Whether aging chief executives have qualified candidates in line to take over from them has been a concern for investors in major local electronics firms, because these companies will need strong leaders to help them weather the industry’s fast-changing landscape and the wobbling global economy.
Current chief executives are mostly the co-founders of those world-class electronics companies, such as Hon Hai Precision Industry Co and Taiwan Semiconductor Manufacturing Co (TSMC), and they helped create the prime era of Taiwan’s electronics sector a decade ago. To some extent, they are simply too capable to be adequately replaced.
Investors are keeping a close eye on executive reshuffles at those companies because the arrangements could have a make-or-break effect on the local stock market. TSMC and Hon Hai stocks are among the most closely watched, as they are in the top 10 heavyweights of the local stock markets by market value, accounting for 11 percent and 15 percent respectively.
Investors’ worries about this uncertainty are reflected in TSMC’s stock price. TSMC’s American depository receipts (ADRs) plummeted 8.89 percent overnight after company chairman and chief executive Morris Chang (張忠謀), 82, told reporters on July 18 that he would relinquish his post next year as planned. The stock plunged by nearly the 7 percent daily limit on July 19 on the local stock exchange, wiping away NT$190 billion (US$6.36 billion) of its market value. The TAIEX tumbled 1.62 percent on the same day.
In 2009, Chang had returned as chief executive after a four-year absence amid the global financial crisis and he said that he planned to choose his successor in three to five years. Last year, the world’s top contract chipmaker picked three senior vice presidents as co-chief operating officers, making them potential candidates. However, all three are more than 60 years old.
Investor concern is not groundless; it is understandable because Chang is almost irreplaceable. After Chang re-took the reins, TSMC’s profits expanded 7.7 percent from 2009 to last year, excluding the foreign exchange rate factor and cyclical impact. Last year, the firm posted record-high revenue of NT$506.25 billion and profits of NT$166.16 billion.
Moreover, TSMC is now facing competition from much bigger rivals, such as Intel and Samsung, rather than its peers like United Microelectronics Corp, Semiconductor Manufacturing International Corp and GlobalFoundries. To win this tough war, TSMC must come up with a new strategy. Chang is masterminding a “grand alliance” by collaborating with his clients. Investors are waiting to see if this strategy will work. TSMC epitomizes the difficulties Taiwanese electronics firms have finding leaders to secure their future growth.
Hon Hai is another example. Hon Hai chairman and chief executive Terry Gou (郭台銘) postponed his retirement from 2008 to 2020 saying that he needed more time to groom his successors. Now, things have become even more complicated as Hon Hai’s biggest customer, Apple, is facing growing competition from Samsung and the challenge of slowing sales of its iPhones.
Like its top client, Hon Hai is facing diminishing growth momentum and it is trying hard to reach Gou’s goal of growing revenue by 15 percent annually. In the past, the annual growth target was at 30 percent. Lately, Gou, 63, has scarcely talked about his retirement plans.
The challenges faced by Hon Hai and TSMC, among others, may carry a deeper significance, reflecting Taiwan’s small talent pool and lack of innovative experts. The government needs to accelerate opening up to overseas talent as part of its efforts to cultivate industry experts for much-needed industrial upgrade.