UEH UNIVERSITY
COLLEGE OF BUSINESS
SCHOOL OF FINANCE
FINAL REPORT OF THE COURSE
CORPORATE GOVERNANCE & ETHICS IN FINANCE
TOPIC: ANALYSIS OF PHU NHUAN JEWELRY JOINT
STOCK COMPANY’S GOVERNANCE QUALITY
Lecturer
: M.Fin. Nguyen Trieu Dong
Course Code
: 23C1FIN50510402
Student name
: Chau Hoang Chi Ton
Student ID
: 31211023706
Date of Birth
: 12th October, 2003
Batch – Class
: Batch 47 - Class FNC05
Ho Chi Minh City, 20th December 2023
TABLE OF CONTENT
TABLE OF CONTENT
CHAPTER 1: INTRODUCTION
1
1.1. Overview of Corporate Governance and Board of Directors (BOD)
1
1.2. General information about the company
1
1.3. Substantial Growth Milestones and Development History
4
1.3. Financial ratios of recent years
6
CHAPTER 2: CORPORATE GOVERNANCE ANALYSIS
2.1. Analysing factors shaping quality of governance system in Vietnam
7
7
2.1.1. Efficiency of local capital markets
7
2.1.2. The extent to which the legal system protects all shareholders
9
2.1.3. Enforcement of Regulations
9
2.1.4. Societal and cultural values
11
2.2. Board of Directors: Duties and Liabilities
12
2.2.1. Organisational and Managerial Structure
12
2.2.3. The Board's Committee
16
2.3. Board of Directors: Structure and Consequences
2.3.1. Board’s Independence
17
17
2.3.1.1. Independence of Chairperson
17
2.3.1.2. Lead Independent Director
18
2.3.1.3. Outside (Non-executive) Directors
18
2.3.1.4. Independence Standards
19
2.3.1.5. Independent Committee of the Board
20
2.3.1.6 Representation on the board by selected constituents
21
2.3.2. The Size and the Structure of the Board of Directors
22
2.3.2.1. Board Size
22
2.3.2.2. Board Diversity
23
2.3.2.3. Board with Female Directors
24
2.3.2.4. Busy Board
24
2.3.2.5. Interlocked Boards
26
CHAPTER 3: CONCLUSION AND RECOMMENDATIONS
27
3.1. Conclusion
27
3.2. Recommendations
27
REFERENCES
CHAPTER 1: INTRODUCTION
1.1. Overview of Corporate Governance and Board of Directors (BOD)
Corporate governance refers to the structures and processes for the direction
and control of companies that “the corporation adopts to discourage self-interested
managers from activities detrimental to the welfare of shareholders and stakeholders”.
In a market economy, corporate governance encourages economic development and
allows companies to get involved in long-term projects. Also, corporate governance
contributes to improved efficiency and effectiveness of the economic system, leading
to lower cost per capita and efficient use of resources.
Good corporate governance involves a framework that is put in place to get the
most value for the shareholders legally, ethically, and sustainably (Murthy, 2006). If
the corporate governance system is sound, it will give effective incentives to achieve
the objectives in the best interest of the company and the shareholders, enable
companies to operate more efficiently, improve access to capital, mitigate risk,
safeguard stakeholders, and promote social responsibility. Adversely, when a company
deviates from its corporate governance strategy, it signals its shareholders that it
cannot be trusted. It also scares away investors whose investment decisions depend on
the level of corporate governance practices and profitability.
The board of directors plays a central role in the corporate governance system.
Conceptually, the Board of Directors (BOD) refers to a corporate body comprising a
group of elected people who represent the interest of a company’s stockholders, set
general company goals, maintain company resources, and oversee the corporation.
According to Article 153 of Law on Enterprise 2020 of Vietnam, the Board of
Directors is the managerial body of the company. It has the right to make decisions on
behalf of the company and perform the rights and obligations of the company, except
those of the GMS. The Board of Directors shall have between three (03) and eleven
(11) members, and the company's charter shall prescribe the specific number of
members. Also, the term of office of a BOD member shall not exceed 05 years
without a term limit (Article 154, LOE of Vietnam).
1.2. General information about the company
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Founded in 1988, Phu Nhuan Jewellery Joint Stock Company is Vietnam's
most prominent jewellery producer and retailer in Vietnam and Asia, with more than
350 retail stores nationwide. PNJ’s Revenue streams come from 5 sources: Retail,
Wholesale and Export Jewelry, Gold Bar and Inspection Service. PNJ’s main business
fields: (1) Producing and trading jewellery of gold, silver, precious stones, fashion
accessories, and souvenirs; (2) Trading watches and buying gold bars; (3) Diamond,
precious stones and precious metal inspection services; and (4) Trading in real estate.
In 2023, PNJ has over 7000 staff members, 4 million items produced annually,
60 million USD in annual sales revenue on average, and about 10 million USD in
annual export revenue. Three main product lines of PNJ are (1) Fine jewellery: The
main products of PNJP include Gold jewellery, High-end silver jewellery, Diamond
jewellery, Gemstone jewellery, and Machine-made chains; (2) Machine-made Chain:
PNJ has possibly the most comprehensive range of plain, multi-coloured, solid &
hollow machine-made and hand-made chains crafted by our latest imported machines
& innovative artisans; (3) Corporate Gifts: With the strength of design ability,
processing technology, and a team of skilful craftsmen and jewellers, PNJP is one of
the first brands to develop a product line of gifts for companies.
