Economy & Business
The evolution of corporate governance
What the nominees for TSMC's next board of directors says about the company, their approach to ESG and DEIA and broader trends in corporate governance globally
By Paul Shelton
In mid-April, Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest contract chipmaker and the flag bearer of Taiwan’s international business, named Ursula M Burns, vice chair of the Advisory Council on Supply Chain Competitiveness under the US Department of Commerce (DOC), as one of its new independent board director candidates as well as naming Lynn L Elsenhans as a director candidate. The nominees are subject to the approval of shareholders at TSMC’s AGM on 4 June.
Burns is a ranking advisor to the US government and Elsenhans currently serves as an independent director and the chair of the Governance & Corporate Responsibility Committee at Baker Hughes Co., an independent non-executive director, chair of the Audit Committee of Saudi Arabian Oil Co., and an independent director of Peter Kiewit and Sons Inc.
By 2030, TSMC’s total investment in the US is expected to hit US$65 billion (whilst at the same time receiving up to US$6.6 billion in US government grants and up to US$5 billion in loans to support advanced semiconductor production in the US).
What should we make of the appointment of two very senior women as directors at TSMC? From TSMC’s perspective these appointments are meant to demonstrate that its board is comprised of a diverse group of professionals from different backgrounds in industry, academia, and law (with citizens from Taiwan, Europe, and the US).
TSMC is said to place significant emphasis on operational transparency and respect for shareholder rights in its corporate governance approach and believe in following a rigorous selection process in nominating board members. This process includes considerations such as background diversity, professional competence, experience, and ethics. The personal reputation of the board members is as important to TSMC as their professional qualifications. TSMC also advocates for gender diversity on its board.
It can be argued that, as the world's second most valuable semiconductor company, the world's largest dedicated independent ("pure-play") semiconductor foundry, and Taiwan’s largest company (with a market cap, as of March 2024, of US$647 billion, distantly followed by MediaTek, at US$62.36 billion, and Hon Hai Precision Industry, at US$46.35 billion) it is easy for TSMC to espouse very positive positions on two globally important but sometimes controversial corporate governance initiatives. These initiatives are referred to as ESG and DEIA.
ESG is a term that has gained a decent amount of acceptance within Taiwan. ESG stands for environmental, social, and governance, and is a set of aspects, including environmental issues, social issues and corporate governance that can be considered in investing. Investing with ESG considerations is sometimes referred to as responsible investing or, in more proactive cases, impact investing.
DEIA stands for diversity, equity, inclusion, and accessibility and refers to a set of practices intended to ensure people from a broad set of socio-demographic backgrounds are represented and able to thrive in a workforce. It also sets out the platform on which an organisation’s actions and services to the public can be “displayed” in order to show that it is considering the needs and desired outcomes for all its stakeholders and is not just profit driven.
At least from TSMC’s statements, it fully endorses ESG and DEIA and plaudits should be given where deserved.
ESG – Domestic and international
ESG seems well entrenched in Taiwan (and Taiwan often looks to Europe for further enhancements to its adoption of ESG). Since 2022, the Taiwan Stock Exchange (TWSE) has had an ESG reporting mandate for listed companies on both the TWSE and the Taipei Exchange (TPEX).
Under this mandate, listed companies are required to publicly disclose relevant information about their ESG practices and how they are developing their ESG practices on an annual basis. In 2022, the TWSE said the mandate was in response to growing demands from investors for more ESG-related disclosures and that is certainly true of Taiwanese investors.
The disclosure mandate (in combination with the sustainability development road map launched by the Financial Supervisory Commission (FSC) in March 2022 to curb greenhouse gas emissions) will, it is believed, ultimately strengthen investor confidence, and attract additional domestic and foreign investment in Taiwan.
But ESG’s road to global acceptance remains somewhat rocky. ESG investing is a topic of heated debate in the US. ESG has and continues to receive a mixed reception from some US politicians who view ESG policies as a threat to voters and companies.
Far-right Republican states in the US have criticized ESG, often framing it as part of a broader “woke” agenda. Ironically the term “woke” was originally coined by progressive black Americans and used in racial justice movements in the early to mid-1900s. To be "woke" politically in the black community means that someone is informed, educated and conscious of social injustice and racial inequality.
Far-right US Republicans have harnessed the word “woke” as something that must be stopped and apply it as a blanket term for everything they dislike. US ESG critics argue that ESG investments prioritize “woke” political agendas, such as combating climate change, over maximizing returns for investors.
However, despite this backlash, which is not just isolated to the US, it is essential to recognize that ESG considerations are playing an increasingly crucial global role in building a sustainable future. Balancing ethical goals with financial performance remains a challenge but responsible investing remains relevant and necessary.
DEIA – Domestic and international
Whilst it may seem to some readers that DEIA is not as well known in Taiwan, this would be a misconception. In mid-April Vice President-elect Hsiao Bi-khim touted Taiwan's progress in gender equality by noting that the country should aim for 50% of lawmakers in the Legislative Yuan to be women. There is no given timeline for this aspiration.
Hsiao also noted that the new administration will continue to take proactive measures to ensure that society and environment are fair to all, and that broader awareness and education initiatives are also supported by the government.
