Since its promulgation on June 7, 1988, the Regulations Governing Information to Be Published in Annual Reports of Public Companies (hereinafter the “Regulations”) has been amended 17 times. On January 22, 2020, the Financial Supervisory Commission again amended the Regulation in response to the key measures of the “New Corporate Governance Roadmap (2018-2020)” and in reference to the regulations of major international stock markets and the recommendations in the CG Watch 2018. There are three key points in this amendment: “reinforcing the disclosure of corporate governance status,” “encouraging transparent and reasonable remuneration of directors, supervisors, and officers,” and “enhancing the quality of non-financial information disclosure.” We summarize the amendment as follows:

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1. Reinforcing the disclosure of corporate governance status

(1) For the board of directors to have stronger function in supervising a company, a company is required to explain if the same person serves simultaneous as a chairperson of the board of directors and as the general manager (or an office of equivalent importance in level), or if the chairperson is the spouse, or a relative within the first degree of kinship to the person assuming the forementioned offices. The said company’s explanation shall include the reason for, reasonableness, necessity, and the measures adopted in response to the circumstance set out above.

(2) To be in line with the amendments to the “Corporate Governance Best Practice Principles for TWSE/TPEx Listed Companies” and “Ethical Corporate Management Best Practice Principles for TWSE/GTSM Listed Companies,” the Regulations have been amended on the part of its attachments. These attachments require companies to sufficiently disclose their status and measures adopted in terms of corporate governance and ethical corporate management.

(3) It is an important piece of information that a company’s corporate governance officers resign or their employment terminates. As such, the Regulations expressly stipulate a company to disclose the status of any resignation or termination of corporate management members.

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2. Encouraging transparent and reasonable remuneration of directors, supervisors, and managerial officers

(1) Prior to the amendment to the Regulations, the remuneration paid to directors, supervisors, and managerial officers shall be disclosed. Many companies disclose such information in aggregate remuneration information using remuneration scale. In order to ensure transparency in information disclosure, the Regulations expressly stipulate a decrease in the number included in each bracket of such scales. The current eight (8) scales are amended to ten (10) scales.

(2) For companies operating at a loss to reinforce the disclosure of remuneration to the directors and supervisors and improve the  link between the remunerations and the performance, the Regulations expressly stipulate the companies operating at a loss, as set out below, to disclose the remunerations paid to each individual director and supervisor, including: (1) companies that have posted after-tax deficits in the parent-company-only-financial reports or individual financial reports within the three most recent fiscal years; (2) companies listed on the Taiwan Stock Exchange (TWSE) or the Taipei Exchange (TPEx) with a poor corporate governance evaluation; or (3) companies listed on the TWSE or the TPEx with a low average annual salary of the full-time non-supervisory employees.

(3) The Regulations expressly stipulate companies to disclose the remuneration policy, system, standards, and structure for independent directors and explain the connection between the remuneration paid and the duty, risk, and time spent of the director.

(4) The amendment to the Regulations adding the provisions on the disclosure of the remuneration paid to the top five (5) remunerated managerial officers for (1) companies that have posted after-tax deficits in the parent-company-only-financial report or individual financial reports within the three most recent fiscal years, (2) companies that are listed on the TWSE or the TPEx, and (3) companies that are ranked in the lowest tier in the corporate governance evaluation for the most recent fiscal year, and (4) companies whose securities, in the most recent fiscal year or up to the date of publication of the annual report for that year, have been placed under an altered trading method, suspended from trading, or delisted from the TWSE or the TPEx.

(5) To reinforce transparency of remuneration paid to directors, supervisors and high-level managers from group companies, companies are required to disclose remuneration from their parent companies.

(6) Companies listed on the TWSE or the TPEx shall disclose relevant information regarding self- or peer-evaluation of their boards in order to: help a company’s board of directors understand their efficiency and performance in operation and functions, and strengthen the correlation between remuneration to directors and their performance and the functioning of the board of directors..

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3. Enhancing the quality of non-financial information disclosure

(1) Amend the matters to be disclosed with respect to a company’s fulfillment of social responsibility, including risk assessment of environmental, societal, and corporate issues related to business operation and set out policies and strategies related to risk management.

(2) Provide standards for disclosure of penalty or disposition against the company or its internal personnel to improve the quality of disclosure of company information. That is, the disclosure is requisite only if the result of such penalty could have a material effect on shareholder equity or securities prices.

(3) Strengthen the disclosure of CPA professional fees by lowering the threshold for disclosure of audit fees reduction in the annual report from the current 15% to 10%.

(4) Since the status of a company’s repurchasing of its own shares (status of treasury shares) is material information for its investors’ investment decisions, the Regulations expressly stipulates a company to disclose relevant information regarding the status of treasury shares.

(5) To urge businesses to abide by environmental regulations and protect employees’ rights, the Regulations provide that a company shall disclose matters related to violations of environmental protection laws or regulations found in the environmental inspection as well as Labor Standards Act violations found in labor inspection.

       This amendment has greatest impact on companies listed on the TWSE and the TPEx. According to the statistics from the Securities and Futures Bureau, currently there are 666 TWSE and TPEx listed companies whose chairman of the board and president are the same person or spouses. Pursuant to the amendment, an explanation shall be given of the reason for, reasonableness, and the measures adopted for future improvement. In addition, the Securities and Futures Bureau also indicated that there were 338 companies that posted deficits in the last two years, 159 companies whose average annual salary of their full-time non-supervisory employees is less than NT$500,000. Such companies with poor health and low wages shall all disclose their remuneration paid to directors and supervisors in accordance with the new law, making the salaries of high-level managers visible.    

       Based on the foregoing, under the new law, the cost for legal compliance will be higher for public companies in order to meet the competent authority’s requirements for corporate governance reinforcement. However, how companies should adjust and respond in the future is a test of each individual company’s relevant policies. We recommend preparation and planning in advance to put into practice the related provisions and requirements.

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