Brands contributing to PNJ’s values:
PNJ Trust & Style: Since its inception in 1988, PNJ has constantly innovated
to continuously launch hundreds of jewellery collections with diverse materials, rich
in precious stones such as diamonds, ruby, sapphire, emerald, semi-precious stones
(colour stones) such as topaz, citrine, amethyst, peridot, tourmaline, pearl; cubic
zirconia (CZ) and excellent CZ (ECZ),... with pioneering and classy breakthrough
designs, contributing to honour the beauty of Vietnamese consumers. PNJ branded
jewellery products always have a harmonious combination of luxury and unique
beauty, fashion, and modernity, with every detail brought to life by talented designers
and skilful goldsmiths to ensure products with high sophistication and aesthetics meet
the tastes of all customers.
PNJ Silver: Appeared on the Vietnamese jewellery market in 2001; up to now,
PNJ Silver, as a modern young girl, has always led the trend with various and novel
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silver jewellery and accessories. With fashionable and dynamic purple-pink colour,
PNJ Silver is proud to be a jewellery brand easily recognised in many shopping
centres across Vietnam's provinces and cities, satisfying the thirst for fashion jewellery
of young people - the leading customer group that PNJ Silver targets.
CAO Fine Jewellery: Launched in 2005, CAO Fine Jewellery originates from
the belief in the crafting talent of Vietnamese jewellers and the constant artistic
creativity of the contemporary young generation designers, choosing the value of
Creativity and Uniqueness as a guide. CAO Fine Jewellery is gradually becoming a
leading luxury jewellery brand, bringing the mission to honour elite women's inner
beauty and feminine and modern beauty. CAO Fine Jewellery is a combination of
classic elegance and elegant modernity. The jewellery is crafted from strictly selected
gemstones to create masterpieces that represent the aesthetics of the jewellery
industry. At the same time, it shows the class of a jewellery brand that uses only the
rarest materials in each design. Even better, each piece of jewellery is a one-of-a-kind
creation that reflects the unique beauty and personality of its proudly charismatic
owner.
PNJ Disney: Born from the cooperation between PNJ and Walt Disney - the
brand wishes to bring modern princesses a message of youth, optimism, and aspiration
to live and act, and at the same time, arouse pure childhood in every girl. Inspired by
the fairy world, towards youthful beauty but no less romantic, the products are
designed to resemble iconic Disney characters such as Snow Queen Elsa, Cinderella,
Snow White, Winnie The Pooh and Friends, Mickey Mouse, etc.
Style by PNJ: With the mission of constantly innovating, Style by PNJ always
seizes the times to refresh designs and change experiences. Hence, customers take
advantage of opportunities to affirm their unique image. Each collection of Style by
PNJ carries contemporary breath, reflecting the diverse lifestyles and styles of many
customer groups.
PNJ Watch: Entering the watch retail market in 2012, after ten years, PNJ
Watch has increasingly affirmed its leading position in the women's fashion watch
retail industry with an extensive store system. PNJ Watch has grown tremendously. It
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has more than 80 Shop-In-Shop stores (watch business in PNJ) and three independent
stores, and at the same time focuses on trading high-end watch brands such as Silvana,
Longines, Tissot, Jowissa, Michael Kors, Fossil, Daniel Wellington, Citizen, Just
Cavalli, Olivia Burton.
PNJ Art: One of the pioneering brands in developing the Gifting product line,
PNJ Art was born with a wide range of products on feng shui and high-class corporate
gifts. Based on the foundation of upholding the core values of creativity and
sophistication, each product at PNJ Art has a deep meaning and goes through a
rigorous process to ensure sophisticated standards and perfect design. In particular,
PNJ Art also offers custom fabrication services. The designs have bold styles and
distinctive imprints of each individual and each business to which the production team
has always given special attention and enthusiasm.
PNJ Lab: With 25 years of operation in inspection services, PNJ Lab has
affirmed its reputation for domestic and foreign customers with modern technological
equipment and a team of experienced experts who regularly receive professional
training. PNJ Lab is Vietnam's leading diamond, gem, and precious metal inspection
company. PNJ Lab is successfully built and operated according to international
ISO/IEC 17025 standards. The certificates of PNJ Lab are all based on the most
rigorous international standards, such as the assessment of diamonds based on the
standards of GIA - Gemological Institute of America. PNJ Lab is also one of the few
enterprises licensed by the General Department of Standards, Metrology and Quality
(Ministry of Science and Technology) to allow the determination of gold content in
jewellery, fine art, etc., of enterprises or individuals when there is a dispute.
1.3. Substantial Growth Milestones and Development History
Stage 1 (1988 - 1998): Pioneering Process
On 28/04/1988, Phu Nhuan Jewelry Store was founded under the People’s
Committee of Phu Nhuan District. 1992: It changed its name to Phu Nhuan Jewelry
Company, which is oriented towards industrial jewellery production and investment in
machinery and technology. 1994 Developing and expanding the northern market. 1995
Promote marketing and branding activities.
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Stage 2 (1999 - 2008): Constantly Breakthrough
1999 Continuously expanding and developing Central and Western markets in
Vietnam, PNJ is present in 03 major economic centres of the country. 2004
Equitization and receiving the First Class Labor Medal. In 2005, the high-end
jewellery brand CAO Fine Jewelry was born. 2008 Announced new brand identity and
honoured to receive the Third-Class Independence Medal.
