TSMC Annual Report 2012 :: Company Information

Board of Directors

Board Structure

TSMC's 12^th Board of Directors was elected at TSMC's 2012 Annual Shareholders' Meeting. All Directors continue in office. TSMC's Board of Directors consists of nine distinguished members with a great breadth of experience as world-class business leaders or scholars. We rely on them for their diverse knowledge, personal perspectives, and solid business judgment. Five of the nine members are independent directors: former British Telecommunications Chief Executive Officer, Sir Peter Bonfield; former Acer Group Chairman, Mr. Stan Shih; former Texas Instruments Inc. Chairman of the Board, Mr. Thomas J. Engibous; Professor of Princeton University, Gregory C. Chow; and advisor to the Taiwan Executive Yuan and the Taipei City Government, Ms. Kok-Choo Chen. The number of Independent Directors is more than 50% of the total number of Directors.

Board Responsibilities

Under the leadership of Chairman Morris Chang, TSMC's Board of Directors takes a serious and forthright approach to its duties and is a dedicated, competent and independent Board.

In the spirit of Chairman Chang's approach to corporate governance, a board of directors' primary duty is to supervise. The Board should supervise the Company's: compliance with relevant laws and regulations; financial transparency; timely disclosure of material information, and maintaining of the highest integrity within the Company.

TSMC's Board of Directors strives to perform these responsibilities through the Audit Committee and the Compensation Committee, the hiring of a financial expert for the Audit Committee, and coordination with the Internal Audit department.

The second duty of the Board of Directors is to provide guidance to the management team of the Company. Quarterly, TSMC's management reports to the Board on a variety of subjects. The management also reviews the Company's business strategies with the Board, and updates TSMC's Board on the progress of those strategies, obtaining Board guidance as appropriate.

The third duty of the Board of Directors is to evaluate the management's performance and to dismiss officers of the Company when necessary. TSMC's management has maintained a healthy and functional communication with the Board of Directors, has been devoted in executing guidance of the Board, and is dedicated in running the business operations, all to achieve the best interests for TSMC shareholders.

Directors' Compensation

Currently, TSMC Directors' compensation consists exclusively of fixed compensation. TSMC's Articles of Incorporation restricts the amount of compensation payable to its directors that the Company may make from its distributable earnings (defined as net income after required regulatory provisions). Over the years, TSMC directors' compensation declined from 1% of TSMC's distributable earnings to 0.3%, before being capped to no more than 0.3% of its distributable compensation. Because director's compensation is capped at 0.3% of distributable earnings, currently, TSMC Directors' compensation consists exclusively of fixed compensation which is in line with international best practice on board compensation. In 2012, total compensation paid to TSMC's directors only accounted for 0.06% of our 2012 net income. In addition, directors who also serve as executive officers of the Company are not entitled to receive any director compensation.

Directors' Professional Qualifications and Independent Analysis

According to the relevant requirements set by Taiwan's Securities and Futures Bureau, the professional qualifications and independence status of the Company's Board members are listed in the table below.

Audit Committee

The Audit Committee assists the Board in fulfilling its oversight of the quality and integrity of the accounting, auditing, reporting, and financial control practices of the Company. The Audit Committee is responsible to review the Company's: financial reports; auditing and accounting policies and procedures; internal control systems; material asset or derivatives transactions; material lending funds, endorsements or guarantees; offering or issuance of any equity-type securities; legal compliance; related-party transactions and potential conflicts of interests involving executive officers and directors; Ombudsman reports; corporate risk management; hiring or dismissal of an attesting CPA, or the compensation given thereto; and appointment or discharge of financial, accounting, or internal auditing officers.

Under R.O.C. law, the membership of Audit Committee shall consist of all independent Directors. TSMC's Audit Committee satisfies this statutory requirement. The Committee also engaged a financial expert consultant in accordance with the rules of the U.S. Securities and Exchange Commission. The Audit Committee annually conducts self-evaluation to assess the Committee's performance and identify areas for further attention.

TSMC's Audit Committee is empowered by its Charter to conduct any study or investigation it deems appropriate to fulfill its responsibilities. It has direct access to TSMC's internal auditors, the Company's independent auditors, and all employees of the Company. The Committee is authorized to retain and oversee special legal, accounting, or other consultants as it deems appropriate to fulfill its mandate. The Audit Committee Charter is available on TSMC's corporate website.

Compensation Committee

The Compensation Committee assists the Board in discharging its responsibilities related to TSMC's compensation and benefits policies, plans and programs, and in the evaluation and compensation of TSMC's directors of the Board and executives.

The members of the Compensation Committee are appointed by the Board as required by R.O.C. law. According to TSMC's Compensation Committee Charter, the Committee shall consist of no fewer than three independent directors of the Board. Currently, the Compensation Committee is comprised of all five independent directors; the Chairman of the Board, Dr. Morris Chang, is invited by the Committee to attend all meetings and is excused from the Committee's discussion of his own compensation.

TSMC's Compensation Committee is authorized by its Charter to retain an independent consultant to assist in the evaluation of CEO, or executive officer compensation. The Compensation Committee Charter is available on TSMC's corporate website.

Compensation Committee Members' Professional Qualifications and Independent Analysis

According to the relevant requirements set by Taiwan's Securities and Futures Bureau, the professional qualifications and independence status of the Company's Compensation Committee members are listed in the table below.

Directors and Committees Members' Attendance

Each Director is expected to attend every Board meeting and the committees meeting on which he or she serves. In 2012, the average Board Meeting attendance rate was 83% and the attendance rate for the Audit Committee and Compensation Committee's Meetings were 100%.

