Aaron Chen, Elva Chuang, and Tina Lee
The Financial Supervisory Commission (hereinafter, the “FSC”) released the six corporate governance and sustainable development measures to be promoted in 2023
According to the press release by the FSC on January 3, 2023, the FSC will promote the following six corporate governance measures in 2023 to implement its “Corporate Governance 3.0 – Sustainable Development Blueprint” policy. Companies listed on the Taiwan Stock Exchange (TWSE), the Taipei Exchange (TPEx), and the Emerging Stock Market that fail to implement the following corporate governance measures will run the legal risk of being subject to a fine or default penalty imposed by the FSC, and their legal representatives may also face the above legal risk (see the Schedule attached to this article for more details).
I. Establishment of a corporate governance officer (regulatory object: all listed and OTC-traded companies)
Listed and OTC-traded companies are required to complete the establishment of a corporate governance officer by June 30, 2023. Pursuant to the Directions for Compliance Requirements for the Appointment and Exercise of Powers of the Boards of Directors of TWSE and TPEx Listed Companies issued by the FSC, the matters that a corporate governance officer is in charge of should at least include:
1. Handling matters relating to board meetings and shareholders’ meetings in accordance with law.
2. Preparing minutes of board meetings and shareholders’ meetings.
3. Assisting directors and supervisors to take office and continuously pursue further education.
4. Providing the materials required by directors and supervisors to execute business.
5. Assisting directors and supervisors to comply with laws and regulations.
6. Reporting to the board of directors the results of the evaluation conducted to determine if the qualifications of the independent directors meet relevant laws, regulations, and guidelines at the time of their nomination and appointment and during their term of office.
7. Handling matters relating to change of directors.
8. Handling other matters stipulated under the articles of incorporation or any contracts.
II. Required additional independent directors if the chairman of the board and the general manager are the same people (regulatory object: listed companies as well as OTC-traded companies with a capital of NT$600 million or more)
If the chairman and the general manager of a listed company or an OTC-traded company with a capital of more than $600 million are the same person or are spouses or relatives within one degree of consanguinity, the number of independent directors established by December 31, 2023 shall not be less than 4, but if the number of directors exceeds 15, the number of independent directors shall not be less than five, and the majority of the directors shall not be employees or managerial officers.
III. Enhanced disclosure of information in English (regulatory object: listed companies as well as OTC-traded companies with a capital of NT$600 million or more)
Beginning with 2023, listed companies and OTC-traded companies with a capital of NT$600 million or more are required to provide an English version of their shareholders’ meeting manuals, annual reports, and annual financial reports.
IV. Disclosure of financial information (regulatory object: listed and OTC-traded companies with a capital of NT$2 billion or more)
From 2023 onwards, listed or OTC-traded companies with a paid-in capital of $10 billion or more are required to announce and report the financial information of the previous year within 75 days after the end of the year. For listed companies with a paid-in capital of NT$2 billion or more, they are required to announce the self-assessed financial information of the previous year within 75 days after the end of the year.
V. Disclosure of sustainability information (regulatory object: listed and OTC-traded companies in specific industries and listed and OTC-traded companies with a capital of NT$2 billion or more).
In the past, only the following listed and OTC-traded companies had the legal obligation to prepare and file sustainability reports:
(1) listed and OTC-traded companies in the chemical and financial industries;
(2) listed and OTC-traded companies whose food and beverage revenues account for 50% or more of their total operating revenues; and
(3) listed and OTC-traded companies with a paid-in capital of NT$5 billion or more.
Beginning with 2023, companies with a paid-in capital of NT$2 billion to NT$5 billion also have the statutory obligation to prepare and file a sustainability report. In addition, listed and OTC-traded companies in the cement industry, plastic industry, steel industry, oil, electricity and gas industry, semiconductor industry, computer and peripheral equipment industry, optoelectronics industry, communications network industry, electronic parts and components industry, electronic distribution industry, and other electronic industries should strengthen the disclosure of specific sustainability indicators of the specific industries.
VI. The requirement that emerging-market companies should include electronic voting as one of the means by which voting rights are exercised in shareholders’ meetings from 2023 onwards
In order to facilitate the exercise of shareholders’ voting rights to carry out shareholder activism and to continuously improve corporate governance, the FSC will expand the scope of application of electronic voting for companies from 2023 onwards, in accordance with the authorization under Article 177-1, Paragraph 1 of the Company Act, by expanding the requirement that electronic voting should be included as one of the voting methods for shareholders’ meetings of the current listed and OTC-traded companies to emerging-market companies, which should also include electronic voting as a voting method.
