Cathay FHC created the Corporate Governance Project Team in 2010 to improve the Group's corporate governance structure. In 2011, the Corporate Social Responsibility Committee (renamed to the Corporate Sustainability [CS] Committee in 2015) was subsequently established to push forward on corporate governance practices. The original corporate governance team was folded into the Sustainable Governance Working Group, one of six working groups under the CS Committee, so as to strengthen the Group's sustainable governance measures with the aim of achieving the triple bottom line of economy, society, and environment positively. 

 

Establishing Comprehensive Functional Committees under the Board of Directors

Cathay FHC established the Audit Committee, Remuneration Committee, and Corporate Governance and Nomination Committee under the Board of Directors to fully leverage the board's function and improve its efficiency. The committees are responsible for reviewing proposals. The responsibilities and operations of each Functional Committee are as follows:

Please refer to the Annual Reports of Cathay Financial Holdings or to the "Market Observation Post System" at http://mops.twse.com.tw/mops/web/t100sb03_1 for listing of the committee's meeting and the attendance of each member. Company code: 2882) inquiries.

 

Sustainability Committee

Under the jurisdiction of the Board of Directors, the Cathay FHC Corporate Sustainability Committee is the unit responsible for promoting corporate sustainability. Independent Director Feng-Chiang Miao acts as the supervisor of the CS Committee. Members consist of presidents of Cathay FHC and its subsidiaries. Executive Director and President of Cathay FHC, Chang-Ken Lee, serves as the chairman of the committee. 
 

Professional Qualifications and Independence of the Board

Cathay FHC has the "Corporate Governance and Nomination Committee" and implements the "Nomination System for Candidates." All of the candidates for the Board of Directors are nominated and qualified for review by the Corporate Governance and Nomination Committee. After the qualifications of all candidates for directorship are reviewed and approved by the Committee and the Board of Directors, the list of qualified candidates is then submitted to the shareholders' meeting for election. According to Paragraph 3, Article 30 of the Cathay Financial Holdings Corporate Governance Best Practice Principles, the members of the Board of Directors shall possess the knowledge, skills, and experience necessary for performing their duties. To achieve the ideal goal of corporate governance, the Board of Directors shall possess the following abilities:

1. Ability to make operational judgments;

2. Ability to perform accounting and financial analysis;

3. Ability to conduct management administration (including ability to conduct management subsidiaries);

4. Ability to handle crisis management;

5. Knowledge of the industry;

6. An international market perspective;

7. Leadership;

8. Ability to make policy decisions;

9. Risk management knowledge and skills.

Cathay FHC completed the Election of the 7th Board of Directors in 2019 and increased from 3 to 4 Independent Directors. 2 new Independent Directors, Ms. Li-Ling Wang and Mr. Tang-Chieh Wu, possessing professional experiences and knowledge in insurance, securities, risk management, fiscal and financial industry can effectively improve the diversity of Cathay FHC's Board of Directors and the effectiveness of corporate governance. All members of the Board of Directors who are also professionals and well-experienced in finance, business, payment finance, digital information, overseas markets, mergers and acquisitions and risk management can contribute to promoting development strategies of “Internationalization”, “Digitalization” and “Financial Innovation and Application” of Cathay. Cathay FHC’s Board of Directors had convened 10 meetings with an attendance rate of 90% in 2019. Directors on average serve 8.3-year terms.


Board Diversity

The composition of Cathay FHC’s Board of Directors is diverse and it includes different ages, industrial experiences and professional knowledge and competencies. In order to strengthen corporate governance and facilitate the sound composition and structure of the Board of Directors, Cathay FHC indicates the board diversity policy in Paragraph 2, Article 30 of the “Cathay Financial Holdings Corporate Governance Best Practice Principles” as follows: the composition of Board shall be determined by taking due consideration to the company operational framework, business development direction, future development trends and various needs, and it is advisable to assess aspects of diversity including but not limited to basic composition(e.g., gender, age, nationality and race), professional experience (e.g., finial holdings, banks, insurance, securities, industries and technology), and professional knowledge and skills (e.g., commerce, finance, accounting, legal, marketing and digital technology). Cathay FHC’s Board consists of 13 Directors, including 8 Non-Executive Directors, 4 Independent Directors, and 1 Executive Director (Cathay FHC president Chang-Ken Lee). All members possess extensive experiences and expertise in finance, payments, information technology, commerce, overseas markets, mergers and acquisitions, and management fields. Cathay FHC’s Directors with employee status (Cathay FHC president Chang-Ken Lee) comprises 8%, and Independent Directors comprises 31%. The average serve term of the four Independent Directors is 2 years (3 Independent Directors with the serve term is less than 3 years, and the other Independent Director with the serve term is 3.5 years.). The average age of Board Members is 65, and 4 Directors are 71-77 years old, 6 Directors are 61-70 years old and 3 Directors are 51-60 years old. The implementation of Board Members’ diversity policy is as follows:

