After nearly three years of drafting, discussion and negotiation, lawmakers on Friday passed amendments to the Company Act (公司法) into law.
Billed as the largest revision of the act in 17 years, the amended law aims to create a safer and more flexible business environment in Taiwan, making changes in areas such as the disclosure of shareholder information, the arrangement of dividend distributions and procedures regarding board and shareholder meetings.
In addition, the revised act is intended to improve corporate governance while bolstering Taiwan’s mechanisms to prevent money laundering.
The amendments have sparked heated debate from all sides over the past year and still received mixed reviews after becoming law over the weekend.
An amendment to Article 173-1 of the act stipulates that shareholders who have held more than a 50 percent stake in a company for three months or longer are eligible to call a special general meeting. Business groups said that the article could trigger proxy fights and create uncertainty over the control of companies, or even lead to hostile takeovers, while others praised the amendment, as it allows dissident shareholders to take on companies that are poorly run, reject reforms and are controlled by long-serving board members.
The amendment has also created uncertainty for publicly listed companies as to which law governs extraordinary shareholder meetings, as Article 43-5 of the Securities and Exchange Act (證券交易法) requires that shareholders controlling at least half of a listed company’s shares through a public tender offer obtain approval from the board to call such a meeting.
Financial Supervisory Commission (FSC) Chairman Wellington Koo (顧立雄) on Saturday clarified the issue, saying that eligible shareholders could choose to follow whichever law they prefer, as they face two different requirements: One allows shareholders who have held a majority stake for more than three months to call a special general meeting without requesting permission, while the other does not stipulate a minimum length of ownership, but demands that shareholders gain permission from the board.
Whichever law dissident shareholders or activist investors follow, there is an increased chance that they will seek ways to oust longtime board members and force management to make changes.
The bill also lowered the threshold for minority shareholders to request that a court-appointed inspector examine the operational and financial condition of the company if alleged misconduct by board members is found to harm shareholders’ interests.
Clearly, the government intends to change the rules of the game, enabling shareholders to put pressure on management and giving managers no place to hide. Longtime board members will not be able to relax until they put their job on the line by setting out new strategies or reform plans.
Media and critics have dubbed the revised Article 173-1 the “Tatung clause,” in reference to proxy fights between activist investors and home appliance maker Tatung Co’s founding Lin (林) family over the years. However, the revised article is actually an “empowering clause” that supports shareholders, helping them protect their interests and exert more influence over companies, versus Article 203-1, which entitles board members to call board meetings to debate issues or make decisions.
Major shareholders and board members could work together to increase their holdings and bolster their control over companies, so worries about an increase in proxy fights, while legitimate, should not be exaggerated. Rather, such concerns reflect the Taiwanese business environment’s persistent bias in favor of existing board members, major shareholders and big business.
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