The Draft Partial Amendments to Regulations Governing Procedure for Board of Directors Meetings of Public Companies Pre-announced by the FSC of Taiwan

July 2022

Eddie Shih

To enhance corporate governance, the Financial Supervisory Commission (hereinafter, the “FSC”) pre-announced the Draft Partial Amendments (hereinafter, the “Draft”) to the Regulations Governing Procedure for Board of Directors Meetings of Public Companies (hereinafter, the “Regulations”) with a period of pre-announcement from May 13, 2022 to July 11, 2022.  The highlights of the Draft include: (1) no extraordinary motion may be raised on major issues of the company’s operation; and (2) the election and discharge of the chairman of the board shall be resolved by the board of directors or the board of managing directors.

(1) No extraordinary motion may be made on a major issue of the company’s operation.

Before the amendments, if major issues concerning the company’s operation (such as the company’s business plan, annual financial report, or internal control system under Article 7, Paragraph 1 of the Regulations), the Regulations allow an extraordinary motion on a major issue to be raised to the board of directors for the exception of “emergency or legitimate reason.”  However, if a company has an emergency matter that should be raised to the board of directors for discussion, a board meeting may be called at any time.  However, such an exception is unfavorable to corporate governance.  Therefore, the exception that an extraordinary motion may be raised for “emergency or legitimate reason” is deleted (Article 3 of the Draft).    After the amendments, such major matters shall be listed in the reasons for calling a board meeting so that the directors can fully evaluate the matters before a decision is made by the board.

(2) The election and discharge of the chairman of the board shall be resolved by the board of directors or the board of managing directors.

The Company Act provides that the election of the chairman of the board is the authority of the board of directors or the board of managing directors.  However, the Company Act does not expressly stipulate the procedure for discharging the chairman of the board.  In practice, the discharge of the chairman of the board basically should still be resolved, pursuant to an explanatory circular from the Ministry of Economic Affairs, by the originally elected board of directors or the board of managing directors according to the procedure for electing the chairman of the board.

Since the election and discharge of the chairman of the board is a major matter for a company, the amendments have expressly clarified the provisions of the Company Act and the explanatory circular from the Ministry of Economic Affairs and specifically stipulate that the election or discharge of the chairman of the board shall be submitted to the board of directors or the board of managing directors for discussion (Articles 7 and 19 of the Draft).

The amendments pertain to the procedure of convening board meetings and the procedure of electing and discharging the chairman of the board, which involves an important issue of corporate governance, namely, the practical issue of “whether the chairman of the board can be discharged by an extraordinary motion.  The FSC is likely to announce the implementation of the amendments after the pre-announcement period.  Therefore, public companies should track the progress of the Draft and be prepared in advance.