CSj highlights the key themes of the corporate governance conference held by The Hong Kong Institute of Chartered Secretaries and governance institutions in Taiwan last month.
Since 2016, The Hong Kong Institute of Chartered Secretaries (the Institute) has been working closely with peers in Taiwan to share expertise and build their respective professional communities. This work culminated in the holding of a major corporate governance conference last month in Taipei – Practical Corporate Governance Conference 2019 – jointly organised by the Institute, the Governance Professionals Institute of Taiwan and KPMG Taiwan, with the support of The Institute of Chartered Secretaries and Administrators (ICSA) and Taiwan’s Chengchi University.
The forum brought together a diverse group of governance professionals from Australia, Canada, Hong Kong, Malaysia, New Zealand, Singapore, Southern Africa, Taiwan, Zimbabwe and the UK, and focused on the key challenges ahead for all stakeholders in governance, both in the region and internationally.
Taiwan’s governance roadmap
Given the venue of the conference, Taiwan’s governance regime featured prominently in the discussions. In his guest of honour speech, Dr Tien-Mu Huang, Vice-Chairman of Taiwan’s independent financial regulator – the Financial Supervisory Commission (FSC) – highlighted the tough choices ahead for regulators in the region eager to increase the competitiveness of their capital markets. Better governance raises competitiveness, of course, but Dr Huang cited the latest research report by CLSA and the Asian Corporate Governance Association (ACGA), published in December 2018 – Hard decisions: Asia faces tough choices in CG reform – which draws attention to the pressure on regulators in the region to restructure some standards in a bid to compete. Hong Kong and Singapore, for example, have allowed the introduction of dual-class shares to compete with overseas markets where dual-class shares are allowed.
Dr Huang said that in the past Taiwan had a mediocre governance record, but he reiterated the determination in Taiwan to raise standards. The FSC published its New Corporate Governance Roadmap (2018–2020) in April 2018, launching key corporate governance reforms aimed at enhancing board effectiveness, strengthening information transparency and improving regulatory enforcement. Dr Huang stressed that the FSC wants to encourage a bottom-up approach to reinforcing good governance – for example the new roadmap specifically seeks to promote shareholder activism. ‘We aim to support corporate governance from the ground up,’ he said.
Nevertheless, challenges still remain. Panellist Professor Faung Kai-Lin, Chengchi University, pointed out that, while the law and regulations have improved, weak enforcement remains a problem. Moreover, many Taiwanese companies still tend to vest excessive power in the chairman, she suggested. ‘The chairman is the grandfather who cannot be challenged,’ she said. She added that Taiwan’s company law reflects this by giving directors the option to absent themselves from meetings where they would be in opposition to the chairman.
She welcomed the trend for companies to employ more professional managers, but added that this practice is still relatively rare and professional managers do not always have the independence they need to perform effectively. ‘We are doing better on corporate governance, but we can certainly do more,’ she said.
In his guest of honour speech, Ulyos KJ Maa FCIS FCS, President, Governance Professionals Institute of Taiwan, thanked the Institute and ICSA for their collaboration with peers in Taiwan. He said that this collaboration had certainly helped governance professionals in Taiwan become more familiar with international best practice. Mr Maa is the first person in Taiwan to attain the ICSA and Institute qualification and was presented with his badges of membership at the conference.
The role of governance practitioners
The role of company secretaries and governance professionals was another key focus of the conference. In her guest of honour speech, Edith Shih FCIS FCS(PE), ICSA International President and Institute Past President, praised regulators and governance practitioners in Taiwan for making explicit in Taiwan’s new governance roadmap the importance of the work of governance professionals. Taiwan’s new governance regime specifically calls for organisations to have an adequate number of properly qualified governance professionals. Furthermore, the Taiwan Stock Exchange is bringing in a requirement for companies listed on the Exchange with paid-in capital of NT$10 billion or more, as well as those in the financial industry, to appoint a company secretary.
The role of company secretaries and governance professionals is not always acknowledged in law and governance requirements around the world, Ms Shih pointed out. ‘At a practical level, however, good governance is all about getting the details right. That means building and maintaining effective internal controls, risk management and board structures and procedures. Having appropriately qualified governance professionals on board ensures that these “details” get the attention they deserve,’ she said.
