Measures to Improve Financial Institution’s Corporate Governance

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Hello, this is Frank. Everyone seems so excited about summer vacation. I hope you guys spend a wonderful summer as you planned!
By the way, did you guys catch up on the recent financial news? Last April, the FSC formed a task force to work on “measures to improve financial institution’s corporate governance” and came up with the draft of measures based on what have been discussed so far.

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First, I’ll briefly introduce the result of the discussions. It’s true that financial institution’s corporate governance is nearing the level of international standards thanks to continuous efforts to improve corporate governance. However, it still lacks of actual changes in practices. Also, unlike general corporations, there’s a high possibility that a failure in financial institution’s corporate governance might pose direct threat to the financial system. Thus, the task force tried to ensure financial institutions’ greater accountability in order to better represent interests of all stockholders including depositors and financial regulators are necessary.
Under such awareness, the task force has drafted the measures focused on two respects:
1. How to improve the actual practices:
– Respect diversity of financial institutions within the minimum boundaries of institutional framework by setting a minimum level of standards and adopting the ‘Comply or Explain’ principle.
– Disclose more information on their corporate governance and continuously monitor their own compliance situation.
2. How to make corporate governance better reflect public interest:
– Raise standards for responsibility and transparency towards their stakeholders so that their corporate governance could well represent both interest of shareholders and the public interest.
– Grant greater authority to Board of directors to keep management in check and enhance their transparency and responsibility in nominating, evaluating, and remunerating outside directors.
– Put board’s activities under strengthened monitoring by shareholders.

So, based on these assumptions, let’s take a look at key contents of the measures.
1. Reinforce the role of the board of directors in order to keep management in check:
– Stipulate financial institution’s risk management, supervising conflicts of interest, and implementing corporate governance policy as authority of the board which currently relies on management.
– Raise status of ‘chief executive nominating committee,’ to permanent ‘board member nominating committee’ affiliated to the board of directors: more authority and responsibility are to be given.
– Require the permanent committee to devise a detailed chief executive succession plan and publicly announce the plan and procedure.
2. Link outside director’s conservative terms and remuneration with evaluation of their role and responsibility:
– Introduce outside director’s remuneration system based on level of contribution and responsibility as well as publicly announce remuneration information.
– Publicly announce details about financial benefits that outside directors received including indirect profits earned from provision of goods and services.
– Submit a proposal for nominating an outside director to general shareholder’s meeting separate from other agendas and publicly announce each nomination process.
– Limit maximum coverage ratio of directors and executives insurance to a certain level.
3. Create a sound environment for the market to observe corporate governance:
Oblige to write and publicly announce a detailed annual report on corporate governance.
So, what do you guys think of the measures? It seems that the FSC feels the need to make up for the measures based on opinions raised during public hearing held on June 17, 2013. Let’s expect them to come up with the “Best Practice Guideline on Corporate Governance”.

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