Independent Directors in Taiwan: From Minimalism to Reformism

This paper reviews the regulatory strategies in corporate board reform and analyses the impact of introducing the institution of independent directors to Taiwan’s public companies. The model of Taiwan’s corporate governance has long been strongly influenced by the German and Japanese models. For example, the Taiwanese Company Act traditionally follows a two-tier board system: the board of directors constitute the decision-making institution, and the statutory supervisor monitors the company However, in the past decade, Taiwan’s corporate governance has also been influenced by the United States (US) model; consequently, independent directors and a one-tier board model have been introduced. Therefore, Taiwanese public companies have three options: to maintain a two-tier board, to choose a one-tier board, or to adopt a hybrid structure. This state of affairs triggers various problems because the distribution of authority is ambiguous. On the one hand, the purpose of the introduction of independent directors is to resolve statutory supervisors’ failure to exercise their authority in regard to monitoring boards of directors. On the other hand, independent directors have insufficient incentives to fulfil their duties, and the true independence of the independent director is highly questionable without the existence of a corresponding judicial review system. In keeping with the government authority’s established policy at the end of 2013, public companies in Taiwan are now in the process of transforming into a one-tier board structure, and this is worthy of further observation in the near future. Part II begins the discussion by introducing the reform of the board structure, and it presents some statistics regarding the percentage of public companies with independent directors, as well as the occupations of independent directors in Taiwan. In particular, this section analyses the problems with each corporate governance structure option and the main functions of corporate directors in Taiwan. Part III then discusses the incentives of independent directors from the perspectives of liabilities and remuneration, and it explores the issue of their independence in Taiwan. Part IV concludes this chapter.