QIC Inside Investor Relations Volume 42: What is the Cause Behind the shortfall in Foreign Shareholders’ votes?
As more and more investors focus on sustainable development, corporate governance is no longer just a slogan; investors are looking at whether companies have specific policies, practical measures and disclosures in place, and will factor it into their voting decisions. In March, we worked with the Taiwan Stock Exchange; the leading global proxy solicitation advisor – Georgeson; the leading global proxy advisory firm – Glass Lewis; leading Institutional investors – State Street Global Advisors and Fidelity International; and an independent director in Taiwan to discuss the topic of independent directors and the 2022 Annual General Meeting season. The event attracted the largest number of attendees for a seminar on independent directors in Taiwan - attracting almost 500 directors, independent directors, management and practitioners of Taiwanese listed companies.
In our past experience with numerous listed companies, we found that management teams often found that the foreign voting results were different from their expectations after receiving the foreign institutional investors’ voting. Therefore, QIC has conducted a study on the latest domestic and global voting standards and compiled the important issues that may lead to these discrepancies:
1. Gender Diversity of the Board of Directors
Reference 1: Glass Lewis Voting Policy on Gender Diversity of the Board
- Glass Lewis expects at least one female director on the Board.
- Glass Lewis will highlight the lack of gender diversity on the board in future election cycles.
- Glass Lewis will recommend voting against the chairperson of the nomination committee if there are no female directors on the board.
- Glass Lewis encourages companies to disclose their progress in improving gender diversity of the board – including disclosing the timeline for adding female directors.
Reference 2: Global Best Practice recommends at least 30% female directors on the board.
2. Percentage of Independent Directors on the Board of Directors
Reference 1: Global Best Practice recommends that independent directors account for at least 1/3 of the board.
- The majority of foreign institutional investors and the Taiwan Stock Exchange Corporate Governance best practice advocate that the board of directors should be at least 1/3 independent. If the number of independent directors is less than 1/3, ISS generally recommends voting “Against” all non-independent directors and “For” only for the CEO or Chairperson.
3. Tenure of Independent Directors
Reference 1: Global Best Practice recommends that the tenure of the independent directors not exceed 9-12 years. Foreign investors will start to question the independence of the independent directors with tenure over this length.
Reference 2: Glass Lewis’ Voting Policy will recommend “Against” for all independent directors with tenure over 12 years on the board.
Reference 3: ISS Voting Policy will consider independent directors as no longer independent if the tenure exceeds the global best practice and exclude them as independent when calculating the overall board independence. If the independence of the board falls below the 1/3 standard, ISS will recommend voting “Against” all directors except for the chairperson and the CEO.
4. At Least one Member of the Audit Committee Should Have Accounting or Financial Expertise
Reference 1: Glass Lewis believes that the Audit Committee should have a chairperson and at least one member with accounting or financial expertise.
Reference 2: Article 4 of the law “Regulations Governing the Exercise of Powers by Audit Committees of Public Companies” states:
“The audit committee shall be composed of the entire number of independent directors. It shall not be fewer than three persons in number, one of whom shall be committee convenor, and at least one of whom shall have accounting or financial expertise.”
5. Director Attendance at Board Meetings
Reference 1: BlackRock’s Proxy Voting Policy requires directors to attend at least 75% of all meetings starting from the second year after the election.
Reference 2: Global Best Practice is for directors to attend at least 75% of all board meetings.
6. Director Attendance at the Annual General Meeting
Reference 1: Global Best Practice is to have as many directors present at the Annual General Meeting as possible, as this may be the only opportunity of the year for investors to raise concerns with directors in person.
We believe that by following global best practices in these matters, the company will be better positioned to improve its corporate governance ratings and achieve the foreign institutional investor voting results it expects at the shareholders’ meetings. If you have further questions about the result of the foreign institutional investor voting results, please feel free to contact QIC.
QIC advisors consist of experienced professionals that have worked in major sell-side and buy-side companies for many years. Through the unique investors database and our knowledge in industries, we pair up appropriate investors with corporates, assist companies and investors to achieve effective two-way communication and thus realize the purpose of enhancing shareholder value. QIC is exempted from MIFID II and has many years of experiences in corporate access services. We plan, schedule and execute tailor-made roadshows and targeted investor events for high-quality corporate clients. If you are interested in learning more about our services, you are welcome to contact us.
Contact: yvonnehuang@qtumic.com
Sources:
https://law.moj.gov.tw/ENG/LawClass/LawAll.aspx?pcode=G0400126
https://www.issgovernance.com/file/policy/active/asiapacific/Taiwan-Voting-Guidelines.pdf
https://www.glasslewis.com/wp-content/uploads/2016/12/Guidelines_TAIWAN.pdf