 

Cathay FHC's Implementation of the Board Diversity Policy


Furthermore, Cathay emphasizes gender equality in the composition of its Board of Directors. Cathay FHC’s newly recruited Ms. Li-Ling Wang, the Chairman of the Pension Funds Association in Taiwan, joined as the Independent Director in Cathay FHC from the 7th Board of Directors on June 14, 2019, and she also joined as the Independent Director of Cathay Life Insurance starting on June 26, 2019. In addition, in order to enhance the Board diversity of Cathay’s subsidiaries, starting from the 5th Board of Directors meeting on June 20, 2016, Cathay Securities’ newly recruited Ms. Tina Pan, the Chairman of the Modern Women's Foundation, joined as the Independent Director.


Evaluation of the Board and Functional Committee’s Performance and Third-party Certification

To implement corporate governance and improve the Board and Functional Committee’s efficacy, Cathay FHC pays special attention to the overall operations of the Board and Functional Committee and thus set up the Regulations Governing the Evaluation of the Board and Functional Committee’s Performance in addition to the Guidelines for Evaluation of Directors' Performance and the Guidelines for Directors' Remuneration. Performance indicators, such as compliance, corporate governance, risk management, and corporate sustainability and corporate social responsibility, were also incorporated in the Regulations Governing the Evaluation of the Board and Functional Committee’s Performance to ensure the Board and Functional Committee’s fulfillment of corporate governance, operations, and corporate social responsibility.

To strengthen the independence and effectiveness of the Board performance evaluation, Cathay FHC will appoint an external independent institution or an expert to carry out the Board performance evaluation once every three years, starting from 2017. Cathay FHC has commissioned the "Taiwan Institute of Ethical Business and Forensics" to conduct the external performance evaluation of the company's Board of Directors in 2019, and discusses and implements enhancement measures in accordance with the Institute's optimization recommendations.

Since June 15, 2007, Cathay FHC has purchased liability insurance for its Directors, supervisors, and key staff members, including those from its subsidiaries. This is in line with the legal requirements during their terms in office. The contents of the insurance policy are reviewed annually.

 

Valuing the Rights and Interests of Shareholders

Cathay FHC's website has a "shareholders' section" that announces information on shareholders' meetings, dividends, and financial information. There is also a spokesperson system, investor services, and "contact us" mailbox for shareholders to express their opinions at any time. Cathay carefully handles all suggestions, questions, disputes, and litigations involving shareholders in accordance with the “Cathay Financial Holdings Guidelines for Handling Shareholder Suggestions, Questions, Disputes, and Litigation." The Company actively supports electronic voting and candidate nomination system in director/supervisor election as a means to empower and make voting more convenient for its shareholders. The candidate nomination system has been adopted since the 2016 director re-election, and the percentage of votes executed in electronic form has exceeded 50%.


Cathay FHC has set up a "Corporate Sustainability Committee" under the board of directors and has set up a "Sustainable Governance Group" to promote corporate governance matters such as integrity management, anti-corruption, anti-bribery and compliance with the group, and report to the board of directors every six months. In addition, the administrative office and the formulation, amendment, set the “Policy and Code of Operation Integrity” or repeal of this policy and code shall be subject to the approval of the board. The board of directors has made great efforts to ensure that the integrity management policies are implemented. Furthermore, in order to improve the integrity of the company, the auditing unit shall incorporate the compliance with this code into the scope of the investigation and report to the board on a regular basis the lack of improvement. 

 

Policy and Code of Operation Integrity

Cathay FHC shall conduct business activities in a fair and honest manner. Before the business dealings, Cathay FHC shall take into account the legality and credibility of the commercial objects. It shall avoid trading with the record of dishonesty and sign with others contract should contain integrity terms. The directors shall uphold the high degree of self-discipline and shall, when they have an interest in their own motions, should explain the important contents of their own interests when the board of directors is concerned. If the directors are interested in the interests of Cathay FHC, they shall not be included in the discussion and voting, and shall be avoided when discussing and voting, and shall not act on behalf of other directors to exercise their voting rights. For more detailed information:

Cathay Financial Holdings Policy and Code of Operation Integrity

 

Cathay held training courses related to business integrity in 2019 in order to implement business integrity and ethical conduct (such as annual training courses regarding the Code of Conduct for Employees and compliance for newcomers), which amounted to a total of 1,026 hours with 664 participants.

 

Preventing Insider Trading

Cathay FHC submits “Notes on Reporting of Insider's Equity Change in the Company” when the insiders such as directors, managers and others take office to comply with it, so as to avoid violations or occurrences of insider transactions. In addition, Cathay FHC also files the "Director's Manual" and the "Compliance Brochure for Directors and Supervisors of TWSE/TPEx-Listed and Emerging Market Companies", "Directions of Securities Market Regulatory for the TWSE/TPEx-Listed company and its directors, supervisors and major shareholders" and "Compliance Brochure for Independent Directors" and other information which are compiled by the Taiwan Stock Exchange Corporation when the Directors take office to assist Directors in understanding the laws and regulations related to securities transactions and listing rules and other relevant reporting matters and legal responsibilities.

