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TWSE Corporate Governance


Regulatory Framework of Corporate Governance Rules and FAQs

In the years following the 1997 financial crisis in Asia, a series of corporate fraud cases and distressed debt broke out in Taiwan. In 1998, OECD's Council of Ministers declared that "strengthening corporate governance" was essential for enterprises to withstand crises. In the United States, the 2001 Enron case prompted Congress to launch the "Sarbanes–Oxley Act" to serve as a measure for actively regulating businesses. Similarly, the authorities of Taiwan have been propagating the importance of corporate governance to domestic corporations since 1998. Taiwan steadfastly started to promote the use of independent directors, an audit committee system, and codes of practice related to corporate governance to implement the concepts of corporate governance in domestic corporations. In 2006, amendments were made to the Company Law and the Securities and Exchange Act to empower corporate governance principles through legislation. Additionally, authorities have been proposing even more measures to further improve Taiwan's corporate governance system, the laws of which are mainly structured within the Company Law, Securities and Exchange Act, and relevant regulations regarding listed companies set by the Taiwan Stock Exchange (TWSE) and Taipei Exchange (TPEx).

1. Company Law:
Company Law serves as the regulatory foundation for corporate governance, overseeing the operations of shareholders' meetings, board of directors, and supervisors. Following international trends, this law has introduced rules on restricted stock, split voting rights, electronic voting, and other regulations, constructing an environment attractive for international investments. Furthermore, the law mandates a company's board of directors to adopt cumulative voting processes in elections to fulfill corporate governance responsibilities.

2. Securities and Exchange Act:
The administration and supervision of the offering, issuance, and trading of securities issued by public companies are governed by the Securities and Exchange Act. Only matters not specified in the Securities and Exchange Act fall under the Company Law and other regulations. On January 11, 2006, amendments to the Securities and Exchange Act were announced, introducing a system of independent directors and audit committees, as well as strengthening the functions, structure, and operations of a company's board of directors. By the power vested in them through the act, securities authorities are able to issue ordinances regarding the administration of public companies, such as "Regulations Governing Appointment of Independent Directors and Compliance Matters", "Regulations Governing the Exercise of Powers by Audit Committees", and "Regulations Governing Procedure for Board of Directors", and "Regulations Governing Establishment of Internal Control Systems by Public Companies". This act aims to toughen board function to promote shareholder activism, assist the healthy development of enterprises, and improve international competitiveness.

3. Listing regulations:
To increase the efficiency for enforcing laws, and to encourage companies to comply with corporate governance regulations, the TWSE and TPEx specified their criteria for the review of securities listings in 2002. An IPO company must set up an independent director and meet certain qualifications. Furthermore, regulations, such as "Corporate Governance Best Practice Principles", "Code of Practice for Corporate Social Responsibility", and "Code of Practice for Integrity Management" were subsequently announced for domestic enterprises to follow. These will guide enterprises in strengthening their sense of corporate governance and social responsibility, establishing a consensus on integrity management, constructing a corporate governance culture, and creating mutual values.