Stage 3 (2009 - 2018): Making Exploits
2009 Listing shares on HoSE, the first and only jewellery company to be listed
on the stock exchange to date. 08/2009 Established CAO Fashion One Member
Limited Liability Company. 2012 Inauguration of PNJ Production Enterprise (PNJP)
and orientation to become a Jewelry retailer 2013 Building the mission of “Honoring
true values”. 2016, PNJ joined the Vietnam Business Council for Sustainable
Development. In 2017, it gained ASEAN Outstanding Enterprise and Top 3 Asian
Retailers ranked by JNA, etc. In 2018, Phu Nhuan Joint Stock Company celebrated
the 30th anniversary of the journey of keeping the golden faith. Sustainable
Development Report won the first prize in Asia with items in accordance with 17
United Nations Sustainable Development criteria.
Stage 4 (2019 - 2022): Shining to Last
In 2019, PNJ launched Disney PNJ in 50 big selected stores in Nov 2019. By
collaboration with Disney - a renowned worldwide brand with endless inspiration and
a powerful story - we aim to strengthen and lift the market leadership of PNJ in
Vietnam; create new product offerings for PNJ retail by leveraging well-known
fictional characters of worldwide renowned Disney brands; bring the magical world to
life through creativity, sophisticated design & perfectly crafted jewellery inspired by
the magical characters that people feel related to.
In 2020, PNJ announced its new vision, officially becoming the most
outstanding enterprise in the Asia-Pacific jewellery industry, valued at 93.1 million
USD by Forbes Vietnam. Being an enterprise for five consecutive years in the top 10
sustainable development enterprises in Vietnam
Page 5
In 2021, PNJ was honoured as the Best Jewelry Manufacturer and Crafter in
2021 - Jewelry World Award JWA. Top 10 Enterprises meeting business culture
standards according to the criteria directed by the Prime Minister. Top 2 sustainable
development enterprises in the Trade and Service industry.
In 2022, Top 5 "Listed Company with Good Governance 2022", Top 20
Sustainable Development Enterprises on HoSE (2022), Top 1 Trade and Service
Division in 100 Sustainable Development Companies in Vietnam (2022), Human
Resources Award for Sustainable Development Vietnam creates HR Award (2022).
1.3. Financial ratios of recent years
Table 1. Financial ratios of PNJ in 2016 - 2021
Criteria
2016
2017
2018
2019
2020
2021
EPS (thousand dong)
4.38
6.43
6.48
4.9
4.31
4.2
BV (thousand dong)
15.27
27.28
22.43
20.32
23.03
26.42
P/E
15.18
21.31
14.38
17.55
18.79
22.9
ROA (%)
12.56
16.14
14.91
13.88
12.61
9.69
ROE (%)
30.03
24.58
25.63
26.08
20.4
17.11
ROS (%)
5.26
6.6
6.59
7.02
6.11
5.26
DAR (%)
58.18
34.34
41.83
46.79
38.21
43.38
GOS (%)
16.48
17.42
19.07
20.36
19.61
18.41
(Source: Cafef.vn)
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CHAPTER 2: CORPORATE GOVERNANCE ANALYSIS
2.1. Analysing factors shaping quality of governance system in Vietnam
2.1.1. Efficiency of local capital markets
The country's capital market can significantly impact a firm’s governance
practices by imposing specific rules and regulations. Whilst the legal and regulatory
structures are crucial, the capital market, with adequate transparency and
accountability in place, can ultimately reward or punish firms for their governance
practices (Drobetz et al., 2004).
At the initial stage (2000–2005), Vietnam’s stock market capitalisation was
only approximately 1% of GDP. As of June 2020, the stock market's capitalisation
reached almost VND 4,000 trillion, which is equivalent to around 65% of GDP.
Vietnam's market capitalisation accounted for 171.911 USD billion in October 2023
(Figure 1), compared with a percentage of 191.809 USD billion in the previous month.
The stock market has played a pivotal role in allocating medium-to-long-term capital
for economic growth.
Figure 1. Vietnam's stock market capitalisation (Nov 22 - Oct 23)
(Source: CEIC Data)
The government bond market was officially launched in 2009, bringing all
bidding activities and government bonds trading to the Hanoi Stock Exchange (HNX).
Over the past 14 years, the legislative system for the government bond market has
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dramatically enhanced and introduced several market mechanisms to strengthen the
functioning of the domestic bond market. By September 2023, the government
bonds’s capitalisation reached roughly 95.23 USD billion, or 23.29% of GDP (Figure
2). Currently, the Vietnamese market is classified by MSCI as a frontier market, in
which the biggest obstacle for Vietnam to become an emerging market can be
attributed to the foreign ownership limit (FOL).
Figure 2. Size of Local Currency Bond Market in % of GDP
(Sources: AsianBondsOnline and Vietnam Ministry of Finance)
Research on the Vietnamese capital market is extremely limited, mainly due to
its short existence – the first stock exchange in the country was established in 2000.
Vietnam's stock market is considered a thin-trading market (Dong et al., 2010), where
asymmetric severe information and insider trading exist, particularly for the sake of
informed investors (Tran, 2011). Weak corporate governance with high ownership
concentration by family or government and low foreign ownership is well
characterised by the market in Vietnam. As shareholders can not rely on inefficient
markets for corporate control and managerial punishment, businesses have to search
for alternative sources of financing for growth. At that time, low stock price
synchronicity in the Vietnamese stock market was associated with an ineffective
corporate governance system, which limited transparency to the market forces.
