How we engaged with the world’s largest contract manufacturer of semiconductor chips.
Background
TSMC is the world’s largest contract manufacturer of semiconductor chips and plays a critical role in enabling a range of established and emerging technologies. Since listing on the Taiwan Stock Exchange in 1994, the company has established a leading position in semiconductor manufacturing process technology and has delivered strong long-term returns for shareholders.
Since 2021, we have engaged with TSMC on board composition, including director tenure, audit committee independence and board gender diversity. Although there was no specific cause for concern about the company’s audit processes or board effectiveness, the audit committee was chaired by a director who we did not consider independent, due our expectations regarding tenure limits, and board gender diversity was low. We believed that investors would benefit from assurance of fresh challenge on its audit committee and diversity of perspective on the board – both of which should improve the identification and mitigation of risks to the business. We saw this as particularly important at a time when the company had become increasing global and complex in nature, with substantial investments being made to expand its operations in the US.
We highlighted the opportunity to address investor concerns regarding board diversity and independence, given that board members were up for re-election in 2024.
Our engagement
At the time of the company’s 2021 AGM, we held a call with investor relations, in which we said that we expected to see improvements in audit committee independence, independent directors‘ tenure and board gender diversity. We had previously written to the company to explain that we would be recommending votes against the re-election of Sir Peter Bonfield, independent director and chair of the audit committee, as we were concerned that his long tenure of 19 years may indicate a lack of fresh challenge on the audit committee. We also highlighted our increasing expectations on board gender diversity, indicating that in future we may recommend voting against relevant directors if there were fewer than 20% women on the board. The company said that it appreciated our feedback and expressed its commitment to building a dedicated, competent and independent board. It explained that the candidate pool for directors is limited by experience in the semiconductor industry and the need for director candidates to come from businesses that have no commercial relationship with TSMC.
In 2022, we sent the company our EOS Corporate Governance Principles and reiterated our concerns regarding the long tenure of the audit committee chair and low board gender diversity. In March 2023, we wrote to investor relations saying we would like to understand better the challenges that the company had so far encountered in identifying candidates that would meaningfully enhance board diversity. Later, in November 2023, we met with members of TSMC’s investor relations team at its headquarters in Hsinchu Science Park in Taiwan to discuss these topics. We highlighted the opportunity to address investor concerns regarding board diversity and independence, given that board members were up for re-election in 2024.
We continue to believe that TSMC should look to achieve at least 30% board gender diversity, in line with our expectations and guidance from the Taiwan Stock Exchange
Changes at the company
At the 2024 AGM, we supported the re-election of Sir Peter Bonfield, along with the election of three new independent directors proposed by the company to join the board and its audit committee. Following their election, gender board diversity improved to 20% and board independence increased to 60% (excluding Sir Peter Bonfield due to his long tenure), above our general expectation of at least 50%. We believe the newly appointed directors bring considerable additional experience to the audit committee and will assist the company during a period of high overseas capital investment relating to the expansion of the company’s facilities in Arizona.
We continue to believe that TSMC should look to achieve at least 30% board gender diversity, in line with our expectations and guidance from the Taiwan Stock Exchange for board gender diversity of at least one-third from 2025 onwards. We will also continue to engage the company to set greenhouse gas reduction targets aligned to the Paris Goals.