ESG and DEIA are frequently subjects of ECCT events, which is reflective of Europe’s global leadership in these trends. For example, last year the ECCT's Low Carbon Initiative (LCI) and National Taiwan University’s Office of International Affairs (NTU OIA) jointly organised a series of women in ESG leadership forums. At the forums, senior female executives shared their experiences in the corporate world, specifically aimed at inspiring and nurturing the next generation of female talent for leadership positions. Besides having female leaders in healthcare, HR, legal and retail professions, it is notable that European companies involved in Taiwan’s offshore wind energy industry boast a number top female executives, despite being a male-dominated industry. Some European companies operating in other traditionally male-dominated industries, including Taiwan’s automotive and logistics industries, have also given top jobs to women recently.
The American Chamber of Commerce in Taiwan (AmCham Taiwan) has also recently partnered up with the American Institute in Taiwan (AIT) to promote inclusion in the workplace. The goal is to promote an inclusive, equitable, and accessible environment in the workplace.
At a recent joint forum, AmCham Taiwan Chair Dan Silver was quoted as saying, “Inclusive economies are engines of growth.” AIT Director Sandra Oudkirk said, at the same forum, that it was important to keep working together on creating a “more inclusive and equitable future.” There should be no arguments with those sentiments either here in Taiwan or globally.
However, it is somewhat true that DEIA is often seen as purely a banner for greater inclusivity of women in a male dominated world. So whilst TSMC’s latest additions to its board are laudable, how are women faring at the board level in Taiwan?
We should start by noting that in early 2023, Taiwan’s FSC announced that companies planning initial public offerings (IPOs) must have at least one woman on their board of directors to boost gender equality among listed firms. Incredibly, this requirement actually caught six TWSE related companies and five TPEX companies off guard. The 11 companies in question had no female directors in their listing plans. In January this year, the Taiwanese government’s gender equality department said listed companies on the main board and the OTC market recorded a total of 2,233 female board members in 2022, up 861 from a year earlier, while female board members accounted for 15.6% of the total, up 3.5 percentage points from a year earlier. Still very low numbers.
We also need to be aware that in December 2023 there were still fewer than 1,000 listed companies in Taiwan. Just as with ESG, DEIA initiatives in corporate America have long faced scepticism but this time from both sides of the political aisle. Some US critics blast DEIA efforts as corporate window dressing that focuses more on publicity than enacting real change for people of colour or women in the workplace.
At present, at the largest 3,000 public US companies, only one in five board members are female, and nearly one in 10 of those boards have no female directors at all. Those low figures are likely to be quite shocking to many.
While the EU fares better than the US, even in the EU, it was felt necessary to introduce “The Women on Boards Directive” as a crucial part of the 2020-2025 EU Gender Equality Strategy. The EU has recognized that achieving gender equality in the workplace requires a comprehensive approach, which also includes fostering gender-balanced decision-making within companies at all levels, as well as closing the gender pay gap. It is also seen as a key prerequisite for reducing poverty among women.
Despite this recognition of the need for at least gender equality in the EU, the text of the directive was actually approved by the European Parliament as far back as 2012, but it was then blocked by the European Council. Some countries opposed regulation, preferring voluntary measures. Other countries thought that if actions had to be taken, they should done be at the national level. Discussions recommenced in 2022 and in November 2022 the text was voted on and approved by a very large majority of countries. It entered into force in December 2022.
The directive aims for gender balance among directors of listed companies. By mid-2026 every publicly listed company within the European Union needs to have at least 40% female non-executive directors or have a female representation of executive and non-executive of at least 33%. On average, large European companies currently have 30% female non-executive directors, with major differences though between countries, meaning that great effort is still needed to reach the mid-2026 target.
Clearly corporate governance and demands on corporate leaders vary significantly from country to country and ESG and DEIA stand out due to their global importance. However, there are other emerging topics that also stand out as important corporate governance considerations to businesses and their boards across the globe in 2024.
These include:
- Advancements in AI, quantum computing, and other technologies, coupled with growing information security and privacy threats should be front and centre for business leaders and stakeholders. While many of these issues have been on board agendas for years, discussions around these topics skyrocketed in 2023 and will continue to escalate in the future and this is only partially due to the proliferation of generative AI tools like ChatGPT.
- The migration of governance standards from public to private companies. There are benefits, and many obligations, of being a publicly traded company. Many non-public companies, such as private capital portfolio companies and family businesses, avoid some of the significant corporate governance and reporting requirements by staying private. That is their choice, but it may lead to growth limitations. This is changing, albeit slowly and unevenly across the globe. There is an increased demand for forward-looking board effectiveness projects for non-public enterprises in many markets. Perhaps this is just private companies wanting to stay ahead of the curve prior to going public at some time in the future or it could be a growing global recognition of the value of endeavours such as ESG and DEIA.
Corporate governance will continue to evolve both in Taiwan and the rest of the world. While there may be some instances of pushback against the most progressive trends in the short term in some places like conservative US states, it is difficult to imagine any meaningful reversal of recent trends. The ideals and objectives of ESG and DEIA have simply become too entrenched in the mainstream public opinion for corporations to ignore.
Paul Shelton is a consultant with 30 years of experience in the international financial services and related industries with skills in all aspects of legal and financial crime compliance and regulatory relationship advisory and management.
