In view of the fact that audit committees ofcompanies adopt a collegial system, whereby the supervisory function isfulfilled through joint discussion to prevent independent directors from actingalone on important matters of the company, so that the operation of the companyand the rights of minority shareholders may be protected, the FSC has recentlyproposed an amendment to the Securities and Exchange Act  to change part of the authority that can beexercised individually by independent directors of publicly traded companiesinto the authority that need to be exercised jointly by an audit committeeadopting a collegial system. The amendment was passed by the Legislative Yuanon May 30, 2011, and has recently been promulgated by the President to takeeffect, with the following major contents:

1. Expand the functions of audit committeesand restriction of the authority that can be exercised individually by independentdirectors (deletion of the provisions in Article 14-4, Paragraph 4 of the originalSecurities and Exchange Act which allows the mutatis mutandis application ofArticles 213 to 215, 220 and 223 of the Company Act).

In order to prevent independent directors fromfiling lawsuits at will against directors for personal reasons, which mayaffect corporate governance, after the amendment, the independent directors cannotfile lawsuits against directors alone, but it requires the audit committee toreview the lawsuits in a collegial manner and select a representative for the lawsuits.

According to the original provisions beforethe amendment, individual independent directors may convene shareholders'meetings on their own. However, this authority has repeatedly resulted inindependent directors intervening in the competition for corporate control inrecent years, in which independent directors of different factions convene specialshareholders' meetings on their own, resulting in two or more shareholders'meetings at the same time, which makes it difficult for the shareholders toexercise their rights and seriously jeopardizes the stability of the company'soperation. Therefore, this amendment removes the provision for individualindependent directors to convene a shareholders' meeting and replaces it with acollegial decision by the audit committee.

Prior to the amendment, independent director,the member of an audit committee, was also allowed to apply the provision inthe Company Law which states, “In case a director of a company transacts a salewith, or borrows money from or conducts any legal act with the company on hisown account or for any other person, the supervisor shall act as therepresentative of the company.” However, in order to avoid the situation wherea single independent director can assist directors to avoid conflicts ofinterest, the provision that an independent director alone can represent thecompany in transactions with directors has been deleted, and such right hasbeen returned to the audit committee.

2. Add a provision on how to handle caseswhere an audit committee meeting cannot be convened due to valid reasons (AddArticle 14-5, Paragraph 3 of the Securities and Exchange Act)

Prior to the amendment, Article 14-5 of theSecurities and Exchange Act originally provided that certain matters of apublic company should be consented by at least half of the members of the auditcommittee and submitted to the board of directors for approval, but it did notprovide for the handling of matters where the audit committee is unable to holda meeting for a valid reason. This amendment adds a paragraph 3, which providesthat for the matters requiring the consent of more than half of the members ofthe audit committee, if there is a valid reason for the audit committee whichis unable to convene a meeting, the matter should be consented by more thantwo-thirds of the directors to be approved; however, the annual and secondquarter financial reports should still be submitted to the board of directorsfor approval by more than two-thirds of the directors after the concurringopinion of the independent directors, and if the independent directors do notgive an opinion or give a dissenting opinion, it is regarded as not having beenapproved by the audit committee.

Thepurpose of this amendment is to limit the authority of individual independentdirector and to return the authority to a collegial audit committee. Hopefully,this will eliminate the chaos in corporate governance caused by the abuse ofthe powers of some independent directors. Whether the above objectives can beachieved remains to be seen after the implementation of the amendment. Publiccompanies and independent directors to whom the Securities and Exchange Act isapplicable may continue to pay attention to subsequent developments.