The Securities and Futures Institute last week announced this year’s corporate governance evaluation results with rankings for all companies listed on the Taiwan Stock Exchange and the Taipei Exchange. Although Taiwan has made progress in corporate governance, more effort is needed to protect the rights and interests of investors, improve how boards of directors function and implement corporate social responsibility.
This is particularly true in the financial industry, as the number of financial companies in the top 5 percent of the annual evaluation has fallen from 11 last year to five this year. King’s Town Bank, China Life Insurance Co, Fubon Financial Holding Co, Cathay Financial Holding Co and E.Sun Financial Holding Co are the only five financial companies out of a total of 43 companies that made the top 5 percent this year, with King’s Town and Cathay Financial being new entries.
Eight financial firms have slipped from the top 5 percent this year, including state-run First Financial Holding Co and Hua Nan Financial Holding Co, because of their poor internal controls in the high-profile scandal involving Ching Fu Shipbuilding Co, as well as state-controlled Chang Hwa Commercial Bank due to a kickback scandal involving two executives at its Dongguan branch in China.
Among the action plans proposed by the Financial Supervisory Commission (FSC) in its Corporate Governance Roadmap 2018-2020 released in March, are the introduction of corporate governance professionals to support boards of directors by providing necessary information and assistance; the implementation of a candidate nomination system for the election of directors and supervisors; and the promotion of qualitative indicators for corporate governance evaluations.
The FSC likely means well by proposing such ideas to improve how boards are governed and keep them from being reduced to a mere rubber stamp for business owners or major stakeholders.
The proposal to provide corporate governance professionals, for instance, is a sensible move that would help firms avoid potential governance risks by moving toward the separation of ownership and management, especially in family businesses.
Based on the FSC’s proposal, financial institutions such as banks, insurance companies and securities brokerages, as well as listed companies with paid-in capital of NT$10 billion (US$336.5 million) or more, would be from next year required to set up positions for the corporate governance professionals within their organizations. People qualifying for the positions would include lawyers and accountants, as well as managers with legal and financial experience.
Being different from audit and compliance officers, corporate governance professionals would need to have strong integration and coordination abilities to establish an effective corporate governance network fortified by international gatekeepers, such as audit and compliance officers; external supervisors, such as accountants and credit rating agencies; and major stakeholders, including employees and business partners.
Unlike audit and compliance officers, who ensure that companies do not engage in unlawful activities, corporate governance professionals would design and develop a new corporate culture with better governance built into it.
Nonetheless, the FSC still needs to address local businesses’ concerns that the cost of compliance would go up markedly.
The FSC also needs to consider whether the corporate governance professionals should be granted a higher status and have sufficient power to participate in corporate affairs, and most importantly, how they would stand up to pressure from management or controlling shareholders.
Thus far, the FSC has been moving in the right direction, but it should gather more feedback from experts and communicate more with businesses.
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