Overseeing Controlling Shareholders: Do Independent Directors Constrain Tunneling In Taiwan?

This Article intends to explore the extent to which independent directors constrain tunneling by controlling shareholders in Taiwan. Taiwan serves as an appropriate jurisdiction for research since the private benefits agency problem is prevalent among Taiwanese public companies. A further twist in Taiwan?s case is that independent directors were newly introduced to Taiwan?s corporate boards, which follow dual-board system where the traditional monitoring function is served by statutory supervisors, instead of board committees, which adds to the complexity in analyzing the effectiveness of independent directors in constraining tunneling activities. Part II reviews relevant literature and lays the foundation for this paper. Part III details the methodology of this research study, mainly in-depth interviews. Part IV reviews the current state of corporate governance in Taiwan. Part V reports empirically the function of independent directors and their oversight of RPTs among sample Taiwanese public companies. Part VI analyzes the institutional constraints of independent directors in overseeing controlling shareholders and reviews the effect of legal transplantation. Finally, this paper concludes with a summary of findings in Part VII

Controlling Controlling-Minority Shareholders: Corporate Governance and Leveraged Corporate Control

The “one-share one-vote principle,” which states that a shareholder’s voting power is proportionate to his or her economic right, is one of the most fundamental rules in modern corporate law. However, in reality, controlling shareholders often obtain voting rights in excess of their economic rights through control-enhancing mechanisms, allowing them to leverage control over the firm. Empirical studies indicate that leveraged corporate control is prevalent among listed companies of various countries, yet, to date, many countries still disagree on a regulatory framework. The EU and OECD conducted studies concerning the regulatory policy over control-enhancing mechanisms several years ago. However, failing to reach a consensus, the reports only advised governments to enhance disclosure and transparency. In recent years, entrepreneurs hoping to maintain their control after public listing have sought to utilize dual-class share structures to leverage corporate control when going public. This led to recent reviews by the Hong Kong and Singapore stock exchanges—the Hong Kong Stock Exchange refused to grant listing with dual-class share structure, while the Singapore Stock Exchange approved the proposal to allow listing companies to have dual-class shares in order to maintain competitiveness. This recent development further exemplifies the complexities involved in regulating leveraged corporate control and the need to address relevant corporate governance concerns. This Article reviews the inadequacy of past theoretical and empirical research on leveraged corporate control, and re-examines the issue of corporate governance from the contractarian view of corporate law. The Article differentiates between the IPO and post-IPO (or midstream) stages and argues that the contracting mechanism does not work well in the midstream stage. Controlling-minority shareholders usually set out various pro-insider provisions in IPO charters, which deters minority shareholders from repealing inefficient provisions or adopting other value-increasing provisions in the midstream. Furthermore, through an analysis Google and Facebook’s midstream issuance of non-voting Class C shares and the recent going-private transactions of U.S.-listed Chinese firms, this Article illustrates the opportunistic behaviors of leveraged corporate controllers through midstream charter amendments. Finally, this Article discusses potential governance strategies against pro-insider midstream distortions. Adhering to the “one-share one-vote” principle and prohibiting dual-class share structure would hinder the flexibility of corporate financing and affect economic development. This Article therefore argues against outright prohibition of control-enhancing mechanisms and advocates returning the governance decision to the hands of shareholders by empowering shareholders. In particular, the participation of institutional investors and shareholder activists is essential to counteract the superpower of controlling-minority shareholders and to govern their midstream opportunistic behaviors