Surprisingly, Gupta et al. (2014) tested daily, weekly, monthly, and quarterly
data and concluded that the Vietnamese stock market is weak-form efficient, at least in
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the later period. Thanh (2013) adheres to the same point of view, studying the
Vietnamese stock market from 2009–2012 and concluding that a weak form of 6
effectiveness had been achieved. Despite the impact of COVID-19 in 2021, Vietnam’s
stock market achieved specific positive results, attracting investors internationally and
domestically, which in turn concludes that the effectiveness of financial regulations
now exhibits the explanatory force of stock market returns.
2.1.2. The extent to which the legal system protects all shareholders
Business owners are primarily concerned with protecting their property against
expropriation, the predictability of how claims will be resolved under the law, the
enforceability of contracts, and the efficiency and honesty of the judicial system. Such
disciplinary mechanisms will only constrain agency issues if the legal regime is
corrupt or can be relied upon to provide adequate protection.
Vietnamese law has changed considerably from overly protective of majority
shareholders to more protective of minority shareholders. The newly adopted Law on
Enterprises (LOE) 2020, Law on Securities (LOS) 2019 and their guiding regulations
have strengthened the tools for enhancing shareholder activism, in which minority
shareholders, hedge fund or venture capital investors may take advantage of many
newly introduced tools and mechanisms to act in their interests or those of the
company. Accordingly, the LOE (2020) and the LOS (2019) aim to give shareholders
more power to supervise the board and counterbalance the board’s governing
authority. Also, the new Law on Securities promotes transparency in day-to-day
management, detailing reporting and disclosure obligations for public companies,
listed institutions, securities firms, fund management companies, the Securities
Trading Center, and the Securities Exchange. Companies operating in countries where
the legal system protects minority shareholders’ interests would have the stock market
evaluated higher than those who do business in nations that are lax with regulations.
2.1.3. Enforcement of regulations
A country's legal system determines the corporate governance structure
concerning the rules prescribed for ownership and board structures, mergers, seven
liquidations, and shareholders’ rights. According to the report of the World Bank
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(2006), the corporate governance system in Vietnam is in the early stages of
development and exhibits less developed and enforced regulations. Moreover, the
legal protection of the firm’s stakeholders in Vietnam has been limited due to the
discrepancies in the interpretation of the legal systems.
The New Law (effective from January 1st, 2021) is expected to make a
breakthrough in improving corporate governance, enhancing enterprises' initiatives,
and creating favourable conditions for foreign-invested enterprises to operate in
Vietnam. In Vietnam, the principal sources governing corporate governance
requirements for companies are listed as follows:
● The Law on Enterprises 2020 (LOE) governs the establishment, management,
restructuring, dissolution and other related activities of enterprises;
● The Law on Securities 2019 (LOS) governs the activities of public companies,
including public offering, listing, trading and investing securities;
● The Vietnam Corporate Governance Code of Best Practice for Public
Companies 2019 (CG Code) was developed by the State Securities
Commission (SSC), with primary technical support from the International
Finance Corporation;
● Decree 155/2020/ND-CP (Decree 155) dated December 31st 2020, of the
Government guiding the LOS, with a chapter specifically focused on corporate
governance of public companies;
● Circular 116/2020/TT-BTC (Circular 116) dated December 31st 2020, of the
Minister of Finance guiding articles on corporate governance applicable to
listed companies in Decree No. 155/2020/ND-CP;
The enforcement of these current laws and regulations contributes to the
improved quality of financial products the quality of enterprises listed on the stock
market, and meets in-depth international economic integration requirements. Also,
Vietnamese government officials are committed to enforcing policies and procedures
fairly and consistently so that the securities market operates firmly, safely,
professionally, and modernly.
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2.1.4. Societal and cultural values
Managerial behaviour is significantly shaped by society and culture, in which
activities that are deemed acceptable in some societies are judged inappropriate in
others. Not only does cultural value exert considerable influence on the willingness of
executives to engage in activities and the likelihood of self-serving behaviour, but it
also affects the relationship between the corporation and its stakeholders. Despite
being complicated to quantify, these values play a substantial role in developing
governance systems. According to the theory of the famous social psychologist Geert
Hofstede, a culture can be evaluated based on six cultural dimensions (Figure 4).
Figure 3. Geert Hofstede’s cultural dimension theory
Figure 4 illustrates an overview of Vietnamese culture from an academic point
of view of Hofstede's cultural dimensions theory. Vietnamese people accept a
hierarchical order in which everybody has a place and needs no further justification.
Also, Vietnamese society fosters strong relationships and values equality, solidarity
and quality in their working lives, which means that female representation on boards
is lower in highly masculine cultures. Moreover, it is crucial for the company to assure
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stakeholders that the board of directors is adequately addressing their concerns and
needs. Practically, many Vietnamese consider their co-workers a “second home” and
care a lot about what happens there, even beyond a pure “work” context.
Moreover, in Vietnam, hard work is undertaken when necessary but not for its
own sake, and developing long-term relationships is critical to being successful in
Vietnam. Last but not least, Vietnam adheres to long-standing traditions and beliefs
and is persistent in achieving the goals set. Lastly, the culture of Vietnam is
characterised as restrained and pessimistic due to the fact that people do not put much
emphasis on leisure time and control the gratification of their desires.