Flora Wang, Director, Head of Investment Stewardship Greater China, BlackRock Asset Management North Asia Ltd, also welcomed the new requirement for larger companies and financial companies to appoint a company secretary in Taiwan. She pointed out that company secretaries are often the main entry point of contact for investors on governance issues.
‘Investors have very limited access to directors, especially independent directors, in Asia,’ Ms Wang said, urging company secretaries to ‘help us help you’ by improving the quality of the dialogue between companies and investors on governance issues. She pointed out that a dialogue with investors has significant benefits for companies since investors can provide a useful perspective on governance issues.
She cited the allegations surrounding Nissan in Japan as a classic example of failure of a board to provide an effective check and balance on management. ‘The board of directors is at the core of corporate governance,’ she said. ‘A well-functioning board of directors provides effective oversight of management and strategic guidance to management.’ Board effectiveness is a key focus of BlackRock’s engagement with companies. It looks in particular at who is on the board and how they are selected, what skills and experience they bring to the board, how often the board meets, how long the meetings are and how the meetings are organised.
Given the diversity of speakers and panellists at the conference, the forum was able to share knowledge about the responsibilities and status of company secretaries and governance professionals in jurisdictions around the world. For example, Peter Turnbull FCIS, ICSA Vice-President, and Past President of the Governance Institute of Australia, discussed the role of company secretaries in Australia.
All larger and listed companies require a company secretary in Australia, and the role is growing in stature and remuneration – the highest paid receiving above A$1million per annum. ‘The role is generally seen as the “go to person” for governance and board support functions,’ Mr Turnbull said. He added that, while the role is well established, it is still somewhat misunderstood. Moreover, in common with other jurisdictions, the company secretary’s responsibilities are often combined with other roles, for example finance and legal.
The Taipei conference was designed with a practical rather than a theoretical focus. Speakers and panellists focused on providing practical advice in areas most relevant to the work of company secretaries and governance professionals – including related-party transactions, risk management, stakeholder engagement and challenges arising from new technology.
Some 70% of businesses in Asia are family businesses. There is also a high proportion of state-controlled entities in Asian markets, making related-party concerns one of the most relevant governance issues in the region. The first session of the conference was devoted to this topic. The forum heard from Winston Yu, Chairman, KPMG Taiwan; Mr Maa of the Governance Professionals Institute of Taiwan; Professor Chu, Associate Professor, Chengchi University; and Megan Ng, Partner, KPMG Taiwan, on the effectiveness of Taiwan’s governance regime for related-party transactions (RPTs).
Professor Chu noted that Taiwan’s definition of ‘related parties’ is still narrower than equivalent regimes in Hong Kong and the US. Ms Ng highlighted the difficulty of formulating clear rules relevant to the complex matrix of personal and professional relationships. For example, does the concept of ‘spouse’ stretch to same sex partners? Moreover, how should the law respond to situations in small companies where all of the directors may be nominally unable to vote on a transaction due to conflicts of interest?
Mohan Datwani FCIS FCS(PE), Institute Senior Director and Head of Technical & Research, explained the law and practice of RPTs in Hong Kong. He pointed out that this topic is high on the agenda of professional practitioners in Hong Kong and the Institute has therefore produced a guideline which is available on its website (www.hkics.org.hk).
A key element of the Hong Kong regime, he pointed out, is that it focuses on the people rather than the entities involved. Moreover, the scope to be caught under the regime is relatively wide. For example, the definition of ‘related party’ includes:
- a substantial shareholder (in Hong Kong you are deemed to be a substantial shareholder if you own 10% or more of the shares)
- a director of the company, a subsidiary, a parent or a fellow subsidiary
- a person exercising significant influence, or
- an associate of any of the above.
Moreover, the stock exchange in Hong Kong has discretion to determine when transactions are deemed to be connected.
Peter Greenwood FCIS FCS, ICSA Council member and Institute Technical Consultation Panel member, brought the related-party session to a close with some practical tips for practitioners. He stressed the need to be strong-willed and authoritative when approaching this issue. The board and management will often be very keen for a deal not to be classified as an RPT, but regulators can generally be relied upon – in cases of doubt – to take the opposite view.