Open Sesame: The Myth of Alibaba\u27s Extreme Corporate Governance and Control

In September 2014, Alibaba Group Holding Limited (Alibaba) successfully launched a $25 billion initial public offering (IPO), the largest IPO ever, on New York Stock Exchange. Alibaba’s IPO success witnessed a wave among Chinese Internet companies to raise capital in U.S capital markets. A significant number of these companies have employed a novel, but poorly understood corporate ownership and control mechanism—the variable interest entity (VIE) structure and/or the disproportional control structure. The VIE structure was created in response to the Chinese restriction on foreign investments; however, it carries the risk of being declared illegal under Chinese law. The disproportional control structure, usually in the form of dual-class shares, helps founders or controlling shareholders maintain control post-IPO with less equity contribution. Around 30 percent of U.S.-listed Chinese companies adopted a dual-class share structure or similar mechanism to enhance insider control. This percentage is much higher than that of U.S. public companies, which is only about 6 percent. This Article uses Alibaba as a case study to analyze the legal challenges posed by the VIE and disproportional control structures. Specifically, it dissects the structure of the VIE and sheds important light on inherent legal and governance risks associated with the VIE structure, along with potential policy solutions to protect investors and reduce information asymmetry. Similar to most U.S. high-tech companies that adopt dual-class share structures to maintain control by founders, Alibaba grants a partnership, consisting of its founders and executives, an exclusive right to nominate a majority of its directors. Furthermore, Alibaba implements various anti-takeover measures to strengthen insider control, many of which are considered detrimental to the interests of minority shareholders. Such excessive insider control presents a puzzle as to the success of the world’s largest IPO and casts doubt on the long-debated issue of whether corporate governance truly matters. In this Article, we argue that the idiosyncratic value brought by a charismatic founder-executive—in this case, Alibaba’s Jack Ma—together with voluntary commitments made by Ma himself in Alibaba’s prospectus, help mitigate the potential abuse inherent in disproportional insider control structures. However, the success of such a structure hinges on the reputation and commitments of specific founders and may not function to the benefit of all investors in the long run

Open Sesame: The Myth of Alibaba\u27s Extreme Corporate Governance and Control

In September 2014, Alibaba Group Holding Limited (Alibaba) successfully launched a $25 billion initial public offering (IPO), the largest IPO ever, on New York Stock Exchange. Alibaba’s IPO success witnessed a wave among Chinese Internet companies to raise capital in U.S capital markets. A significant number of these companies have employed a novel, but poorly understood corporate ownership and control mechanism—the variable interest entity (VIE) structure and/or the disproportional control structure. The VIE structure was created in response to the Chinese restriction on foreign investments; however, it carries the risk of being declared illegal under Chinese law. The disproportional control structure, usually in the form of dual-class shares, helps founders or controlling shareholders maintain control post-IPO with less equity contribution. Around 30 percent of U.S.-listed Chinese companies adopted a dual-class share structure or similar mechanism to enhance insider control. This percentage is much higher than that of U.S. public companies, which is only about 6 percent. This Article uses Alibaba as a case study to analyze the legal challenges posed by the VIE and disproportional control structures. Specifically, it dissects the structure of the VIE and sheds important light on inherent legal and governance risks associated with the VIE structure, along with potential policy solutions to protect investors and reduce information asymmetry. Similar to most U.S. high-tech companies that adopt dual-class share structures to maintain control by founders, Alibaba grants a partnership, consisting of its founders and executives, an exclusive right to nominate a majority of its directors. Furthermore, Alibaba implements various anti-takeover measures to strengthen insider control, many of which are considered detrimental to the interests of minority shareholders. Such excessive insider control presents a puzzle as to the success of the world’s largest IPO and casts doubt on the long-debated issue of whether corporate governance truly matters. In this Article, we argue that the idiosyncratic value brought by a charismatic founder-executive—in this case, Alibaba’s Jack Ma—together with voluntary commitments made by Ma himself in Alibaba’s prospectus, help mitigate the potential abuse inherent in disproportional insider control structures. However, the success of such a structure hinges on the reputation and commitments of specific founders and may not function to the benefit of all investors in the long run

A Mixed-methods Study of Governance Mechanisms and Outsourcing Information System Services on Goal Performance

