How Public Regulation Changes Corporate Governance Practice? The Corporate Board Reform in Taiwan

This chapter takes the example of the legal transplantation of US-style independent directors into Taiwan and explores how public regulation affects (or does not affect) corporate governance practice. Taiwan's corporate law traditionally follows a two-tier board system where the board of directors is the decision-making institution and the statutory supervisor is the monitoring institution. However, most statutory supervisors of Taiwanese public companies have long been controlled by the controlling shareholders and failed to act as corporate monitors. Since 2002, Taiwan has gradually introduced independent directors into corporate boards in order to strengthen the internal governance of public companies.As of September 2011, 43.92 per cent of the companies listed on the Taiwan Stock Exchange (TSE) had at least one independent director on their board. In other words, 56.08 per cent of TSE-listed firms chose not to have any independent directors. Only 6.8 per cent of TSE-listed companies had established audit committees to replace statutory supervisors. In summary, few Taiwanese public companies have made a complete switch to the US-style board structure. The majority of firms have stayed with the original structure and preferred not to have independent directors on their boards. This chapter focuses on companies that, whether voluntarily or not, introduce independent directors onto their boards and assesses the effectiveness of these new independent directors