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TWSE Launched the Stewardship Principles for Institutional Investors
The Corporate Governance Center of the TWSE, directed by the Financial Supervisory committee’s (the FSC), in conjunction with the Taiwan Depository Clearing Corp., the Securities Investment Trust & Consulting Association, and Taiwan Financial Services Roundtable collectively, has launched the “Stewardship Principles for Institutional Investors” (hereafter, “the Principles”) on June 30.
In Taiwan, institutional investors including pension funds, insurance companies and investment trusts play an increasingly significant role on capital markets and the value of investee companies. Similar principles or codes have been published by the UK, Japan, Malaysia and Hong-Kong, which also emphasize the importance and necessity of “stewardship” as does Taiwan.
“Stewardship” responsibility for institutional investors may include monitoring investee companies and being part of the corporate governance mechanism through attending AGMs, voting, having interaction and conversation with management on behalf of the capital providers (e.g. clients, beneficiaries or shareholders). By referring to international trends/experiences and domestic practices, the TWSE established the following 6 principles:
Principle 1. Establish and disclose stewardship policies;
Principle 2. Establish and disclose policies on managing conflicts of interest;
Principle 3. Regularly monitor investee companies;
Principle 4. Maintain an appropriate dialogue and interaction with investee companies;
Principle 5. Establish clear voting policies and disclose voting results;
Principle 6. Periodically disclose to clients or beneficiaries about the status of fulfillment of stewardship responsibilities;
Signatories of the Principles shall disclose a statement of how the Principles has been applied (hereinafter the "statement") on its website and a website designated by the Corporate Governance Center. Relevant disclosures may also be incorporated in signatories’ websites or reports such as business reports or annual reports.
In the past decades, corporate governance related measures in Taiwan largely focus on regulations and enforcement. The Principles, on the other hand, rely on market mechanisms. Considering that institutional investors are diverse, a principle-based structure and a “comply or explain” approach are applied to allow inclusiveness. Guidelines are provided as a reference for signatories. If a signatory is unable to comply with certain principles, it is only required to provide reasonable explanations. Allowing such flexibility is to prevent compliance from becoming a mere formality and to encourage better practices.
According to FSC statistics, foreign investors comprise nearly 40% of market value of TWSE listed companies, while domestic and foreign institutional investors together account for almost half of the trading value. Institutional investors are expected to deliver positive impact, focusing more on the long-term value for their clients and investee companies. The Principles have received strong support from major domestic and international investors. The TWSE expects and encourages all investors to become signatories of the Principles, showing their commitment for better stewardship.
Stewardship Principles for Institutional Investors