation strategies with farmers have not been implemented effectively - The farmers feel inadequate and pressure on media companies 2.2.4 Market share of powdered milk has increased but has not yet competed with foreign milk - According to BVSC's latest report, the domestic market for powdered milk products accounts for 65%, Vinamilk accounts for 16% 2.2.5 The flow of milk from plants has not been focused on production to meet the increasing market demand of consumers - Vietnamese consumers tend to replace animal-based foods and beverages to plants Meanwhile, Vinamilk has only a few dairy products from plants such as soybean walnuts MBA 5101, Strategic Management and Business Policy 12 2.2.6 Customer sources in rural areas have not been fully exploited - Currently, rural areas can only distribute many popular product lines However, in rural areas, there are still many potential customers for high-end product lines 2.2.7 The communication department is still inadequate in troubleshooting - School milk incidents have partly affected the reputation of Vinamilk However, apart from explaining that Vinamilk has not made any positive moves to improve the situation 2.2.8 After sales are not highly appreciated by customers - Important customers may not continue to buy Vinamilk products because of the outstanding after-sales service 2.2.9 Security information system is not really good - There are leaked information, affecting the company's strategic development plan 2.2.10 Inheritance human resources have not been paid attention to - There are important positions that are still empty, yet have not found the right manpower 2.3 Opportunities 2.3.1 Policy to encourage and support the development of dairy farming - Priority land for farms, grass for cattle feed Loans to buy cows with low interest rates, long payback periods Building epidemic safety zones Tax exemption for the first years 2.3.2 Policy to develop milk processing industry - The State invests in funds to build demonstration models: processes and techniques for nurturing and taking care of dairy cows, exploiting and preserving fresh milk 2.3.3 The young population is high, with an increase in income, which tends to improve health and height - Vietnam currently ranks 14th in the world The average age is 31 years old Per capita income in 2018 increased by 198 USD compared to 2017 MBA 5101, Strategic Management and Business Policy - 13 Development communication helps people know how to take care of their health 2.3.4 Geographical and climate characteristics are favorable for cows to grow well - Fertility, productivity and milk quality are greatly affected by the cow's habitat 2.3.5 Modern technology - Industrial revolution 4.0 helps shorten the process of industrialization and development leaps to higher technology 2.3.6 Transportation system is expanded and improved - The transportation process is expensive and time consuming, reducing business results The expansion of the transportation system and improving the business efficiency 2.3.7 Communication system developed - Help reduce a lot of costs and work more effectively 2.3.8 Barrier to high dairy industry - The guard is not really harsh 2.3.9 Abundant human resources, low manpower costs - This is one of the great advantages of Vietnam 2.3.10 Measures to prevent diseases for cows are focused - This is an important factor However, it has only been focused in recent years 2.3.3 Competitors are being weakened due to issues related to quality and the viewpoint of Vietnamese people using Vietnamese goods being responded 2.4 Threats 2.4.1 The world economic situation is more volatile and challenging - - In 2018, the world economy in general was affected by the trade war between the United States and China broke out in April The tariff sanctions policies that both sides introduced in months of the year 2018 has made many investors worried about trade instability as well as concerns about holding back economic growth prospects The issue of Brexit happening between the UK and Europe also creates additional pressure on possible instabilities MBA 5101, Strategic Management and Business Policy 14 2.4.2 Export markets face many risks - More than 90% of the profits from exports come from the Iraq market - this is a market with many risks both politically and economically Therefore, Vinamilk's profit from export has not been stable yet 2.4.3 Growth of the dairy industry reduced heat - Kantar recorded negative growth of less than 0.5% However, according to Vinamilk, this is only a short-term phenomenon 2.4.4 The competition is fierce due to the tax reduction for imported milk - The dairy market is fiercely competitive when there are many participating companies, especially big dairy companies in the world such as Nestle, Dutchlady, Abbott, Enfa, Anline, Mead Jonhson, 2.4.5 Psychology like to use customers' foreign goods - Psychology of using Vietnamese products is a big challenge for Vinamilk and other enterprises in the industry 2.4.6 Change in consumer trends - Consumers have many alternatives such as vegetable milk or other nutritional drinks Especially high-class repair products with European organic standards 2.4.7 Domestic raw materials have not high stability - Due to the fact that the current dairy industry is mainly households, lack of professional management of macro management and organization of production management of livestock facilities, raw materials are often unstable 2.4.8 Distribution system reduced - Distribution system is affected by wholesale distributors seeking other investment opportunities from real estate, gold, and securities markets 2.4.9 Evaluation criteria and loose milk quality inspection process - Currently consumers not know the evaluation criteria and believe in the process of milk quality accreditation So Vinamilk's milk quality certificates not really help consumers feel secure to use MBA 5101, Strategic Management and Business Policy 15 References Bibliography Decision 12/2007 / QD-BTC dated March 13, (2019, 17) https://vanban.luatminhkhue.vn Retrieved 13, 2007, from https://vanban.luatminhkhue.vn: https://vanban.luatminhkhue.vn/xemvb/34742/quyet-dinh-12-2007-qd-btc.aspx Garling, C (2019, 17) https://www.wired.com Retrieved 22, 2011, from https://www.wired.com: https://www.wired.com/2011/09/meg-whitman-takes-over-hp/ Stuart, S (2019, 17) https://www.spencerstuart.com Retrieved 2014, from https://www.spencerstuart.com/~/media/pdf%20files/research%20and%20insight %20pdfs/ssbi2014web14nov2014.pdf Thomas L Wheelend, J David Hunger, Alan N Hoffman, Charles Bamfor (2018) Strategic Management and Business Policy London: Pearson Education