The board reshuffle at Mega Financial Holding Co was closely watched and hotly debated last week. Friday's board election saw the government, which owns 22.78 percent of Mega Financial, retain managerial control of the enterprise with seven of the 15 board seats and three out of the five supervisory seats.
The government's share of the managerial pie compares to that acquired by its main rival, Chinatrust Financial Holding Co, which holds a 15.63 percent stake in Mega Financial and won only four board seats and one supervisory seat. However, Mega Financial chairman Cheng Shen-chih (
The final result helped take some of the steam out of the opposition parties' call for the resignations of both Premier Su Tseng-chang (
But in retrospect, the saga of Mega Financial's boardroom election has tainted the nation's process of financial reform as well as the company's corporate governance. The government's victory came at the price of the resignations of two private directors, including one independent, Wu Rong-i (
Mega Financial is a very valuable company. Last year it was worth NT$2.13 trillion (US$65.1 billion) in total assets, and reported NT$96.8 billion in gross revenues and NT$22 billion in net income. Retaining government control of the company was generally a positive result -- it protects important state assets and safeguards the interest of the public.
But protecting state assets has become a cliche these days, and a favorite rallying point for politicians to denounce the government. Ironically, an unlikely coalition was forged among rival legislators and talk-show hosts to oppose Chinatrust Financial's takeover attempt.
But the critics seem to have forgotten that Chinatrust Financial acquired its 15 percent share in Mega Financial on the open market and is legally entitled to increase this holding in the future. They also forgot that foreign investors, who have a 23.15 percent stake in Mega Financial, were originally interested in holding the company's shares in expectation that Chinatrust Financial's takeover attempt would lead to further consolidation.
As long as the government remains committed to its privatization program and the plan to eventually sell off its stake in Mega Financial, discouraging a possible consolidation from occurring sends a negative message to the market.
The game is not over yet. Despite a narrow-range win in the boardroom, the government must now learn how to co-manage Mega Financial with its private counterparts. The same thing happened to China Development Financial Holding Co two years ago and the company's performance is still subject to the uneasy relationship between its public and private shareholders.
Finally, the government must review its shareholding management systems for state-controlled financial institutions. As long as the financial enterprises are under the state's control, the government should be as active as private shareholders in soliciting votes to secure controlling power. But the government should be as transparent as possible if its privatization policy is to prevail.
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