Monday, October 08, 2007

Pulling Up Stakes

Big news from Taiwan. According to the China Economic News Service, the Taiwan Financial Supervisory Commission (FSC) may soon be “scraping” a rule that has forced boards of listed firms to hold a prescribed stake in their companies. (I guess the writer meant “scrapping,” though come to think of it many of our own regulations have accumulated a layer of gunk over the years and could use a good scraping).

Right now the required holding for Taiwanese boards ranges from 5% to 15%, depending on company size. But there’s a twist: independent directors don’t own equity, so only insiders ante up. This has made outside directors less popular, as under this arrangement they are basically a bunch of deadbeats.

So the FSC has eliminated the ownership requirement as long as 50% of the directors are independent and the company has an audit committee. And they may get rid of it altogether, citing “separation between ownership and management” as a good governance practice (which leaves me wondering why they had the rule in the first place).

Could ownership and management be as unsuitable a pair as Britney and Kevin? This is quite a radical view in Proxyland, where it's considered noble to “align” shareholder and board interests by showering directors with free or low-cost equity.

Apparently some in Taiwan aren't happy with the Commission's move, as they believe a healthy board stake is “indispensable to assure earnest management on the part of board directors, especially in view of the ethnic characteristic of Chinese people.”

I haven’t a clue what that last part means, and I am so not touching it.

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