‘Some directors and senior managers wouldn’t recognise an RPT if it ran across the road and bit them on the leg,’ he quipped. ‘If need be, take outside advice, but bear in mind lawyers and accountants may have an interest in the deal going ahead, and may give the advice that the board and management want to hear.’
Mr Greenwood emphasised that practitioners must:
- know the law and regulations better than anyone else (since these are technical provisions, you cannot rely on common sense)
- keep up to date on the law and regulation in this area, including
- its interpretation and application in practice
- ensure that the board and senior management are aware of the meaning of, and obligations resulting from, RPTs, and
- have documented processes in place to monitor, identify and act upon potential RPTs.
In addition he recommended that practitioners should keep a list of the relevant related parties for their organisation and a set of the regulator’s size tests. They should also keep a standard memo ready to send to colleagues explaining what an RPT is, identifying related parties, setting out the size tests and asking for confirmation of whether the proposed deal is an RPT.
The road ahead
The Taipei conference was designed to address issues on the horizon, as well as those current to the work of governance practitioners.
Several speakers – among them John Heaton FCIS, Council member, ICSA, and President, ICSA: The Governance Institute; and Jill Parratt FCIS, Vice-President, ICSA, and Past President, Chartered Secretaries Southern Africa – discussed the gradual shift to a stakeholder rather than solely a shareholder focus in corporate governance regimes around the world.
Adapting to new technology features prominently in any discussion of future challenges, of course, and was a central focus of the forum. David Venus FCIS, ICSA Immediate Past International President, and Past President of ICSA: The Governance Institute, highlighted some of the technologies already in use in boardrooms around the world – hologram technology, virtual reality headsets, simultaneous translation and automated minute taking among them. Interestingly, some companies have already taken the step of adding an AI ‘director’ to the board, he pointed out. Should such ‘robodirectors’ have a vote on the issues discussed? While in company law, a machine cannot be regarded as a director, Mr Venus predicted that AI will have an increasing presence in boardrooms.
Loh How Yee FCIS, ICSA Council member, and Vice-Chairman, Chartered Secretaries Institute of Singapore, addressed the concern that AI will replace company secretaries. He pointed out that AI is already doing a lot of the ‘heavy lifting’ administrative tasks of company secretaries. The higher-level work, however, requires skills which AI lacks – in particular independent professional judgement and emotional intelligence. Mr Loh recommended that practitioners should understand and embrace AI, pointing out that the value of company secretaries enhanced by AI is likely to increase in the years ahead. ‘To stay relevant, don’t wait to start embracing AI technology’, he said.
The Practical Corporate Governance Conference 2019, held in Taipei on 29 March 2019, was jointly organised by The Hong Kong Institute of Chartered Secretaries, the Governance Professionals Institute of Taiwan and KPMG Taiwan, with the support of The Institute of Chartered Secretaries and Administrators (ICSA) and Taiwan’s Chengchi University.
The guideline ‘Connected Transactions – A Practical Guide to Good Governance’ is available on the Institute’s website: www.hkics.org.hk.
SIDEBAR: The Taipei consensus
The Practical Corporate Governance Conference 2019, held in Taipei, Taiwan on 29 March 2019, marked a major step forward in building closer working relationships between peer professionals and institutions in promoting good governance principles and practices and the governance professional qualification in the region and internationally.
‘This conference takes our collaboration to a new level – we are certainly stronger together than apart’, commented Samantha Suen FCIS FCS(PE), Institute Chief Executive, in her welcoming speech. This point was backed up by Edith Shih FCIS FCS(PE) International President, The Institute of Chartered Secretaries and Administrators and Institute Past President. In her guest of honour speech, she said the conference demonstrates the huge potential for collaboration and expertise sharing in the governance profession. ‘At this time of global political and financial uncertainty, we need more than ever to promote and adhere to the values of the good governance principles which are the foundation of our profession,’ she said.
Peter Greenwood FCIS FCS, ICSA Council member and Institute Technical Consultation Panel member, and one of the architects of the forum, emphasised that there is much to be learned from exercises such as these. ‘We are a learning organisation,’ he said. ‘We will take away what we have learned so that we can come back and do better to strengthen the profession in Taiwan and internationally. Corporate governance is a journey and this conference was a step forward in that journey.’