Figure 4. The Geert Hofsede’s score for each cultural dimension of Vietnam
2.2. Board of Directors: Duties and Liabilities
2.2.1. Organisational and Managerial Structure
PNJ follows a one-tier board, with the General Meeting of Shareholders, the
Board of Directors, and the Director/General Director. When a listed company
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chooses a one-tier option, at least 20 per cent of the directors are independent
directors, and there is an internal auditing board under the board of directors (clause
1.b, article 137 of Law on Enterprises 2020). In this case, independent BOD members
and the audit committee represent supervisory functions by monitoring the company
performance of management control. Companies take advantage of a one-tier board
structure to enjoy the enhanced superior flow of information, faster decision making
and reduced bureaucracy, as well as improve the board’s better knowledge and
participation in the corporation. Thus, non-executives can quickly evaluate
information and objectively supervise management in contrast to dual board structure.
However, some demerits of the one-tier board exist, such as the concentration of
power in the hands of a few people, the ‘boys club’ syndrome, etc.
Figure 5. Organisational and Managerial Framework of PNJ
(Source: PNJ's Annual Report 2022)
2.2.2. The operation of the Board
The board of Directors is supposed to perform both advisory and supervisory
roles, including consulting with management on the company's strategic and
operational direction and monitoring management for the sake of stockholders.
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Table 2. PNJ’s Board of Directors
Full name
Positions
Appointment
Mrs. Cao Thi Ngoc Dung
Chairperson of BOD
2014
Chairperson of the Subcommittee
Mr. Le Tri Thong
Vice Chairman of BOD cum CEO
27/04/2017
Mr. Nguyen Tuan Hai
Member of the BOD
10/06/2020
Member of Audit Committee
Mrs. Tran Phuong Ngoc Thao Member of BOD
10/06/2020
Chairperson of the Subcommittee
Mr. Dao Trung Kien
Member of the BOD
16/04/2022
Senior Director of Operations
Mrs. Dang Thi Lai
Member of the BOD
20/04/2019
Senior Director of Finance
Mrs. Huynh Thi Xuan Lien
Member of the BOD
21/04/2018
Member of Audit Committee
Mrs. Tieu Yen Trinh
Independent member of the BOD
10/06/2020
Chairperson of the Subcommittee
Mr. Le Quang Phuc
Independent Member of the BOD
02/04/2016
Chairperson of Audit Committee
(Source: PNJ's Annual Report 2022)
Therefore, there is one vacancy on the Board of Directors since the company
has not found a suitable candidate for the remaining position at the upcoming AGM
since Mr. Le Huu Hanh resigned from the BOD. PNJ’s BOD had three independent
members, accounting for a third of the total number of BOD members, including Mrs.
Tieu Yen Trinh, Mr. Nguyen Tuan Hai and Mr. Le Quang Phuc. Consequently, the
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independent BOD members at PNJ have the capacity to promote the independent
judgment of all BOD members and the integrity of the governance system at PNJ.
According to Article 39: Rights and Obligations of the Board of Directors of
PNJ’s Charter of Organisation and Operation, BOD are required to:
● Deciding on strategies, medium-term development plans and annual business
plans and budgets of the Company;
● Organising and implementing the investment plans, and development strategies
of the Company;
● Making decisions on the business development and production plans and the
annual budget;
● Submitting the annual settlement report to the General Meeting of Shareholders
(GMS);
● Approving the agenda, and the content of documents for the GMS, convening
the General Meeting of Shareholders or implementing the procedures of
opinion collection for being approved at the GMS;
● Identifying the operation objectives on the basis of the strategic objectives
approved by the General Meeting of shareholders;
● Appointing, dismissing, removing, and determining the salary and other
benefits for the General Director, Operating manager, managers of
departments, Chief Accountant, and other executives under the admission of
the Board of Directors;
● Make decisions on the organisational structure of the Company and the internal
management regulations of the Company;
● Solving the complaints of the Company to the executives as well as the
decision on selecting the representative of the Company to solve the issues
related to the legal procedures against such executives
● Proposing the types of stock to be issued and the total number of shares issued
by each type;
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● Proposing the issuance of bonds, convertible bonds into stocks, and other
warrants, helping the holders buy stocks at a predetermined price;
● Making a decision on the offering price of bonds, stocks and convertible
securities in case it is authorised by the GMS;
● Appointing or dismissing the General Director or the executives or the
representative of the Company if the Board of Directors thinks that it is in the
supreme interest of the Company. The dismissal, as mentioned above, is not
contrary to the contractual rights of the dismissed person (if any);
● Proposing the annual dividend rate and determining the temporary dividend
rate; organise the dividend payment;
● Proposing the restructuring or dissolution of the Company.
In addition to the duties as specified in the Company’s Charter, Regulation on
operation of the Board of Directors and CG Code point out that each member of the
Board of Directors must:
● To attend all meetings of the BOD and comment on the raised Issues;
● To promptly and thoroughly inform the BOD of the remunerations paid by the
subsidiary, associate companies, and other organisations of the Company;
● To disclose information when trading shares of the Company in accordance
with the law.
2.2.3. The Board's Committee
There are four committees, including the Audit Committee (under it is the
Board of Internal Audit), the Strategy - Finance Sub-Committee, the Human
Resources - Remuneration Sub-Committee and the Environmental - Social Governance (ESG) Sub-Committee. The main tasks and the roles of these committees
are as follows:
● Audit Committee: Supervising the financial statements preparation and
presentation and control procedures related to this process; Ensuring control
effectiveness in operation, finance and legal, the codes in business, including
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transactions with stakeholders; Supervising and guiding the Internal Audit
Committee.
