Last week, two developments highlighted both the progress that has been made and the challenges remaining in improving local corporate governance.
On a positive note, the Cabinet on Thursday approved amendments to the Company Act (公司法) that will allow shareholders to vote electronically at annual general meetings. It came at a time when many listed companies have a tendency to shut out their shareholders by scheduling their annual general meetings all on the same date.
These companies will now find it harder to discourage shareholders from exercising their voting rights, because shareholders can use electronic voting to have a say on who sits on the board and other matters that affect their interests.
The amendments also require companies to adopt a cumulative voting system, rather than a block voting method, during the election of board members to safeguard the rights and interests of minority shareholders.
The beauty of the cumulative voting system is that it offers minority shareholders an option to either cast all their cumulated votes for one candidate or split the votes between candidates. For example, if a company is electing 10 directors, each share entitles the holder to 10 votes, which can all be cast for the same candidate or split among different candidates.
The purpose of adopting cumulative voting is to make sure that minority shareholders can get their favored candidates onto the board of the company to monitor corporate matters on their behalf.
It comes at a time when criticism has been mounting over the structure of boardrooms, as well as a lack of accountability and transparency in corporate dealings.
Cumulative voting is not perfect. If factionalism or partisan interests develop among majority and minority directors, it can undercut the board’s efficiency. There is also the concern that cumulative voting can be a convenient gateway for hostile takeovers and aggressive competitors could use the system to gain control of target companies.
However, cumulative voting does away with a dark side of the block system as the latter — which does not allow minority shareholders to stack up votes for specific candidates — tends to create a winner-take-all situation and excludes the representatives of minority shareholders from the board.
Even though the amendments are aimed at protecting shareholders’ rights and upholding corporate governance, the planned changes are about voting methods.
What we saw during the impasse at Taiwan International Securities Corp last week was more than a technical issue — it was the lack of a law-abiding spirit and an ignorance of corporate governance among certain shareholders.
So far, the competing shareholders at the brokerage firm have each claimed that they are the legitimate management of the company. They have submitted their filings to the authorities to justify their claims and have said they will lodge lawsuits against each other to protect their interests.
The financial regulator, in the meantime, has threatened to intervene and to ask for the court to put the firm into temporary receivership if the situation worsens.
Both competing sets of shareholders, as well as the relevant government agencies, must face up to the negative impact of the impasse on corporate governance in this country and efforts to attract foreign investors. Let’s hope all parties can settle the impasse soon; otherwise it will set a very bad example to foreign investors of Taiwan’s corporate governance.
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