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Editorial: Corporate transparency lacking

The high-profile trial of the former WorldCom chief Bernard Ebbers in a Manhattan federal court last week underlines the US push toward greater corporate accountability. It also highlights an urgency to eradicate corporate scandals in Taiwan, where the government is moving in the right direction but making little progress to build investor confidence.

When Judge Barbara Jones sentenced Ebbers to 25 years in prison for his role in the business fraud that led to the largest US corporate bankruptcy in history, she said: "I find that a sentence of anything less would not reflect the seriousness of this crime."

The verdict and what the judge said, however, have touched the hearts of many investors in this country following a slew of scandals that have shaken the nation's financial community recently.

The US initiated the Sarbanes-Oxley Act as its response to financial scandals at Enron, WorldCom and other large companies since 2002, which imposed stiff new rules on companies and top executives. It was this act that gave Ebbers a 25-year jail term. Other executives punished under the law include former Dynegy finance executive Jamie Olis, who received 24 years in prison, Adelphia Communications founder John Rigas, who got 15 years, and his son, former finance chief Timothy Rigas, who was sentenced to 20 years.

But here in Taiwan, frauds that involved tech firms such as Procomp Informatics Co, Infodisc Technology Co, Summit Computer Technology and Pacific Electric Wire and Cable Co have only seen the once-swaggering executives be taken into custody, released on bail, and then flee the country to enjoy their stolen fortunes abroad. The results have shocked many investors who hoped for a fair and just ruling given their huge losses, and dealt a big blow to prosecutors who wanted stricter penalties for white-collar criminals.

Despite government initiatives to impose heavier penalties on white-collar criminals, including a minimum seven-year jail term or fines of up to NT$500 million, more than half of the lawbreakers received less than three years in prison last year, while about 30 percent of them were acquitted of all charges, according to court statistics. No wonder people say that there's no accountability in the nation's judicial system. The government is either too incompetent or acting as an accomplice of the nation's corporate fraud scandals.

The point of addressing corporate governance here is not just about securing relations between companies and investors, it is also relevant to the country's competitiveness. Unfortunately, due to family-run companies' resistance to upgrading corporate governance principles, Taiwan's ranking in Credit Lyonnais Securities Asia's corporate governance scoring system last year dropped to sixth place in Asia (excluding Japan) from fourth in 2003.

The Cabinet has recognized that a concentration of ownership is the main obstacle for good corporate governance in Taiwan, and established the Financial Supervisory Commission (FSC) last July. The commission was given the power to examine and investigate financial crimes, but not the power to prosecute. In addition, the Corporate Governance Association of Taiwan earlier this month issued the nation's first evaluation standards, providing guidelines for local companies to improve their management and financial transparency.

It is a great embarrassment for the country when the head of the FSC's Examination Bureau, Lee Chin-chen (李進誠), was removed from his office last week due to insider trading allegations concerning Power Quotient International Co shares.

It was hoped that, as companies are urged to improve management structures and shareholder value amid increasing pressure from institutional investors and securities analysts, financial regulators like the FSC will practice a higher level of self-discipline, as it is they who are tasked to work for a well-developed corporate governance system in the country.
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