● Strategy - Finance Sub-Committee: Consulting and advising on issues of
development and business strategy, finance and bonus and salary policy of the
whole Group; Consulting and advising on policy development and solving
problems of short, medium and long-term investment strategies, investment
risk management, research/appraisal/evaluation of investments under the
BOD’s competence.
● Human Resources - Remuneration Sub-Committee: Established on March
25, 2022, the Subcommittee has completed its staffing and implemented a
project on human resources, including human resource development planning,
compensation policies, and succession planning.
● Environmental - Social - Governance (ESG) Sub-Committee: The
subcommittee determines the specific governance model for the ESG system,
specifically the assignment of tasks, the form of coordination between the
BOD, the ESG Subcommittee, the BM and the ESG Department.
2.3. Board of Directors: Structure and Consequences
2.3.1. Board’s Independence
2.3.1.1. Independence of Chairperson
Mrs. Cao Thi Ngoc Dung (Bachelor of Commerce, University of Economics
Ho Chi Minh City; Professional experience: Economics, Finance, Trade) is the
founder and has held the Chairwoman of the Board of Directors and CEO position
from 2004 to 2018. Since April 2018, she has been the Chairwoman of the Board of
Directors of Phu Nhuan Jewelry Joint Stock Company (PNJ) and Chairwoman of the
Supervisory Board of PNJ Jewelry Manufacturing and Trading Limited Liability
Company (PNJP). In addition to PNJ, she has also served as Vice Chairwoman of the
Vietnam Association of Women Entrepreneurs (VAWE) since 2014, and Chairwoman
of the Ho Chi Minh City Women Entrepreneurs Association (HAWEE) since 2015.
Before founding PNJ, she worked at Vietnam Dai Viet Energy Joint Stock Company,
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Dong A Real Estate Joint Stock Company, Dong A Commercial Joint Stock Bank,
Phu Nhuan Trading Company, and Phu Gia Credit Center.
The chairperson is an executive elected by a company's board of directors and
must not concurrently act as the General Director (Company’s Charter). The chairman
sets the agenda, presides over the board of directors' meetings, ensures that meetings
run smoothly, participates in or leads the discussion of several high-level items, and
coordinates actions of board committees. Also, a chairman establishes good corporate
governance practices and promotes the highest standards of integrity, probity and
corporate governance, particularly at the board level.
To ensure the chairman acts in an independent manner, internationally
recognised governance codes state that the chairman should not have previously been
the CEO of the company. The chairman's independence is paramount to successfully
implementing good corporate governance practices at the board level. Having an
independent chairman, the company is expected to gain several potential benefits,
including a more precise separation of responsibility between the board and
management, lessened conflicts in the areas of CEO performance evaluation,
executive compensation, long-term succession planning, and the recruitment of
independent directors, and more time for the CEO to concentrate completely on the
strategy, operations, and culture of the company. However, having an independent
chairperson can also cause several potential disadvantages, including the information
gap.
2.3.1.2. Lead Independent Director
The primary function of a lead independent director is to provide leadership
and advice to the board without detracting from the chairman's authority when the
chairman has a conflict of interest. However, the PNJ’s chairwoman - Mrs. Cao Thi
Ngoc Dung - meets all the criteria for independence or being non-executive, there is
no point in appointing the lead independent director.
2.3.1.3. Outside (Non-executive) Directors
In accordance with Article 13.2 of Decree 71/2017/ND-CP, the public company
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choosing a one-tier option must ensure that a minimum of one-third (⅓) of the
members of the Board of Directors shall be non-executive members. In PNJ case,
there are six (06) non-executive directors appointed at the 2022 AGM. Many studies
argue that increasing the number of non-executive directors on the board can alleviate
agency problems, and improve firm performance thanks to their expertise, prestige,
and contacts (Grace et al. 1995; Cotter et al. 1997). Also, non-executive directors are
convinced to be better suited to fulfil the advisory and monitoring functions of the
board than inside directors. Non-executive directors tend to support less risky projects
or pursue risk-reducing corporate diversification strategies in order to prevent losses
and protect the image of the firm (Pathan, 2009). However, a high non-executive ratio
may reduce firm performance and thus lead to more risk due to over-supervision
(Baysinger and Butler, 1985), lack of specific investment knowledge and experience
(Raheja, 2005), or a lack of actual independence (Demb and Neubauer, 1992).
2.3.1.4. Independence Standards
Independence is defined as having no material relationship with the listed
company (either directly or as a partner, shareholder, or officer of an organisation that
has a relationship with the company). Where a listed company follows a one-tier
option, there must be a balance in independent directors such that at least one-fifth of
the directors must be independent directors (Article 13.5 of Decree 71/2017/ND-CP).
Independent members are subject to a number of restrictions, as follows:
a) Employed within the same corporate group nor receive any compensation;
b) Hold more than 1 per cent of the voting shares of the company;
c) Have been a manager (including a BOD or SB member) in the past 5 years;
d) Be a relative of a major shareholder; nor
e) Be a manager of any subsidiary.
Furthermore, independent members may not serve in independent positions for
more than two terms in a row. Also, a Board of Directors member of a public
company is not allowed to hold any position on the board of more than five other
companies. These standards are intended to ensure that directors execute their duties
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with independent judgment.
2.3.1.5. Independent Committee of the Board
The board of directors must be supplemented with specialist committees with
special duties (e.g. audit, remuneration , nomination, and governance) (Article 17.1 of
Decree 71/2017/ND-CP). Independent members of the Board of Directors or
Non-Executive members of the BOD shall make up a majority of the committee, and
one of these members shall be designated as the President of the Committee under a
decision of the Board of Directors.
