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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. Evaluation System Introduction
(1) 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. The structure references and adjusts five dimensions to these principles: "Protecting Shareholder Rights and Interests", "Treating Shareholders Equitably", "Enhancing Board Composition and Operation", "Increasing Information Transparency", and "Putting Corporate Social Responsibility into Practice". It further references the 2015 G20/OECD principles of corporate governance in 2018 whereby the dimensions of “Protecting Shareholder Rights and Interests” and “Treating Shareholders Equitably” were combined and the evaluation adjusted to four dimensions.
Furthermore, the structure also references both domestic and foreign evaluations, global corporate governance trends, plus regulations related to corporate governance for the design of indicators.
The evaluation indicators refer to the "yes" or "no" method and will gradually include more elements of actual practice. 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 corporate governance practice of the entire previous year (namely the evaluation year January 1 to December 31) as the scope for analysis. The first evaluation analyzed 2014 results. To help listed companies gradually improve in their implementation of corporate governance, this evaluation complies with the "Corporate Governance Roadmap." The annual evaluation results were modified as follows:
  1. 2015: Announced the first corporate governance evaluation results for the companies ranked in the top 20% of TWSE/TPEx listed companies.
  2. 2016: Announced the second corporate governance evaluation results for the companies ranked in the top 50% of TWSE/TPEx listed companies.
  3. 2017: Starting from 2017: Announced the third round of corporate governance evaluation results with the rankings for all TWSE/TPEx listed companies. All future results will has ranking for all TWSE/TPEx listed companies.

3. Future Prospects
(1) Application of Evaluation Results
  1. Compile a Corporate Governance Index
    According to the "Corporate Governance Roadmap", the results of the first evaluation were utilized to compile a corporate governance index from selected listed companies with outstanding corporate governance performance. The index will be regularly updated for the reference of investors.
  2. Differential Management
    To increase the quality of corporate governance in listed companies, TWSE and TPEx discussed measures for "the linkage between the results of corporate governance evaluation and a differential management mechanism" after the first corporate governance evaluation results were released.

(2) Evaluation Objectives
  1. 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.
  2. 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".
  3. 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.
  4. 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.