On 25 August 2020, the Financial Supervisory Commission launched “Corporate Governance 3.0 - Sustainable Development Roadmap” (the “Roadmap”). The Roadmap centers on the five ideas: “enhancing the board’s function for sustainability,” “enhancing transparency for sustainability,” “enhancing communication with stakeholders and creating open dialogue,” “incorporating international norms for the stewardship of governance,” and “instilling a corporate culture of governance for sustainability and a culture of providing diversified products.” The Roadmap lays out 39 specific measures to be implemented in the next three years. These measures aim to build an ESG ecology and strengthen corporate governance for Taiwan businesses to gain the competitiveness in the international capital market. Below please find a summary on these important measures:
1. Enhancing the board’s function for sustainability: The goal is to help board function in more effective manner. As such, the Roadmap stated that, starting 2024, relevant mechanisms will be in place to make publicly-listed companies: (1) fill no less than 1/3 of the seats of the board with the independent directors; (2) keep half of the independent directors from serving consecutively three term(s) on the board; (3) incorporate risk management mechanisms; (4) increase the size of corporate governance organ in the company; (5) offer diverse ways for directors to further their expertise; (6) provide a reference sample for independent directors and the audit committee on how to perform their duties; and (7) host an nomination committee.
2. Enhancing information transparency: In order to emphasize ESG-related issues and provide useful ESG information for investors, the Roadmap aims to strengthen the disclosure of sustainability reporting of listed companies, requiring listed companies with paid-in capital of NTD two billion or more to prepare and file a Sustainability Report starting 2023, and expands the application scope of third-party verification on the Sustainability Report. Also, in order to further promote the transparency and timeliness of financial disclosure, the Roadmap requires companies falling in the following scope to publish unaudited financial information for the last fiscal year within 75 days after the end of the fiscal year, effective from different years: (1) listed companies with paid-in capital of NTD ten billion or more starting from 2022, (2) listed companies with paid-in capital of NTD two billion or more but less than ten billion starting from 2023, and (3) all listed companies starting from 2024.
3. Strengthening communication with stakeholders: In order to enhance the function of shareholders’ meeting of listed companies, the Roadmap is planning to make listed companies providing shareholder services on their own (i.e., without engaging a stock affairs agency) more impartial in providing their own shareholder services, and make e-voting results more transparent. To protect a shareholder’s right to attend shareholders’ meetings, the Roadmap also sets the limit on the daily maximum number of annual general meetings to be held, that is, for companies listed at Taiwan Stock Exchange, no more than 90 meetings per day effective from 2021, and for companies listed at Taipei Exchange, no more than 80 meeting per day effective from 2022.
4. Advancing stewardship governance: Considering the gradual increase in the ratio of foreign investment in Taiwan’s stock market and the increasing influence of international proxy advisors on the publicly-traded companies in Taiwan, the Roadmap will publish a stewardship code for service providers, establish a negotiation mechanism between international proxy advisors and listed companies, expand the stewardship industry chain, encourage institutional investors to disclose stewardship information, and establish related evaluation mechanisms of institutional investors, in order to help institutional investors in their implementation of shareholders’ activism and enhance the overall practice of corporate governance for the stock market.
5. Active implementation of corporate governance and sustainable development: Under the impact of global climate change and the COVID-19 pandemic, states around the globe are starting to pay attention to sustainable development of the environment and society. The Roadmap will shape the market mechanism in ways that guide capital investment into sustainable development, encourage businesses to attend to sustainability issues, and establish a sustainability board to promote sustainable development-related products such as sustainable development bonds, social responsibility bonds, and green bonds. In addition, the Roadmap will further encourage listed companies to actively enhance the quality of their corporate governance by continuously increasing the efficiency in corporate governance evaluation and by making available the ranking of evaluation for mid and small cap companies.
(Author: Rachel Hsieh, Senior Associate)