The June 30th election of the board directors at Tatung Company sparked controversy after the company’s chairwoman Lin Kuo Wen-yen voided the votes of some institutional and individual shareholders over allegations of them receiving financial backing from Chinese investors.
It is unusual for a shareholders’ meeting to grab national headlines, but Tatung is not your run-of-the-mill company.
Most people know Tatung as a century-old household appliance maker, but the company is also involved in the semiconductor and manufacturing industries, and is tasked by the Taiwanese government with handling sensitive household registration, immigration, and military data.
It quickly becomes clear that Tatung’s management is tied to Taiwan’s national security.
But Lin Kuo has not proved to be a competent chairwoman herself.
She has long been criticized for mismanaging the company.
In 2018, six of the company’s eight subsidiaries recorded a loss, and three were delisted for poor financial performance through 2019.
In the same year, her husband and former chairman of the company, Lin Wei-shan, was sentenced to eight years in prison for aggravated breach of trust under the Securities Exchange Act.
It is against this backdrop that a group of shareholders representing 10 percent of Tatung’s equity supported Wang Kuang-hsiang of the Shanyuan Group as a candidate to replace Lin Kuo, and former New Power Party Legislator Huang Kuo-chang as an independent director.
Controversies Surrounding the Board Elections
On the morning of the elections, Lin Kuo showed up with a 300-person barricade to prevent shareholders from entering the room where the meeting was to be held.
She later blocked the voting rights of the opposition shareholders led by Wang, which accounted for more than 50 percent of the company’s total voting shares.
As a result, Lin Kuo was re-elected as chairwoman, and the Tatung management’s favored candidates won all six director seats and three independent director seats, securing the nine-member board for themselves, leaving minority shareholders empty-handed.
Later that day, Lin Kuo and her lawyers explained that some shareholders were denied a vote because they had contravened the Business Mergers and Acquisitions Act by not making a legal declaration when acquiring equity and the Act Governing Relations Between the People of the Taiwan Area and the Mainland Area by receiving illegal funding from China.
Accusations that Lin Kuo had manipulated the results of Tatung’s board election gained publicity fast, and received the attention of financial authorities later in the day.
Crucially, the Financial Supervisory Commission declared that it would investigate whether the company had violated shareholders’ rights according to the Regulations Governing the Administration of Shareholder Services of Public Companies.
The Commission also addressed Tatung’s explanation for its decision to block some shareholders’ voting rights, noting that only judges and government agencies have the right to determine whether shareholders have contravened any regulations.
At the same time, the Taiwan Stock Exchange Corp (TWSE) declared punitive measures against Tatung, rating the company’s stocks as “full-delivery” shares and limiting them to cash trading, which serves as a warning to investors that this is a company with high governance risks.
The Bigger Picture
With the recent developments in Hong Kong, Taiwan now has an opportunity to prove itself as an alternative for foreign investors.
But, according to former Legislator Huang, Tatung is undoubtedly setting the wrong example of corporate governance, and as such, an appropriate and carefully-conducted response from government agencies is crucial in maintaining the integrity and attractiveness of Taiwan’s markets and capitalism.