Background: Information systems outsourcing (ISO) is one of the critical businesses in information technology outsourcing (ITO). Due to the increasing complexity of ISO, the failure rate of such outsourcing increases. Outsourcing information system services (OISS) was thus proposed to deal with this. A conceptual framework based on the information processing view was developed to investigate how the client firms assess OISS goal performance. Governance mechanisms (governance structure, relational governance, and IT coordination) were treated as antecedents of transaction cost and outsourcing flexibility; these would further affect goal performance (goal achievement and goal exceedance) with task complexity as a moderator. Method: A mix-methods study was conducted; the qualitative approach was employed to validate the conceptual framework by interviewing three managers with experiences in OISS from the client firms, whereas the quantitative approach, with 206 responses from those with OISS experiences from the client firms, provides empirical evidence. Results: The results indicated that relational governance effectively reduced transaction cost and increased outsourcing flexibility; the governance structure was also vital for outsourcing flexibility. Transaction cost was found to negatively affect goal achievement, and outsourcing flexibility positively affected both goal achievement and goal exceedance. The moderating effects of task complexity were also confirmed. Conclusion: The results extended the information processing view to OISS and proved that transaction cost and outsourcing flexibility are necessary to link governance mechanisms and goal performance. Practically, the client firms are suggested to maintain a positive relationship with the OISS provider. The OISS provider should offer an exclusive channel during and after the execution of the OISS project to reduce the possible cost that occurs during the implementation and improve the outsourcing flexibility to allow the client firms to consider their goals have been achieved and beyond their expectations. By doing so, the effect of goal performance can be maximized

Foreign Political Interference in the Governance of Listed Companies: A Market and Behavioral Analysis

This Article examines how regulators and a company\u27s stakeholders can and should respond to external political interference from a foreign government. This Article argues that the interactions created by different stakeholders influence the market\u27s response to such interference. This Article uses the Party building political movement in China to illustrate how Chinese businesses listed in Hong Kong reacted to interference from the Chinese Communist Party (CCP). The Party building is the CCP’s attempt to strengthen its control of listed companies by: having CCP organization’s in a company (organizational interference), controlling management decisions (management interference), and controlling human resources (human resources interference). The political campaign offers a rare chance to observe how corporate stakeholders respond to external political interference from another country. This Article shows that fewer than a third of the companies examined were early adopters of Party building provisions. This suggests that managers have not been willing to accept political interference, especially when their companies are registered outside of China. However, companies that have adopted “Party building” provisions in their corporate charters have generally accepted some organizational interference or managerial interference. Still, they have been less accommodating to more direct control over personnel or human resources decisions. Consequently, this Article argues that securities regulators, in an open market, should adopt a market-driven approach to counter foreign political interference that empowers shareholders by increasing transparency, instead of implementing drastic interventions, such as mandatory delisting

Burglarproof WEP Protocol on Wireless Infrastructure

With the popularization of wireless network, security issue is more and more important. When IEEE 802.11i draft proposed TKIP, it is expected to improve WEP (Wired Equivalent Privacy) on both active and passive attack methods. Especially in generating and management of secret keys, TKIP uses more deliberative attitude to distribute keys. Besides, it just upgrades software to accomplish these functions without changing hardware equipments. However, implementing TKIP on the exiting equipment, the transmission performance is decreased dramatically. This article presents a new scheme, Burglarproof WEP Protocol (BWP), that encrypt WEP key twice to improve the security drawbacks of original WEP, and have better performance on transmission. The proposed method is focus on modifying encryption sets to improve the low performance of TKIP, and provides better transmission rate without losing security anticipations base on current hardware configuration

Interpretations of Domain Adaptations via Layer Variational Analysis

Transfer learning is known to perform efficiently in many applications empirically, yet limited literature reports the mechanism behind the scene. This study establishes both formal derivations and heuristic analysis to formulate the theory of transfer learning in deep learning. Our framework utilizing layer variational analysis proves that the success of transfer learning can be guaranteed with corresponding data conditions. Moreover, our theoretical calculation yields intuitive interpretations towards the knowledge transfer process. Subsequently, an alternative method for network-based transfer learning is derived. The method shows an increase in efficiency and accuracy for domain adaptation. It is particularly advantageous when new domain data is sufficiently sparse during adaptation. Numerical experiments over diverse tasks validated our theory and verified that our analytic expression achieved better performance in domain adaptation than the gradient descent method.Comment: Published at ICLR 202