TSE wants outsiders on boards

Stricter regulations on the qualifications for independent board members of listed companies should be added to the Securities and Exchange Law (證交法), said Sean Chen (陳沖), chairman of the Taiwan Stock Exchange (TSE, 證交所) yesterday.

But pundits yesterday warned that the yet-to-be-draft regulations could only provide pro forma rules, meaning that it would be entirely up to corporate owners whether they would comply with the rules.

Speaking at a seminar on Monday, Chen said the TSE is drafting revisions to the Securities and Exchange Law requiring listed companies to hire a set number of independent board members and supervisors.

The final version will then be submitted to the Securities and Futures Commission (SFC, 證期會) for further review and then on to the legislature for final approval.

Chen, however, reportedly expressed concern over the lack of qualified individuals in the local talent pool to serve as independent board members in the nation's over 1,000 listed firms.

Emphasizing the importance of professionalism and autonomy, Chen also said that the draft revisions will stipulate that all independent board members of listed companies should have at least five-years experience in business management, legal or financial matters.

Independent board members won't be allowed to serve on the board at over five companies at the same time, he said.

Unlike conventional board mem-bers, independent members are not stockholders, but they are hired by corporate leaders to take play the roles of auditor and overseer.

Adding more independent board members is an important commercial topic after a series of corporate scandals such as Worldcom and Enron, rocked the US economic outlook and stock investor confidence.

Despite the TSE's regulatory efforts to strengthen corporate restructuring, Chu Hau-min (朱浩民), a finance professor at National Chengchi University, yesterday said that the success of the new rules lies with corporate owners since most of them are opposed to hiring and working with independent board members, who may not share their management philosophies and end up interfering with corporate management.

"Therefore, it'll be totally up to corporate chiefs whether they'll allow independent board member to give honest opinions or adopt their professional advice," Chu said.

Chu serves as an independent board member of Wah Lee Industrial Corp (華立企業) in Kaohsiung.

Citing the US corporate model, Morris Chang (張忠謀), founder of Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), has repeatedly advocated that, at least, half of a corporation's board members should be independent.

But Chu said that independent members should not exceed a maximum one-third of the total board since no corporate owners will sit back and let outsiders make up a decisive majority.

Chu added the legislature will be the biggest hurdle to the passage of the draft laws since many lawmakers enjoy moonlighting as board members for local corporations.

In February the SFC enacted an administrative order requiring newly listed companies to hire at least two independent board members and one independent supervisor.

But Lawrence Liu (劉紹梁), a corporate lawyer with Lee & Li, said yesterday that Taiwan should gradually eliminate the supervi-sory board system.

"Playing bad cops in companies, supervisors gradually serve an inefficient goal since potential corporate fraud is intentionally kept information out of their reach," Liu said, adding two to three professional independent board members should be able to help corporations stay on the right track.