The nation has made headway in corporate governance, but not quick enough to prevent its ranking from slipping two places to sixth among other Asian markets this year, according to a biannual survey by CLSA, a Hong Kong-based securities house.
Taiwan’s overall score fell to 53, from 55 two years ago, with the biggest drop seen in the enforcement category, the CLSA survey showed.
“As in 2010, Taiwan authorities still seem to lack a clear organizing strategy or overarching vision for corporate governance,” the head of Taiwan research at CLSA Asia-Pacific Markets, Peter Sutton, said on Thursday.
He cited as an example that independent directors are still not required for all listed companies.
Although remuneration committees are now mandatory for listed firms, the more important audit committee is not and the system for director nominations and elections continues to have serious drawbacks, the report said.
Meanwhile, the average listed company in Taiwan is at best only keeping up with regulatory changes, the report said.
“Apart from a handful of corporate leaders, we do not see that Taiwan businessmen appreciate the value of good corporate governance for the long term performance of their companies,” Sutton said.
The reform process in Taiwan is very much a top-down affair in which dutiful regulators are trying to compel more modern governance practices on companies and investors, as neither seems bothered about business-as-usual, the report said.
This does not mean that companies are trying to duck governance issues, but many are simply unaware that widespread practices are outdated by global standards and are seen negatively by outside investors, the report said, citing clustering of annual general meeting dates as an example.
From this year, regulators mandated electronic voting for listed companies with authorized capital of NT$10 billion (US$345 million) or more and 10,000 or more shareholders.
However, e-voting in Taiwan is only for domestic shareholders and does not facilitate voting at the annual general meeting, the report said.
As in all previous surveys, the financial sector dominated the bottom quartile of CLSA rankings for Taiwan.
“This is the sector with the greatest history of corporate malfeasance and reported corporate governance issues,” the report said, adding that it is also the worst sector in Taiwan for value creation and generating good long-term returns to shareholders.
The current trend in the sector is to buy out the foreign life insurance companies.
Taiwan’s life insurance firms offer policyholders guaranteed rates of return on the amounts they invest.
These policies can be long-dated — for instance, parents might buy their children a retirement policy when they are born — and the duration of that liability will be 60 years, the report said.
“There is no way insurance firms can find assets with a duration equal to that of their liabilities,” the report said.
Singapore tops the ranking, followed by Hong Kong, Thailand, Japan and Malaysia, the report said.
Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world’s largest contract chipmaker, won the top spot among enterprises in the region that have market capital of more than US$10 billion, Sutton said.
This was because TSMC has a healthy financial structure, advanced technology and good shareholder returns, he said.
On a positive note, Taiwan has the highest payout and price-to-equity ratios, the report said.
“We believe the two factors are connected because investors value dividends more highly than retained earnings,” the report said.
The 19 companies in the top quartile of the ranking have an average return of 11.8 percent while the bottom 19 peers have a return of 4.3 percent, the survey indicated.