Three years ago, there was a high-profile proxy vote battle between home appliance maker Tatung Co’s founding Lin (林) family and activist investors at the company’s annual general meeting, but the management team led by the family retained full control of the nine-member board.
Last week, another high-profile proxy vote battle emerged between the family and a group of even more aggressive activist investors, but — once again — the family-controlled management unexpectedly secured all of the seats on the board, simply because it deprived certain investors of their voting rights at a shareholders’ meeting — a move that was flawed and unprecedented, and was criticized by the Securities and Futures Investors Protection Center, which called it the biggest setback in Taiwan’s efforts to improve corporate governance.
Whether the family would lose control of the 102-year-old company was widely followed.
For some activist shareholders, a company like Tatung — which stopped distributing dividends in 2001 and has seen losses pile up in the past few years, but still has valuable real-estate assets nationwide — is a target. Some investors with big wallets had long said they wanted to topple the family and restore power to shareholders, while also calling for cost-cutting measures and asset sales.
In the face of the management crisis, Tatung could have acquired its own shares to bolster its control and boost its stock price. However, the family took a shortcut by blocking its opponents’ voting rights, which might have been the simplest and least expensive way to defy potential predators, but is a very questionable move and a step backward in terms of corporate governance.
The family last week said that the 27 investors who owned a combined 53 percent stake had been denied their voting rights because they had contravened the Business Mergers and Acquisitions Act (企業併購法), and the Act Governing Relations Between the People of the Taiwan Area and the Mainland Area (兩岸人民關係條例).
The family’s attorney also said that any disputes regarding voting rights should be part of a firm’s self-governance and are not subject to the deliberations of regulatory authorities.
However, only the authorities — including the Ministry of Economic Affairs, the Investment Commission and the Financial Supervisory Commission — have the right to decide whether shareholders have contravened regulations, not a company itself.
Tatung’s attorney said investors could file lawsuits if they did not accept the company’s actions, suggesting that the family was prepared for a lengthy legal fight during which their grip on the company could not be contested.
In the wake of the family’s move, the Taiwan Stock Exchange changed the company’s classification to a full-delivery stock, effective on Friday, and the Ministry of Economic Affairs has demanded that the company submit the meeting minutes before it registers its new board members.
However, the authorities’ actions have not gone far enough, and inflict little pain on the company, much to the disappointment of people who expected the agencies to severely punish Tatung.
The authorities, which merely said shareholders could take legal action to seek the annulment of the board election according to the Company Act (公司法), are not only passing the buck, but are ignoring their regulatory duties.
If the Financial Supervisory Commission or the ministry cannot impose harsher sanctions on violations of corporate governance, more companies are likely to follow Tatung’s actions to protect their management rights — no matter how controversial, illegal and morally questionable that would be.
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