ESG has become a challenge that enterprises can no longer afford to ignore in their global business strategy
In recent years, governments in the world have been gradually implementing ESG-related policies to meet Sustainable Development Goals (“SDGs”). The above-mentioned measures from the FSC are part of them, and there are many other additional ESG-related compliance matters that the enterprises are required to implement. For example, for the environment aspect,the Taiwan Legislative Yuan adopted the Climate Change Response Act (formerly the the Greenhouse Gas Reduction and Management Act) on January 10, 2023, which sets a net-zero greenhouse gas emission target for 2050, formulates a tiered carbon credits system, establishes a greenhouse gas management fund, draws up a fair transition action plan (program), as well as assigns responsibilities to relevant departments and agencies. Although the carbon creditsmechanism still needs to be detailed in the relevant dedicated regulations, it is scheduled to start in 2024.
Furthermore, enterprises should also be aware of developments in ESG-related laws and policies in other jurisdictions. According to the German Supply Chain Act (GSCA), which went into effect on January 1, 2023, regulated companies are required to identify and assess risks relating to human rights and the environment in their entire supply chain and establish an effective risk management system. If a domestic enterprise were a part of such supply chain, it would have to be aware of the impact of the GSCA.
Summary and recommendations
Looking ahead to 2023, enterprises in Taiwan should always pay attention to domestic and foreign ESG-related laws and policies to ensure that they remain in compliance. ESG has become an indicator that enterprises can no longer ignore with respect to strengthening operational resilience, sustainable development and good corporate social responsibility. Failure to comply may not only cause the enterprise to face legal liabilities and harm to their corporate image, it may also lead to a whole host of adverse effects on their business operations, including the import and export of their goods or services (e.g., imposition of additional tariffs), blacklisted from the supply chain of foreign enterprises, and the resultant failure of major corporate mergers and acquisitions, etc.
|If the chairman of the board and the general manager are the same person, additional independent directors shall be established.||1. A default penalty of NT$30,000 will be imposed and rectification should be made within a stated period. In case of failure to rectify within the period, a default penalty of NT$10,000 may be imposed for each business day beyond the period until rectification is made.
2. However, if the circumstances of the case involve willfulness or gross negligence or material impact on shareholders’ equity or securities prices, the Taiwan Stock Exchange and the Taipei Exchange may impose a default penalty of NT$50,000 to NT$5,000,000 and request the listed and OTC-traded companies to penalize relevant relevant personnel for dereliction of duty.
|Article 27 of the “Directions for Compliance with the Establishment of Board of Directors by TWSE Listed Companies and the Board’s Exercise of Powers” and the “Directions for Compliance Requirements for the Appointment and Exercise of Powers of the Boards of Directors of TPEx Listed Companies”|
|Establishment of a corporate governance officer||Same as above.||Same as above.|
|Disclosure of sustainability information||1. Failure to report information or errors in the reported information (found by the company itself): a default penalty of NT$10,000
2. For errors or omissions found or verified by the competent authority, the Taiwan Stock Exchange, the Taipei Exchange, or investors: a default penalty of NT$30,000
3. For penalties imposed cumulatively twice in the last year: a default penalty of NT$50,000
4. For penalties cumulatively imposed three times or more in the last year or for individual cases caused out of willfulness or gross negligence: a default penalty of NT$50,000 to NT$200,000
5. For material impact on shareholders’ equity or securities prices as assessed by the Center: a default penalty of up to NT$1 million
6. If corrections are required, they should be made within two business days after the letter is delivered, and for failure to make the corrections: a default penalty of NT$10,000 will be imposed for each overdue business day until the date of correction
7. For material violation of the reporting requirements: change of the trading method and suspension of trading
|Article 3, Paragraph 1, Subparagraph 32 and Article 6 of the Taiwan Stock Exchange Corporation Rules Governing Information Filing by Companies with TWSE Listed Securities and Offshore Fund Institutions with TWSE Listed Offshore Exchange-Traded Funds and the Taipei Exchange Rules Governing Information Reporting by Companies with TPEx Listed Securities|
|Disclosure of information in English||Same as above.||Same as above.|
|Disclosure of financial information||1. A fine of NT$240,000 to NT$2,400,000.
2. The legal representative of the company that engages in the act is penalized.
|Article 178, Paragraph 1, Subparagraph 4 and Article 179, Paragraph 1 of the Securities and Exchange Act|
|Inclusion of electronical voting as a channel for exercising voting rights by emerging-market companies||1. Disclosure of the company name in the Corporate Governance section of the Market Observation Post System
2. Cases involving the application to offer or issue securities will be included in the rejection provisions of the Regulations Governing the Offering and Issuance of Securities by Securities Issuers.
3. Relevant shareholders may apply to the court to revoke resolutions of the shareholders’ meeting.
|Article 177-1, Paragraph 1 and Article 189 of the Company Act|
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