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TWSE Corporate Governance

Corporate Governance Evaluation System OverviewEvaluation System

1. Origin
On January 7, 2003, Taiwan's Executive Yuan established the "Corporate Governance Reform Task Force" as well as proposed the "Policy Framework and Action Plan for Strengthening Corporate Governance". Since then, the government and private organizations have been actively promoting various policies to enhance corporate governance. To respond to the rapid development of corporate governance reform in neighboring countries, accelerate the implementation of corporate governance among Taiwan-listed companies, assist companies with sound development, and boost market confidence, the Financial Supervisory Commission (FSC) launched the 5-year "Corporate Governance Roadmap" in December 2013. In particular, the implementation of corporate governance evaluation is one of the major projects of 2014 with the goal to assist investors and companies in better understanding the performance of corporate governance by comparing the evaluation result among companies. It is also expected that this evaluation system can help guide companies to friendly competition by strengthening the quality of corporate governance, further shaping and improving the culture of corporate governance.

2. Introduction to the Evaluation System
(1) Introduction to the Evaluation Indicators

The structure for the evaluation indicators is mainly based on the six principles of corporate governance released by the Organization for Economic Co-operation and Development (OECD) in 2004. It references and adjusts five dimensions to these principles: "Protection of Shareholders' Equity (15%)", "Equitable Treatment of Shareholders (15%)","Board Composition and Operation (35%)", "Information Transparency (20%)", and "Protection of Stakeholder Interests and Corporate Social Responsibility (15%)". Furthermore, it also references both domestic and foreign evaluations plus regulations related to corporate governance for the design of a total of 92 indicators.
The evaluation indicators refer to the "yes" or "no" method adopted in foreign systems to reduce subjective factors of human judgment in assessments, thus increasing the overall objectiveness of evaluation results. The indicators are divided into three categories based on their differences in giving points: basic, general, and advanced. The information for these evaluations is based on public information as much as possible, allowing them to be more transparent and objective.

(2) Method for Announcing Indicators
Conducted once a year, this evaluation utilizes the corporate governance practice of the entire previous year (namely the evaluation year) from January 1 to December 31 as a scope for analysis. The first evaluation will analyze 2014 results. To help listed companies gradually improve in their implementation of corporate governance, this evaluation complies with the "Corporate Governance Roadmap". The scope of evaluation results is expected as follows:
 A. 2015: Announce the first corporate governance evaluation results along with the companies ranked among the top 20% of the best TWSE/TPEx listed companies.
    B. 2016: Announce the second corporate governance evaluation results along with the companies ranked among the top 50% of the best TWSE/TPEx listed companies.
    C. 2017: Announce the third corporate governance evaluation results along with the rankings for all TWSE/TPEx listed companies.

3. Future Prospects
(1) Application of Evaluation Results

    A. Compile a Corporate Governance Index
According to the "Corporate Governance Roadmap", the results of the first evaluation will be utilized to compile a corporate governance index among selected listed companies with good corporate governance performances, and the composition of companies will be regularly updated for the reference of investors.
  B. Differential Management
To increase the quality of corporate governance in listed companies, TWSE and TPEx intend to discuss measures for "the linkage between the results of corporate governance evaluation and a differential management mechanism" after the first corporate governance evaluation results are released.

(2) Evaluation Objectives
    A. Shape Corporate Governance Culture and Guide the Stable Development of Enterprises
With system assessments and indicator identification, this evaluation strives to work with enterprises so they might actively examine their internal risk through the reflection of market mechanisms, such as media, stockholders, institutional investors, and the announcement of evaluation results. Furthermore, it seeks to improve and enhance corporate governance practices, and build on the determination to actively establish good corporate governance mechanisms, thereby shaping a "bottom-up" corporate governance culture.
    B. Reward Outperformers and Encourage Benchmarking
This evaluation endeavors to seek out corporations that actively improve corporate governance and take the initiative to set measures for self-regulation beyond the requirements of the law. These companies will be commended and rewarded, making them role models from which other companies can learn. This incorporates the benchmark function and enables companies to not only achieve regulatory compliance, but also"pursue the objective of the highest level of corporate governance".
    C. Meet International Standards and Enhance the International Image
In recent years, corporate governance has gradually become a globally popular research topic. International organizations are also continuing to develop evaluation indicators based on corporate governance principles. Therefore, other than promoting corporate governance evaluation, the goal is to utilize internationally recognized principles and reference other evaluation indicators. Through this approach, Taiwan corporations may meet international standards, enabling foreign investors and corporate governance institutions to gain a deeper understanding of the level of Taiwan's corporate governance. Furthermore, this will increase Taiwan's global visibility and enhance its international standing.
    D. Disclose Information, Expand Participation, and enhance Capital Market Quality
The design of the corporate governance evaluation dimensions and indicators is based on various domestic and foreign corporate governance indicators and regulations. Furthermore, it recruited external experts and scholars to form a "corporate governance evaluation committee" to provide professional guidance, conduct public hearing processes to listen to various suggestions, and expand references to corporate governance evaluation. After the announcement of the evaluation indicators, there were a lot of promotional activities, thereby prompting companies and investors to emphasize the operations and results of the evaluation system. This will further raise the overall standard of corporate governance, achieving the objectives of disclosing information, expanding participation, and enhancing capital market quality.