Taiwan Stock Exchange finalises stewardship code for institutional investors to boost long-term value

The Taiwan Stock Exchange (TWSE) has published the final version of its Stewardship Principles for Institutional Investors, with asset managers and owners who operate in the country’s capital markets invited to comply with six guiding principles intended to promote long-termism in the market.

The stewardship code largely resembles similar agreements put in place in the UK, Malaysia, Japan and Hong Kong, and will also operate on a comply or explain approach to allow for flexibility for a diverse group of institutions. According to the country’s Financial Supervisory Commission, foreign investors comprise nearly 40% of TWSE listed companies’ market value.

The code comprises principles that ask investors to establish and disclose stewardship policies and how they are managing conflicts of interest; to monitor and maintain a dialogue with investee companies; to establish voting policies and disclose voting results; and to periodically update clients or beneficiaries about how their stewardship responsibilities have been fulfilled.

The code suggests that information to be obtained for monitored investee companies could include data on “environmental impacts, social issues and corporate governance”.

The guidelines also are condensed into one consistent long-termist outlook by its authors: “Institutional investors are expected to deliver positive impact focusing more on the long-term value for their clients and investee companies.”

Corporate governance measures in Taiwan in the past have largely forced on regulations and enforcement, the code’s authors write, so the stewardship code will operate on a comply and explain basis to allow for flexibility and to prevent compliance from “becoming a mere formality”.

Not much in the final code has been changed from when TWSE first consulted on a draft version of the guidelines published in January 2016. Several organizations and institutions responded with suggestions for improvements, including the International Corporate Governance Network (ICGN) and Hermes Equity Ownership Services (EOS).While a letter from ICGN mentioned in passing that TWSE could include clauses on investor governance and consideration of ESG issues in the code, a similar communication from Hermes EOS’ Co-Head Dr Hans-Christoph Hirt asked for guidance on the role of regulators in assessing stewardship disclosures and how stewardship in the Taiwanese market would differ from the practice in the UK or other countries.

Hirt added: “Some of these underlying problems and resulting questions, which extend far beyond narrowly defined stewardship activities, such as monitoring, voting and engagement, may overwhelm investors in markets where they historically have played a more limited role. Nevertheless we believe it is right to start the debate on these issues as soon as possible so as to create a framework in which a stewardship culture can develop over time.”

TWSE also requires complying institutions to publish a statement outlining their commitment to the code on their website, as well as a website yet to be designated for public record by Taiwan’s Corporate Governance Centre. Further disclosures, it advises, should be incorporated either on signatories’ websites or in regular financial reporting. Link

The guiding principles of the TWSE Stewardship Code:

1. Establish and disclose stewardship policies;
2. Establish and disclose policies on managing conflicts of interest;
3. Regularly monitor investee companies;
4. Maintain an “appropriate dialogue and interaction” with companies;
5. Establish clear voting policies and disclose voting results;
6. Periodically disclose the status of fulfilment of stewardship responsibilities.