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Screenshot of a breaking news alert e-mail from Q2 2017
The Corporate Governance Center of the Taiwan Stock Exchange (TWSE), directed by the Financial Supervisory Commission (the FSC), in conjunction with the Taiwan Depository Clearing Corp., the Securities Investment Trust & Consulting Association, and the Taiwan Financial Services Roundtable collectively, launched the “Stewardship Principles for Institutional Investors” on 30 June.
Institutional investors, including pension funds, insurance companies and investment trusts, are playing an increasingly significant role in Taiwan’s capital markets and the valuation of investee companies. Similar Principles (or codes) have been published by the United Kingdom, Japan, Malaysia and Hong Kong, emphasizing the growing importance and necessity for “stewardship” in the capital markets.
The “stewardship” responsibility of institutional investors includes the monitoring of investee companies and being part of their corporate governance mechanism by attending and voting at AGMs, and by having regular interactions and conversations with management on behalf of capital providers (e.g. clients, beneficiaries or shareholders), among other areas.
By referring to international trends/experiences and domestic practices, the TWSE has established the following 6 principles:
- Principle 1. Establish and disclose stewardship policies;
- Principle 2. Establish and disclose policies on managing conflicts of interest;
- Principle 3. Regularly monitor investee companies;
- Principle 4. Maintain an appropriate dialogue and interaction with investee companies;
- Principle 5. Establish clear voting policies and disclose voting results;
- Principle 6. Periodically disclose to clients or beneficiaries about the status of fulfillment of stewardship responsibilities.
Signatories of the Principles must publish a statement about how they have applied the Principles both on their website and on a website designated by the Corporate Governance Center. Other relevant disclosures may also be incorporated on the signatories’ websites or in reports such as business reports or annual reports.
Over the past decades, corporate governance-related measures in Taiwan have largely been in the form of regulations and enforcement. The Principles, on the other hand, rely on market mechanisms, as evidenced by its principle-based structure and its “comply or explain” approach. This flexibility is a breakthrough for the Taiwan market as it accommodates for the diverseness of institutional investors. If a signatory is unable to comply with certain principles, it can provide a reasonable explanation as an alternative. This prevents compliance from becoming a mere formality and will encourage better practices.
According to FSC statistics, foreign investors comprise nearly 40% of the market value of TWSE listed companies, while domestic and foreign institutional investors together account for almost half of the trading value. Institutional investors are expected to deliver positive impact by focusing more on obtaining long-term value for their clients and investee companies. The Principles have received strong support from major domestic and international investors. The TWSE expects and encourages all investors to become signatories of the Principles, showing their commitment for better stewardship.