Financial authorities yesterday dis-missed criticism of an about-face on an independent board of directors policy under pressure from the business community, saying that some modifications were inevitable when attempting to introduce new institutions.
"We are not making a concession [on the policy]," Susan Chang (張秀蓮), vice chairperson of the Financial Supervisory Commission (金管會), told a press conference yesterday.
"We would like to promote a system that is suitable to local conditions at a gradual pace, to prevent a sudden impact," she said.
The commission decided to make some adjustments to its policy after holding a consultatative meeting on corporate governance with industrial and commercial associations on Tuesday. Business representatives complained that the proposed policy could make it difficult for companies to operate.
In the original version of a proposed amendment to the Securities and Exchange Law (證交法), which has been submitted to the legislature, a quarter of the members of the boards of all listed companies must be independent directors tasked with monitoring the company's management and financial performance.
Significant issues pertaining to company finance and stockholders rights, such as transactions with people having family or business relations with company management and investment in derivatives, would need to be approved by more than half of a company's independent board directors.
But in the face of resistance from the business sector, the commission agreed to restrict the power of independent board directors.
Under the revision, significant issues which are vetoed by independent board directors but then approved by two-thirds of total board members, could still be carried out on condition that the dissenting opinions by the independent board directors are disclosed to the public, Chang said.
The reversal was welcomed by the business community, which said it was gratified that its opinions could be heard.
"Strengthening corporate governance is the right thing to do, but it is just not appropriate to completely imitate foreign systems [without considering local conditions]," Chen Cheng-yi (陳正毅), spokesman for the General Chamber of Commerce (全國商總), said in a phone interview.
It does not conform to the proportion principle by giving a minority of independent members the power to veto decisions approved by the full board, Chen said.
Echoing that opinion, a senior official of Chinese National Association of Industry and Commerce (
Unlike the US, family-run firms account for the bulk of the nation's companies, the official said.
However, academics said there is no guarantee that family-run companies are safe, as they have seen more major stockholders selling their shares while retaining control over the company. Some supervision mechanism is necessary, academics say, but the commission's proposed amendment was too strict.
It would not be fair if a company has a small board of directors for one or two independent members to be able to veto the rest of the board, said Yeh Yin-hua (葉銀華), a professor of finance at Fu Jen University.
"The latest amendments should be the bottom line the authority needs to safeguard the system, and any withdrawal from that point would hollow out the system and damage the spirit of corporate governance reforms," Yeh said.
According to the commission, the establishment of independent board directors for listed companies will be implemented in three phases.
Listed financial holding companies, financial institutions such as banks and securities houses with a certain level of capitalization and companies issuing American depositary receipts have to comply with the regulations as of Jan. 1, 2006.
Listed firms with capitalization of more than NT$5 billion and companies issuing global depositary receipts will have to be in compliance as of Jan. 1, 2007 while listed companies with capitalization of more than NT$1 billion start on Jan. 1 the following year.
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