PNJ’s BOD has formed four sub-board committees, namely the Audit
Committee, Strategy - Finance Sub-Committee, Human Resources - Remuneration
Sub-Committee and Environmental - Social - Governance (ESG) Sub-Committee to
assist it in carrying out the Board of Directors’s activities.
Table 3. Structure of the Audit Committee
No.
Name
Positions
1
Mr. Le Quang Phuc
Chairperson of Audit Committee
2
Mr. Nguyen Tuan Hai
Member of Audit Committee
3
Mrs. Huynh Thi Xuan Lien
Member of Audit Committee
(Source: PNJ's Annual Report 2022)
Table 4. Structure of Strategy - Finance Sub-Committee
No.
Name
Positions
1
Mrs. Cao Thi Ngoc Dung
Chairperson of Sub-Committee
2
Mr. Le Tri Thong
Vice Chairperson of Sub-Committee
3
Mrs. Tran Phuong Ngoc Thao
Sub-Committee Member
4
Mr. Nguyen Tuan Hai
Sub-Committee Member
5
Mr. Dao Trung Kien
Sub-Committee Member
(Source: PNJ's Annual Report 2022)
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Table 5. Structure of the Human Resources and Remuneration Sub-Committee
No.
Name
Positions
1
Mrs. Tieu Yen Trinh
Chairperson of Sub-Committee
2
Mrs. Tran Phuong Ngoc Thao
Sub-Committee Member
3
Mr. Le Tri Thong
Sub-Committee Member
(Source: PNJ's Annual Report 2022)
Table 6. Structure of the ESG Sub-Committee
No.
Name
Positions
1
Mrs. Tran Phuong Ngoc Thao
Chairperson of Sub-Committee
2
Mrs. Huynh Thi Xuan Lien
Sub-Committee Member
3
Mr. Le Quang Phuc
Sub-Committee Member
(Source: PNJ's Annual Report 2022)
2.3.1.6 Representation on the board by selected constituents
In Vietnam, representation on the board by employee representation is not
required. In accordance with the Labour Code 2019: Employee representation means
an internal organisation voluntarily established by employees of an employer which
protects the employees’ legitimate rights and interests in labour relations through
collective bargaining or other methods prescribed by labour laws.
Although audit committees are not required to include an audit committee
financial expert, it is considered beneficial for at least one member to qualify as an
expert to avoid disclosing the reasons why there is none. Accordingly, the director is
required to have an understanding of accounting principles, the preparation of
financial statements, internal controls, and audit committee functions.
In the case of PNJ, the Audit Committee is composed of three members with
some changes in 2022, in which, respectively, Mr. Le Quang Phuc (Bachelor of Civil
Engineering, Danang University of Technology Master of Business Administration,
Washington State University, USA; Professional experience: Education, Construction,
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Business Management Consulting), Mr. Nguyen Tuan Hai (Master of International
Business Administration, University of Irvine, USA; Professional experience:
Financial Investment, Real Estate, Hotel and Tourism Services) and Mrs. Huynh Thi
Xuan Lien (Bachelor's degree in Marketing, Ho Chi Minh City University of
Economics; Professional experience: Retail, FMCG, Strategic marketing consulting,
Services).
2.3.2. The Size and the Structure of the Board of Directors
2.3.2.1. Board Size
Picture 1. PNJ’s Board of Directors
(Source: PNJ's Annual Report 2022)
The size and composition of the Board of Directors are reviewed from time to
time by the Nomination Committee, which seeks to ensure that the size of the board is
conducive to practical discussion and decision-making and that the board has a 20
appropriate number of independent directors.
In PNJ’s 2022 AGM, the number of directors decreased from ten members to
nine members. Accordingly, PNJ’s BOD in 2023 includes nine members without a
Supervisory Board (Picture 1). Precisely, PNJ’s Board of Directors currently consists
of three executive members and six non-executive members, The non-executive
members meet all prerequisites to effectively participate and assist the BOD in making
objectives and independent judgments regarding the company’s operation, ensuring
appropriate control and balance mechanism.
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Having been considered to be a “complex” company, PNJ might benefit from
large boards since they bring more information to the decision-making process and
more resources to dedicate to both oversight and advisory functions. In other words,
they allow for greater board specialisation through the diversity of director experience
and functional committees. While a giant board can accommodate the need for
independence and diversity, it often lacks the time for all directors to share their ideas
and reduces board member engagement.
2.3.2.2. Board Diversity
PNJ’s large board size provides more opportunities for diversity and a culture
of inclusiveness. In other words, the larger the board is, the greater the range of
viewpoints and ideas are, which can lead to more thorough and thoughtful
consideration of the issues. Through remarkable changes to its structure, PNJ
attempted to diversify the experience of its membership, provide better management
and control, and recruit independent and diverse directors. According to the
self-assessment of PNJ, the Board of Directors has fulfilled all the company’s
requirements in competency and professionalism, including the diversity of
knowledge and experience in corporate management (Picture 2).
Picture 2. PNJ's Self-Assessment about the diversity of BOD
(Source: PNJ's Annual Report 2022)
As a result, a diverse board benefits PNJ with a more responsive and effective
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board with high involvement with the community and a low tendency towards
groupthink. Also, board diversity broadens the board’s perspective on the economic,
political or social problems and strengthens grantmaking as it is an essential social
value consistent with equality. Furthermore, since boards exist to serve the best
interests of shareholders, it makes sense that board membership should reflect the
diversity of those same shareholders. However, social psychologists have shown that
heterogeneous groups exhibit lower levels of teamwork, less information sharing,
increased conflict, and an inability to agree upon common goals.
