{"id":1655,"date":"2024-02-01T17:00:00","date_gmt":"2024-02-01T17:00:00","guid":{"rendered":"https:\/\/www.tejwin.com\/en\/insights\/2024-new-independent-director-regulations-hits-the-road-what-impacts-may-be-led-to\/"},"modified":"2024-02-01T17:00:00","modified_gmt":"2024-02-01T17:00:00","slug":"2024-new-independent-director-regulations-hits-the-road-what-impacts-may-be-led-to","status":"publish","type":"insight","link":"https:\/\/www.tejwin.com\/en\/insights\/2024-new-independent-director-regulations-hits-the-road-what-impacts-may-be-led-to\/","title":{"rendered":"2024 New Independent Director Regulations hits the road! What impacts may be led to?"},"content":{"rendered":"
\"Independent<\/figure>\n

Intro<\/h2>\n

The Financial Supervision Commision (FSC) released \u201cCorporate Governance 3.0 -Sustainable Development Roadmap\u201d in 2020, for the purpose of strengthening duties and functions of boards to enhance the sustainable value of enterprises, hoping to resolve the problem of \u201cPerpetual Independent Directors\u201d. As a result, TWSE and TSE promptly amended the \u201cCorporate Governance Best Practice Principles for Listed and OTC Companies\u201d, aiming to enhance corporate governance. Starting from 2024, the new framework mandates that at least a third of the board seats in listed and OTC companies must be held by independent directors, with a maximum of three consecutive terms. By 2027, this requirement will be applied to all listed and OTC companies. In this article, we will explain the difference in the content of independent directors framework and its impact after implementation.\u00a0<\/p>\n

What are dependent directors?<\/h2>\n

Independent Director refers to a director within the board of directors of a listed or OTC company, and is independent from the company\u2019s shareholders and does not hold an internal position within the company. They also have no significant business connections with the company\u2019s management. Independent directors are capable of making impartial judgments regarding company affairs. In simpler terms, independent directors cannot be employees of the company, do not participate in specific operational matters, and hold little company stock. Their role is to enhance corporate governance and advocate for the rights of small and medium-sized shareholders.<\/p>\n

In Taiwan, independent-director-related issues are regulated by the Securities and Exchange Act, governing qualifications, selection, tenure, and responsibilities of independent directors. Their primary duties include participating in the review and oversight of significant company decisions, forming audit committees, and reviewing financial statements, internal control systems, as well as auditor appointments.<\/p>\n

Numbers of Independent Directors<\/h2>\n

The limitation on the number of independent directors significantly impacts corporate governance. Historically, Taiwan\u2019s regulations required each listed or OTC company to have at least two independent directors, constituting no less than one-fifth of the total board seats. However, such provisions may result in the insufficient prominence of independent directors, as they may still not be able to fully utilize their effectiveness within the board of directors, which is also detrimental to protecting the rights of small shareholders..<\/p>\n

In mature economies worldwide, countries with well-developed corporate governance systems tend to have more mature independent director frameworks. These countries also set higher requirements for the proportion of independent directors on corporate boards. According to data from various capital market regulations and a headhunting firm \u201cSpencerStuart\u201d, most European and American countries mandate that over half of the board seats be held by independent directors, with actual proportions often reaching 70% to 80%. In Asian countries like China and Japan, the requirement is for at least one-third of board seats to be filled by independent directors, and the actual representation exceeds 40%. However, based on statistics from the TEJ database, as of the end of December 2023, the proportion of independent directors in Taiwan\u2019s listed and OTC companies still falls short of 40%, which is slightly below the international consensus.<\/p>\n

In March 2023, the Financial Supervisory Commission (FSC) unveiled the \u201cSustainable Development Action Plan\u201d to enhance corporate governance and align with international standards. Starting from 2024, publicly listed companies with capital exceeding 10 billion NTD as well as financial and insurance firms must appoint independent directors to occupy at least a third of the board seats. Furthermore, the tenure of independent directors cannot extend beyond three consecutive terms. The plan will be rolled out in phases, with all publicly listed companies expected to comply by 2027.<\/p>\n

\"Comparison
Comparison of Independent Directors\u2019 new and old regulation Source: TEJ<\/figcaption><\/figure>\n
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Learn more about Independent Directors!<\/a><\/div>\n<\/div>\n

Independent Director shortage?<\/h2>\n

Basic requirements of independent director : Professionalism & Independence<\/h3>\n

In order to become an independent director, not only is five years of working experience required, but also professionalism and independence.<\/p>\n

Professionalism:\u00a0<\/strong><\/p>\n

Independent directors must be\/have:<\/p>\n