ACGA 13th Annual Conference: Corporate Governance Practices in Taiwan and Korea

Publish Date︰2013-11-25 16:30

On November 5 and 6 of 2013, the ACGA 13th Annual Conference was held in Seoul, Korea, and attended by representatives from Domestic Listing Department of the Taiwan Stock Exchange (TWSE) and the Financial Supervisory Commission (FSC).  The Conference covered topics related to corporate sustainability, responsible investment, and challenges facing north Asia.  The target audience for the event included Europe, U.S., and Asia based fund managers, institutional investors, securities regulators, stock exchanges, listed companies, law firms, accounting firms, academia, and organizations involved in the field of corporate governance.  In total, 190 representatives attended the conference.
 
According to a real-time poll taken during the conference, 40.7% of the attendees believed that Taiwan’s corporate governance practices were superior to those of Japan, Korea, and China.  This serves as an affirmation of the corporate governance reforms implemented in Taiwan over recent years.  Additionally, while at this conference, our representatives exchanged ideas with other attendees and built networks for future communications.  During the conference, Taiwan’s representatives actively promoted the progress of corporate governance in Taiwan, and explained how the newly established Center for Corporate Governance will be involved in coordinating, planning, and executing matters related to corporate governance.  This helped raise the reputation of corporate governance in Taiwan.  By attending the event, Taiwan’s representatives were able to gain a deeper understanding into the development of corporate governance and social responsibility in Korea.  The knowledge obtained can be used as future reference for amending policies and regulations in Taiwan.
 
Korea was the nation most severely affected by the Asian financial crisis.  When the International Monetary Fund (IMF) offered financial aid in 1998, it necessitated the implementation of corporate governance reform.  In 1999, a code of practice was promulgated to strengthen corporate governance in Korea.  The following corporate governance changes were made in Korea after receiving the financial aid from the IMF in 1998.  However, Korea attained the eighth place among 11 Asian economies on ACGA CG Watch 2012.
 
I.           Strengthening the functions of the board of directors: The formation of audit and nomination committees, independent directors for listed companies and limitations on multiple  independent directorships have been required.
 
II.         Protecting the interests of minority shareholders: The minimum shareholding threshold for shareholders to be able to dismiss board members, to bring a derivative suit and to file injunction against directors have been lowered.  Cumulative voting election of directors and shareholders proposal rights for shareholders holding more than 3% of voting shares have been adopted.
 
III.        Other: Electronic voting and limits on controlling shareholders’ right to vote have been implemented.
 
Looking at the development of corporate governance in Taiwan, TWSE Rules Governing Review of Securities Listings, Corporate Governance Best-Practice Principles for TWSE/GTSM Listed Companies, Securities and Exchange Act and related laws have been enacted since 2002.   These rules and regulations serve as an effective framework for corporate governance, which follows the OECD Principles of Corporate Governance revised in 2004.  The specific details of these measures are as follows:
 
 
I.           Strengthening the functions of the board of directors:
1.    Mandating independent directors: Since 2002, the TWSE has required that newly listing companies to appoint at least two independent directors.  Limitations were imposed on multiple independent directorships.  On March 22 of 2011, the Financial Supervisory Commission expanded the mandatory independent-director requirement established in 2006.  It mandated public financial institutions (financial holding companies, banks, bills finance companies, insurance companies, securities investment trust enterprises, securities firms and listed futures firms) and large listed companies (with paid-in capital of NTD 10 billion or more) to amend their articles of incorporation to appoint at least two independent directors, or one-fifth of the board, whichever is more.
 
2.    Adopting board committees: In 2002, the “Corporate Governance Best-Practice Principles for TWSE/GTSM Listed Companies” encouraged listed companies to delegate some significant matters to board committees.  The Securities Exchange Act amended in 2010 required listed companies and emerging stocks to establish a compensation committee.  On February 20 of 2013, the FSC required all public financial institutions (financial holding companies, banks, bills finance companies, insurance companies, listing security companies and security companies that are subsidiaries of a financial holding company) and large listed companies (with paid-in capital of NTD 50 billion or more) to establish an audit committee composed of at least three independent directors in lieu of supervisors.
 
II.         Protecting the interests of minority shareholders: In 1966, cumulative voting election of directors and injunction against directors were implemented.  In 2001, the minimum shareholding and holding periods required for shareholders to bring a derivative suit and to dismiss board members were reduced.  Since 2005, shareholders holding 1% or more of issued stocks were given proposal rights.  Furthermore, since 2012, the FSC required listed companies with paid-in capital of NTD 10 billion and more than ten thousand shareholders to implement electronic voting mechanisms at their AGMs.  On November 18 of 2013, the paid-in capital threshold for this requirement was lowered to NTD 5 billion and ten thousand shareholders.
 
III.        Establishing a Corporate Governance Center: Since 1998, Taiwanese authorities have been promoting the importance of corporate governance amongst public companies.  On January 7, 2003, the Executive Yuan assembled the “Task Force for Reforming Corporate Governance.”  In November of the same year, the “Accountability of Companies in Taiwan: Policy Agenda and Action Plan to Strengthen Corporate Governance” was established as a basis for promoting corporate governance, and authorities began amending laws and regulations, promoting corporate governance, and implementing relevant measures.  Over the last fifteen years, the efforts to promote corporate governance have revealed it as an effective means to maintain Taiwan’s regional competitiveness and increase the appeal of domestic companies to investors.  On October 25, 2013, the “Center for Corporate Governance” was established to consolidate the resources of domestic organizations involved in the field of corporate governance, including government organizations, private entities, stock exchanges, and media.  The center coordinates and plans issues related to corporate governance (and corporate social responsibility), such as: the research and drafting of statutes and regulations, special topic research, building up the database, cooperation with media, director education, investor relations, investor education, evaluation of information disclosure, evaluation of corporate governance, domestic promotion and implementation, and participation in international activities.