Board of Directors Meeting Status

Dr. Morris Chang, the Chairman of the Board of Directors, convened four regular meetings and three special meetings in 2012. The directors' attendance status is as follows:

Title	Name	Attendance in Person	By Proxy	Attendance Rate in Person (%)	Notes
Chairman	Morris Chang	7	0	100%	Renewal of office(Note)
Vice Chairman	F. C. Tseng	6	1	86%	Renewal of office(Note)
Director	National Development Fund, Executive Yuan Representative: Johnsee Lee	7	0	100%	Renewal of office(Note)
Director	Rick Tsai	7	0	100%	Renewal of office(Note)
Independent Director	Sir Peter Leahy Bonfield	4	3	57%	Renewal of office(Note) Sir Peter Bonfield participated in the discussion through telephone at two Special Meetings, represented by proxy.
Independent Director	Stan Shih	6	1	86%	Renewal of office(Note)
Independent Director	Thomas J. Engibous	4	3	57%	Renewal of office(Note) Mr. Thomas J. Engibous participated in the discussion through telephone at one Special Meeting, represented by proxy.
Independent Director	Gregory C. Chow	4	3	57%	Renewal of office(Note) Mr. Gregory C. Chow participated in the discussion through telephone at one Special Meeting, represented by proxy.
Independent Director	Kok-Choo Chen	7	0	100%	Renewal of office(Note)
Annotations: 1. There were no written or otherwise recorded resolutions on which an independent director had a dissenting opinion or qualified opinion in 2012. 2. There were no recusals of Directors due to conflicts of interests in 2012. 3. Measures taken to strengthen the functionality of the Board: We believe that the basis for successful corporate governance is a sound and effective Board of Directors. In line with this principle,TSMC's Board of Directors has established an Audit Committee and a Compensation Committee to assist the Board in carrying out its various duties.

Note:

TSMC's 12^th　 Board of Directors was elected at TSMC's Annual Shareholders' Meeting on June 12, 2012. All Directors continue to serve in office. Their respective tenures are from June 12, 2012 to June 11, 2015.

Audit Committee Meeting Status

Sir Peter Bonfield, Chairman of the Audit Committee, convened four regular meetings in 2012. The Committee members and consultant's attendance status is shown in the following table. In addition to these meetings, the Committee members and consultant participated in five telephone conferences to discuss the Company's Annual Report to be filed with the Taiwan and U.S. authorities and investor conference materials with management.

Title	Name	Attendance in Person	By Proxy	Attendance Rate in Person (%)	Notes
Chair	Sir Peter Leahy Bonfield	4	0	100%	Renewal of office (Note)
Member	Stan Shih	4	0	100%	Renewal of office (Note)
Member	Thomas J. Engibous	4	0	100%	Renewal of office (Note)
Member	Gregory C. Chow	4	0	100%	Renewal of office (Note)
Member	Kok-Choo Chen	4	0	100%	Renewal of office (Note)
Financial Expert	J. C. Lobbezoo	4	0	100%	None
Annotations: 1. There was no Securities and Exchange Act §14-5 resolution which was not approved by the Audit Committee but was approved by two thirds or more of all directors in 2012. 2. There were no recusals of independent directors due to conflicts of interests in 2012. 3. Descriptions of the communications between the independent directors, the internal auditors, and the independent auditors in 2012 (e.g. the channels, items and/or results of the audits on the corporate finance and/or operations, etc.): (1) The internal auditors have sent the audit reports to the members of the Audit Committee periodically, and presented the findings of all audit reports in the quarterly meetings of the Audit Committee. The head of Internal Audit will immediately report to the members of the Audit Committee any material matters. During 2012, the head of Internal Audit did not report any such material matters. The communication channel between the Audit Committee and the internal auditor functioned well. (2) The Company's independent auditors have presented the findings of their quarterly review or audits on the Company's financial results. Under applicable laws and regulations, the independent auditors are also required to immediately communicate to the Audit Committee any material matters that they have discovered. During 2012, the Company's independent auditors did not report any irregularity. The communication channel between the Audit Committee and the independent auditors functioned well.

Note:

Sir Peter Leahy Bonfield, Stan Shih, Thomas J. Engibous, Gregory C. Chow and Kok-Choo Chen were elected as TSMC's independent directors and became members of the Audit Committee on June 12, 2012. Their respective tenures are from June 12, 2012 to June 11, 2015.

Compensation Committee Meeting Status

Mr. Stan Shih, Chairman of the Compensation Committee, convened four regular meetings in 2012. The Committee members' attendance status is as follows:

Title	Name	Attendance in Person	By Proxy	Attendance Rate in Person (%)	Notes
Chair	Stan Shih	4	0	100%	Renewal of office (Note)
Member	Sir Peter Leahy Bonfield	4	0	100%	Renewal of office (Note)
Member	Thomas J. Engibous	4	0	100%	Renewal of office (Note)
Member	Gregory C. Chow	4	0	100%	Renewal of office (Note)
Member	Kok-Choo Chen	4	0	100%	Renewal of office (Note)
Annotations: 1. There was no recommendation of the Compensation Committee which was not adopted or was modified by the 　Board of Directors in 2012. 2. There were no written or otherwise recorded resolutions on which a member of the Compensation Committee had 　a dissenting opinion or qualified opinion.

Note:

At the meeting of June 12, 2012, TSMC's Board of Directors approved the appointment of all five Independent Directors, Stan Shih, Sir Peter Leahy Bonfield, Thomas J. Engibous, Gregory C. Chow and Kok-Choo Chen, as members of the Compensation Committee. Their respective tenures are from June 12, 2012 to June 11, 2015.