On June 6th, Mega Holdings conducted its board elections and its chairman, Cheng Shen-chi, made a smooth transition to private shareholder and also retained his position as chairman of the board. However, on that day many shareholders called into question the close relationship between Cheng Shen-chi and President Chen Shui-bian. The shareholders were concerned that Cheng Shen-chi may be "fleecing" Mega Holdings.
In response to these concerns, Cheng Shen-chi stated, "I do not represent a financial group, I represent professional managers. The proportion of government-owned shares is minimal, but is there anyone who can defy the government? If the government wants me to step down, can I refuse to step down? Moreover, Mega Holdings' risk management is excellent, and no one is capable of fleecing the company."
Why would Mega Holdings' internal personnel dispute arouse concerns of fleecing the national treasury? The explanation is to be found by looking at the process of Chiao Tung Bank's privatization.
The privatization of state-run enterprises is a policy that gained official and public consensus early on. Beginning in 1999, the government announced its hope to gradually reduce the government's shareholding in Chiao Tung Bank to less than 50% and use the proceeds to replenish the national treasury. In July of 2001, Cheng Shen-chi, a scion of the Evergreen Group, garnered the position of chairman of the board at Chiao Tung Bank through his close connections with the Chen Shui-bian government. At that time, the fact that Cheng Shen-chi was not closely connected with the financial industry raised suspicions. But Cheng formed an alliance with Taiwan International Securities Company and gained a securities license for Chiao Tung Bank as a stepping-stone to its becoming a financial holding company. Soon after, Cheng merged Chiao Tung Bank with the International Commercial Bank of China to form Mega Financial Holding Company. After the merger Mega Holdings had over NT$1.6 trillion in capital.
In the recent board election at Mega Holdings, the Ministry of Finance secured eight seats on the 15-member board as it had planned, and private shareholders secured seven seats. The Ministry of Finance was delighted at the eight-seat win, since the combined government-owned shares of the Ministry of Finance and Executive Yuan Development Fund only comprise about 20% of Mega Holdings' shares.
However, external criticism focused on how the Ministry of Finance turned the eighth seat over to representation by the Executive Yuan Development Fund. If the shares held by the Executive Yuan Development Fund are sold off under the announced privatization policy, the government will lose its board majority. If there is a change of government after the presidential elections next year, the huge operational power of Mega Holdings will revert to private shareholders and chairman Cheng Shen-chi's position will become unassailable.
In reply, Minister of Finance Lin Chuan stated that during the privatization process, it was reasonable for the position of either chairman of the board or president to be given up to private shareholders; what was crucial was to secure a majority of board seats. How the Executive Yuan Development Fund releases its shares would depend on circumstances, and would also be subject to examination by the legislature. Currently it appeared impossible to complete the release of shares before the presidential election. Therefore, there was no way the DPP government could secure Cheng's chairmanship if the government changes hands.
At the end of May, the Kuomintang (KMT) and the People First Party (PFP) decided that a major resolution for the 2003 state-run enterprise budget will be to keep government-owned bank shares in the hands of the government. In order to strengthen supervision, KMT and PFP lawmakers demand that the number of board seats for government-owned shares shall not be less than the proportion of government-owned shares in privatized enterprises, or other state-invested enterprises.
PFP Legislator Lee Tung-hao said that the definition of a state-run enterprise and the rights attached to government-owned shares have already caused debates, no matter if it was for the high-speed railway or for government shares in banks taken over by financial holding company mergers. Speaking on the government giving up board seat rights to private shareholders, he said that it was not against the law, but that there were moral risks. He appealed to the president to appoint a finance expert to the Council of Grand Justices to help interpret the ethical relations between the ruling parties and the national wealth.
Ker Chien-ming, chief convener of the DPP legislative caucus, says that the KMT and the PFP are proposing to force through a provision requiring that those representing the rights of public shares cannot support directors who do not represent public shares. This could disrupt negotiations between the Ministry of Finance and the private shareholders of banks during board elections, as well as force private shareholders to purchase proxies. However, there is no way that the government can arrange a budget to purchase proxies, which is the reason such a measure would not be beneficial for government control of government-invested enterprises.
According to public opinion, the privatization of state-run enterprises is the established direction of the KMT era of government. However, many problems have arisen during implementation. The lessons of a government changing hands, such as during the downsizing of the Taiwan Provincial Government and the political handover, are seen as high-level personnel at state-run enterprises and government banks change overnight. The government control of state-run enterprise and bank personnel has caused criticism. This time the Ministry of Finance is willing to relinquish board seats of government-owned shares to give more board seats to private shareholders. In theory this allows a reduction of future perks related to government-owned shares and opens up opportunities for personnel. But on the eve of the presidential election and with the change in the balance of Mega Holding's government-owned shares and private shares, it will be tough to allay suspicions.
Professor Lai Shyh-bao of Chengchi University's Department of Business Administration points out that currently the responsibility for the task of financial supervision is delegated to three government agencies: the Central Bank of China's Department of Financial Inspection, the Bureau of Monetary Affairs of the Ministry of Finance, and the Central Deposit Insurance Corporation. However, these three agencies are easily restrained by the Legislative Yuan, and truly effective legislation is being blocked there. In Lai's view, so-called sunshine laws are mainly empty words. He mentions the dark corners where sunshine does not reach becoming sinks of iniquity, and the countless instances where dubious government and business dealings have been swept under the rug, out of reach of the law. "Only when the judicial examination and financial supervision agencies become independent, and do not just serve as political tools, can Taiwan extricate itself from the nightmare of financial corruption," he says.