In addition, in order to standardize the procedures of disclosure and management mechanisms of Cathay FHC and its subsidiaries’ material information, Cathay FHC established “Guidelines/Regulations of Disclosure of Cathay FHC and its subsidiaries’ Material Information ”and “Regulations of Press Conferences Concerning Material Information of Cathay FHC and its subsidiaries” by referring to the“ Taiwan Stock Exchange Corporation Procedures for Verification and Disclosure of Material Information of Companies with Listed Securities”. Through disclosing those rules mentioned above in the rules and regulations zone of Cathay FHC’s internal website, personnel throughout all levels of the Company can enquiry at any time, so as to avoid violating or occurring insider trading.

Cathay FHC also has stipulated “Policy and Code of Operation Integrity”, “Procedures and Guidelines of Integrity Management Operation”, “Code of Ethics” and “Code of Conduct of Employees”, all of which contain the relevant provisions of “Prohibition of Insider Trading”. Cathay FHC holds educational trainings annually for directors, managers, and employees on the "Code of Integrity, Ethics, and Conduct," and the 2019 training has been completed in December, 2019:

For understanding and complying Cathay FHC’s "Policy and Code of Operation Integrity", " Procedures and Guidelines of Integrity Management Operation" and "Code of Ethics", the Company submits those rules and policies to the Directors, and publishes on the internal educational training platform for employees to check at any time. Besides to the prohibition of insider trading, the educations and trainings include the contents and cases of anti-money laundering, prohibition of getting gifts and hospitality, participation in public affairs, political contributions, etc..

 

Sound reporting mechanism to implement the DNA of integrity

Cathay FHC’s internal auditors cover all key operations in Taiwan. In 2012, Cathay FHC established the “Code of Operation Integrity” and built a reporting mechanism in which the Board of Directors, Audit Committee, and Auditing Div. are in charge to handle internal violations of integrity management. External reporting is accepted via Independent Director mailbox. 

The “Regulations Governing Reports of Illegal, and Unethical or Dishonest Behavior Conduct Cases” was devised to ensure sustainable operations and development of Cathay FHC and encourage the reporting of any illegal, unethical, or dishonest conduct. The Regulations aims at strengthening the company’s internal and external reporting channels, establish more clearly defined procedures, and ensuring the legal rights of the involved parties. The Regulations also specify that the identity of all involved parties including the whistleblower and investigation personnel shall remain confidential and protected to prevent unfair treatments or revenge. 

To ensure the sustainable operation and development of Cathay FHC, Cathay FHC Code of Ethics and Employee Code of Conduct were established to guide staff’s actions to meet the standard for work ethics and for the stakeholders to further understand the ethics of Cathay FHC. These codes require staff to follow related laws and principles of integrity and prevent conflict of interest during their jobs. In addition, they should not engage in bribery and work for personal benefit. The codes aim at perfecting corporate governance and implementing integrity.

 

Preventing fraud and strengthening business control and legal compliance

To prevent internal frauds, Cathay incorporated anticorruption and anti-bribery inspections into annual routine inspection and Employee Code of Conduct. Legal compliance is also included as a compulsory item of employee performance valuation, thereby fully realizing Cathay’s core principles of integrity. The company and major subsidiaries were not involved in any case of corruption or bribery in 2015. To effectively manage overseas branches, CUB, with the most extensive presence in Asia Pacific regions among subsidiaries, set up an international management Dept in 2015 after devising the Overseas Branch Management Policy in 2014.

 

Incorporating Non-Finance Goals in Performance Assessments

Regulations of employee performance management and development require Cathay FHC employees to set personal performance goals base on position, department, and Cathay’s strategic goals. Evaluation results serve as reference for salary, promotion and bonus distribution. When Cathay FHC employees are in charge of corporate sustainability tasks, such as involving in the CS Committee, non-financial performance indicators become their performance goals

 

Implementing Tax Governance

In response to global trends in tax governance, Cathay FHC established Tax Governance Policy with the Board of Directors as the highest decision-maker for tax risk management mechanisms to effectively control tax risks and implement corporate sustainability, and to enhance shareholders' value. 
In 2018, Cathay FHC paid a total tax of NT$22.1 billion worldwide, including corporate income tax, undistributed profits tax, business tax, house and land tax. The amount of taxes paid in Taiwan account for 94% of taxes paid worldwide due to the fact that Taiwan is our main country of operation. For more detailed information: Cathay Financial Holdings Tax Governance Report 2018

 


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