The Ministry of Finance retained its majority control of Chang Hwa Commercial Bank’s board of directors at the state-run lender’s annual general meeting on June 19. However, Taishin Financial Holding Co, another major shareholder, won all three independent directors’ seats and took control of the audit committee — an outcome that was unexpected and could cause the tensions between the two sides to persist until the next board election three years from now.
That is because the audit committee not only oversees the lender, but it is so powerful that any major asset disposal, as well as the appointment of financial directors and the review of financial reports and other major proposals, must be approved by the committee before being submitted to the board. Moreover, any proposal to be considered for voting by the board must first pass the committee.
In other words, even though the ministry has secured five seats on the nine-member board, the board would have no say on proposals by the lender’s management if it fails to garner majority approval from the three-member committee, according to Article 6 of the Securities and Exchange Act (證券交易法). Even if the lender’s management wants to send a proposal directly to the board of directors for deliberation, it must be approved by two-thirds of the nine board members.
Clearly, without cooperation from the Taishin Financial-led committee, the ministry-backed management would be a lame duck for the next three years.
The dispute over the management rights to Chang Hwa Bank has remained unresolved since Taishin Financial acquired a 22.5 percent stake. Boardroom showdowns between the two sides — in 2014, 2017 and another on June 19 — show the fragility of the public-private partnership as well as its future.
The dispute over Chang Hwa Bank’s management rights started in 2005, when the lender was in poor shape, and the ministry invited strategic investors by selling special shares in it. To attract investors, the ministry pledged to help them secure majority control over the lender. By the end of the bidding, Taishin Financial had bought a 22.5 percent stake for NT$36.5 billion (US$1.23 billion at the current exchange rate).
However, the supposedly ideal match between Chang Hwa Bank, which is strong in corporate lending, and Taishin Financial, which has consumer banking and wealth management expertise, has never materialized over the past 15 years, and the government changed its stance after the change of political power in 2008 by asking that the president of Chang Hwa Bank be appointed by the ministry.
In 2013, relations between the two sides fell to pieces over Taishin Financial’s plan to merge Chang Hwa Bank with its banking arm, Taishin International Bank. After government-backed candidates won in 2014’s board election, Taishin Financial wrote off huge asset losses and filed lawsuits against the ministry.
The High Court in 2017 ruled in favor of Taishin Financial over the Chang Hwa Bank management rights dispute, but the Supreme Court last year sent back the case for retrial after the ministry appealed the ruling.
The long-running dispute hurts all parties involved. Although the ministry still holds management rights to Chang Hwa Bank and appears to be the winner, continued litigation between the ministry and Taishin Financial hurts the government’s credibility and casts doubts over potential partnerships between the private and public sectors.
The case has reached the point that it cannot be dragged out any longer. Seeking a solution from judicial authorities has proven time-consuming and is unlikely to yield a winner. Rather, the ministry and Taishin Financial must begin real negotiations and work toward ending the dispute.
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