According to the Securities and Exchange Actof Taiwan, a publicly-listed company may appoint independent directors whopossess professional knowledge, and there shall be restrictions on theirshareholdings and the positions they may concurrently hold. They shall maintainindependence within the scope of their directorial duties and may not have anydirect or indirect interest in the company.

In addition, in order to make companyoperations smoother and frictionless, the Securities and Exchange Act also allowspublicly-listed companies to establish an audit committee composed of allindependent directors in substituting supervisors to perform duties asoriginally provided in the Company Act, and each independent director of theaudit committee has the same power and authority.

However, after the measures above areimplemented, in practice, questions or conflicts about corporate governanceoften occur when the independent directors exercise their individual power as amember of the audit committee. For example, independent directors represent thecompany in filing lawsuits against other directors even though their personalinterests are involved; each of the independent directors convenes shareholders’meetings on their own; independent directors represent the company intransactions with the company for themselves or others.

Therefore, with respect to the disputesabove, the Financial Supervisory Commission proposed to amend the law to reducethe relevant authority of independent directors, so that the handling of such matterscan be returned to the collegial system of an audit committee for making finaldecisions. The following is an introduction to the draft amendment to Article14-4 of the Securities Exchange Act concerning the aforementioned matters:

1. The audit committee shall represent thecompany in litigation between the company and the directors.

Considering that although independentdirectors can independently exercise the powers of the audit committee in placeof the original supervisors, in practice, there are often doubts about whetherindependent directors can solely advocate and defend the interests of thecompany in litigation between the company and the directors. Hence, the draftamendment returned the authority to represent the company in litigation betweenthe company and the directors back to the collegial audit committee so as toseek a more impartial result than putting self-interest above companyinterests.

2. The audit committee shall be the onefiling lawsuits for minority shareholders against directors.

Based on the same reasons as above, thecollegial system of the audit committee is expected to be better at gatheringthe opinions and wisdom of the people and reduceing the influence of personalinterests on the company’s rights and interests. Therefore, the draft amendmentalso removes the power of independent directors to file lawsuits on behalf ofthe company against directors at the request of minority shareholders. Instead,it stipulates that the audit committee can only accept and decide on the requestof minority shareholders to file lawsuits on behalf of the company againstdirectors.

3. Where the board of directors do not orcannot convene shareholders meetings, the audit committee shall conveneshareholders meeting for the company’s interests when necessary.

In practice, there have been cases where independentdirectors with conflicting interests convened different shareholders’ meetingsat the same time or one after another for the company’s interests which theyeach alleged to advocate. The shareholders’ meetings subsequently madedifferent resolutions. Those have led to disputes in corporate governance and thusrequired litigation, resulting in unavoidable damage to company operations.

Therefore, the draft amendment also removesthis power of the independent directors and only allows the audit committee toconvene shareholders meeting using a collegial system for the company’sinterests where the board of directors do not or cannot convene shareholdersmeeting.

4. In transactions between the directorsand the company, the audit committee shall decide on who shall represent thecompany.

When an independent director transacts withthe company, if the independent director is still allowed to represent thecompany in transactions with themselves at this time, there may be conflicts ofinterest. This is also inconsistent with the original purpose of havingsupervisors representing the company in transactions with the directors to avoidconflicts of interest.

As such, the draft amendment also adjuststhis power of representation, giving the audit committee the authority to decideusing a collegial system on whether an individual independent director shallrepresent the company or all members of the audit committee shall jointlyrepresent the company in order to prevent situations that are harmful to theinterests of the company.

Although the above draft amendments arestill to be deliberated by the Legislative Yuan, the amendments to the relevantregulations are intended to solve problems arising from current corporategovernance practices for future economic development. Therefore, after thedrafts are passed, they will inevitably have a major impact on the organizationand policy implementation of the publicly-listed company. One should pay specialattention to them and make relevant adjustments as soon as possible tofacilitate the subsequent operation of the company.

(This article was published in the Expert’s Commentary Columnof the Commercial Times：https://view.ctee.com.tw/tax/46017.html）

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