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Corporate governance is improving, says expert

Despite recent progress in corporate governance in Taiwan, foreign investors still find local companies' information disclosure and proxy voting process to be less than satisfactory, an expert said yesterday.

"Corporate governance in the region is generally getting better ? including Taiwan," Jamie Allan, secretary general of Asian Corporate Governance Association, told the Taipei Times on the sidelines of a seminar dubbed "Corporate Governance and Taiwan's Capital Markets," which was jointly organized by Fuhwa Financial Holding Co (復華金控) and the University of Wisconsin's law school in Taipei yesterday.

However, Taiwanese companies' information disclosure could be further improved, Allan said, citing foreign investors' complaint about not getting enough information, such as the lack of consolidated financial reports.

Not enough details

Proxy voting is another issue troubling foreign investors, as local companies usually fail to provide enough details in a timely manner. This discourages overseas shareholders from participating in general meetings and exerting their rights, he said.

In international practice, shareholders are able to obtain detailed agenda 28 days, or at least 21 days, before the general meeting, while, in Taiwan, the interval could be as short as 10 days only, according to Allan.

Taiwan ranked fifth out of 10 Asian countries in corporate governance last year, up from sixth in 2004, despite a slide in its average score from 55 percent to 52 percent due to stricter methodology, according to the annual corporate governance report co-released by the association and CLSA Ltd last October.

The government appears to be one of the major risks to the nation's corporate governance, because it used state companies to finance projects that no private party would support, like the investment in the Taiwan High Speed Rail Corp (台灣高鐵), and a high-ranking government official who was supposed to safeguard the market was indicted for involvement in insider trading, the report said.

Illegal solicitation

Illegal solicitation of proxy votes like trading by cash that breaches the Securities and Exchange law (證券交易法) is another issue that the association is closely monitoring, Allan said.

Asian Corporate Governance Association would be looking into the issue in reviewing Taiwan's ranking in corporate governance this year, he added.

People First Party Legislator Christina Liu (劉憶如), who is also a professor of finance at National Taiwan University, yesterday urged the nation's financial regulator to crack down on illegal solicitation of proxy votes.

Such activities allow board directors and supervisors to control or even exploit a company that has little shareholding and cash, which ultimately breaches shareholders' rights and interests and infringes on corporate governance related principles, she said.

In an attempt to enhance corporate governance and strengthen local capital markets, authorities have amended the Securities and Exchange law, requiring publicly traded firms to have no less than two independent directors, who should account for no less than one-fifth of the total seats in the board, starting Jan. 1 next year.

All financial holding firms, financial institutions like banks and insurance companies, and listed companies with capitalization exceeding NT$50 billion (US$1.55 billion) are in the priority list to comply with this amendment next year.
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