The differences between the UMC's corporate
governance practices and those required of domestic companies under
NYSE listing standards
As a Republic of China ("ROC") company listed on the New York Stock Exchange ("NYSE"), we are subject to the U.S. corporate governance rules to the extent that these rules are applicable to foreign issuers. The following summary relates to the significant differences between our corporate governance practices and corporate governance standards for U.S. companies listed on the NYSE.
The Legal Framework. In general, corporate governance principles for Taiwanese companies are set forth in the ROC Company Act ("ROC Company Act"), the ROC Securities Exchange Act and, to the extent they are listed on the Taiwan Stock Exchange, listing rules of the Taiwan Stock Exchange. Corporate governance principles under provisions of ROC law may differ in significant ways to corporate governance standards for U.S. companies listed on the NYSE. Committed to high standards of corporate governance, we have generally brought our corporate governance in line with U.S. regulations. However, we have not adopted certain recommended NYSE corporate governance standards where such standards are contrary to ROC laws or regulations or generally prevailing business practices in Taiwan.
Independent Board Members. Under the NYSE listing standards applicable to U.S. companies, independent directors must comprise a majority of the board of directors. We currently have four independent directors out of a total of nine directors on our board of directors. Our standards in determining director independence substantially comply with the NYSE listing standards, which include detailed tests for determining director independence. Our board of directors, however, may waive certain independence requirements under the NYSE listing standards if our board believes that certain facts would not impair a director's exercise of his or her independent judgment. In addition, even though our independent directors meet in committee meetings of which they are committee members, we will not hold executive sessions of non-management directors because such practice is contrary to the ROC Company Act.
Board Committees. Under the NYSE
listing standards, companies are required to have a nominating/corporate
governance committee, composed entirely of independent directors.
In addition to identifying individuals qualified to become board
members, the nominating/corporate committee must develop and recommend
to the board a set of corporate governance principles. We do not
currently have a corporate governance committee or a nominating
committee. In accordance with an interpretation letter issued under
the ROC Company Act, the power to nominate directors shall not vest
only in the directors. Any holder of the company's voting common
stock may nominate directors to be voted on by shareholders. Therefore,
we do not have a nominating committee because vesting such nominating
rights in a body of independent directors may result in conflict
with the ROC Company Act. Furthermore, we do not have a corporate
governance committee as such committee is not required under domestic
requirements. Our board of directors is responsible for regularly
reviewing our corporate governance standards and practices.
Under the NYSE listing standards, companies are required to have a compensation committee, composed entirely of independent directors. Under the ROC Company Act, however, companies incorporated in the ROC are not required to have a compensation committee. The ROC Company Act requires that director compensation be determined either in accordance with the company's articles of incorporation or by the approval of the shareholders. Currently, in addition to compensation approved at the shareholders' meeting, in the event we have net income, we will distribute 0.1% of our earnings after payment of all income taxes, deduction of any past losses and allocation of 10% of our net income for legal reserves, as remunerations to our directors and supervisors pursuant to our articles of incorporation. Currently, our board of directors is responsible for determining the form and amount of compensation for each of our directors and executive officers within the guidelines of our articles of incorporation.
Equity Compensation Plans. The NYSE listing standards also require that a company's shareholders must approve equity compensation plans. Under the corresponding domestic requirements in the ROC Company Act and the ROC Securities Exchange Act, shareholders' approval is required for the distribution of employee bonuses in the form of stock, while the board of director has authority, subject to the approval of the ROC Securities and Futures Bureau, to approve employee stock option plans and to grant options to employees pursuant to such plans and has also authority to approve share buy-back programs for the purpose of transferring shares so purchased to employees and the transfer of such shares to employees pursuant to such programs. We intend to follow only the domestic requirements.