2.3.2.3. Board with Female Directors
PNJ’s Board of Directors now has five female directors, making up more than
55% of the total number of incumbent BOD members, reflecting gender diversity.
Consequently, PNJ might take advantage of achieving gender diversity as follows:
● Hiring more women provides access to a broader pool of talent;
● Having more women in the boardroom minimises the adverse effects of
groupthink, increases cognitive diversity, contributes to a more robust decision;
● More excellent female representation leads to more flexible leadership as they
are seen as less command-oriented and socially responsible, not only in the
boardroom but also in relationships with employees;
● Boards with greater numbers of women tend to have better board governance;
● More excellent female representation creates a more transparent working
environment for monitoring responsibilities;
● Gender-diverse firms were also seen to have a more positive social impact
inside and outside the firm in areas such as corporate social responsibility
(CSR), community engagement, and better corporate governance practices (e.g.
internal controls, transparency, ethics and compliance).
2.3.2.4. Busy Board
It can be observed that directors serving on the boards of larger firms tend to
hold multiple directorships. Critics claimed that directors who sit on multiple boards
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were increasingly being blamed for poor performance as they are less likely to attend
meetings, challenge management, and have the potential to be lax in their oversight.
On the other hand, their diverse skills and experience can bring real value to a
business, such as first-hand access to important information about related companies
or broad social and professional networks for recruiting directors.
Table 7. Busy board of PNJ
Full name
Positions in other company
Mr. Nguyen Tuan Hai
Chairperson of BOD of Alphanam JSC
Mrs. Tieu Yen Trinh
CEO of Talentnet JSC
Independent member of BOD of VNM
Mr. Le Quang Phuc
Member of BOD/Audit Committee of PDR
Member of BOD SRF
(Source: Cafef.vn)
Despite having several busy directors, it can be observed from the report on
Meetings of the Board of Directors in 2022 that the Board of Directors successfully
held the Annual General Meeting of Shareholders with an attendance rate of 100%.
Picture 2. PNJ's Self-Assessment about the diversity of BOD
(Source: PNJ's Annual Report 2022)
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2.3.2.5. Interlocked Boards
An interlocked board is one in which an executive of firm A sits on the board
of firm B, and an executive of firm B serves on the board of firm A. In the case of
PNJ, there is one interlocked director, Mrs. Tieu Yen Trinh. Connected directorships
help create a network among directors that can lead to increased information flow and
better decision-making. Adversely, obvious drawbacks exist in this arrangement, such
that interlocking can become anticompetitive if proprietary information is shared
among competing firms for colluding on market actions. Furthermore, interlocks can
compromise the objectivity of directors and weaken their monitoring capability.
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CHAPTER 3: CONCLUSION AND RECOMMENDATIONS
3.1. Conclusion
Through a year full of turbulence, all achievements in 2022 ended the 5-year
journey (2017 - 2022). PNJ’s Board of Directors reviewed and concluded that the
CEO and the Board of Management had made exceptional efforts to position
themselves in the global fine jewellery industry and completed the tasks assigned in
2021 while strictly observing current laws and the Company’s regulations.
Notably, PNJ continued doing business with the most respect and harmony to
stakeholders' interests, applying good governance practices, complying with ESG
standards, etc. In particular, the key activities were focused on increasing the
transparency in the transactions between PNJ and partners.
Moreover, corporate governance appears to be a key to PNJ’s long-term
strategy and growth, as they have established a robust corporate governance
framework in sync with international best practices. Not failing to mention, PNJ's key
activities focus on increasing transparency in transactions and other information
disclosures. Consequently, the increased accountability of Phu Nhuan Jewellery Joint
Stock Company’s board and management helps it stand firm against challenges in
regional integration, maintain its competitive capacity, gain shareholders’ confidence
and attract more foreign investment.
3.2. Recommendations
After analysing and evaluating the quality of Phu Nhuan Joint Stock
Company’s management and control environment, here are some recommendations
for enhancing the stable system of PNJ’s corporate governance. PNJ should maintain
and strengthen its governance systems with reasonable remuneration policies; promote
the role of the independent member of BOD and other committees working under
BOD; select one more person into the BOD to increase the size of the BOD for better
decision-making in the future and in its long-term strategies.
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REFERENCES
Charter of Phu Nhuan Jewellery Joint Stock Company (PNJ) 2023.
Regulation on Operation of the Board of Directors of the Phu Nhuan Jewellery Joint
Stock Company 2022.
Law on Securities 26th November 2019.
Law on Enterprises dated 17th June 2020.
Decree No. 155/2020/NĐ-CP, dated December 31st 2020, of the Government,
stipulates in detail the implementation of some Articles of the Law on Securities.
Circular No. 116/2020/TT-BTC on 31/12/2020 of the Minister of Finance guiding
articles on corporate governance applicable to public companies in Decree No.
155/2020/ND-CP on 31/12/2020 of the Government stipulating in detail the
implementation of some Articles of the Law on Securities (“Circular 116”).
Annual Report of Phu Nhuan Jewellery Joint Stock Company 2021.
Annual Report of Phu Nhuan Jewellery Joint Stock Company 2020.
Tho et al. (2020). The monitoring role of non-executive directors in Vietnam from a
return-volatility perspective. Economic Annals 2020, Volume 65, Issue 224.