2015 TSMC Annual Report

TSMC Annual Report > 2015 > Corporate Governance > Board of Directors

Board of Directors

Board Structure

TSMC’s 13th Board of Directors was elected at TSMC’s 2015 Annual Shareholders’ Meeting on June 9, 2015. TSMC’s Board of Directors consists of eight 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 eight members are independent directors: former British Telecommunications Chief Executive Officer, Sir Peter Bonfield; Co-Founder, Chairman Emeritus of the Acer Group, Mr. Stan Shih; former Texas Instruments Inc. Chairman of the Board, Mr. Thomas J. Engibous; Chairman of National Performing Arts Center and Advisor to the Taiwan Executive Yuan, Ms. Kok-Choo Chen; and former Chairman of Applied Materials, Inc., Mr. Michael R. Splinter. One of the members of the Board Directors is female. 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.

Election of Directors

Directors shall be elected pursuant to the candidates nomination system as specified in Article 192-1 of the R.O.C. “Company Law”. The tenure of office for Directors shall be three years. Our Board members are nominated through a highly selective process that considers not only their respective professional technical competence but also their respective reputation for ethical behavior and leadership. The independence of each independent director candidate is also considered and assessed under relevant law such as the Taiwan “Regulations Governing Appointment of Independent Directors and Compliance Matters for Public Companies”. Under R.O.C. law, in which TSMC was incorporated, any shareholders holding one percent or more of our total outstanding common shares may nominate their own candidate to stand for election as a Board member. This democratic mechanism allows our shareholders to become involved in the selection and nomination process of Board candidates. The final slate of candidates are put to the shareholders for voting at the relevant annual shareholders’ meeting.

Directors' Compensation

According to our Articles of Incorporation, not more than 0.3 percent of our annual profits (defined under local law) after recovering any losses incurred in prior years, if any, may be distributed as compensation to our directors. 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.

Name/Criteria	Meet the Following Professional Qualification Requirements, Together with at Least Five Years Work Experience			Criteria (Note 1)										Number of Other Taiwanese Public Companies Concurrently Serving as an Independent Director
Name/Criteria	An Instructor or Higher Position in a Department of Commerce, Law, Finance, Accounting, or Other Academic Department Related to the Business Needs of the Company in a Public or Private Junior College, College or University	A Judge, Public Prosecutor, Attorney, Certified Public Accountant, or Other Professional or Technical Specialists Who Has Passed a National Examination and Been Awarded a Certificate in a Profession Necessary for the Business of the Company	Have Work Experience in the Area of Commerce, Law, Finance, or Accounting, or Otherwise Necessary for the Business of the Company	1	2	3	4	5	6	7	8	9	10
Morris Chang Chairman			V	V	V		V	V	V	V	V	V	V	-
F.C. Tseng Vice Chairman			V	V			V	V	V	V	V	V	V	1
Johnsee Lee Director	V		V	V	V	V	V	V	V	V	V	V		4
Sir Peter Leahy Bonfield Independent Director			V	V	V	V	V	V	V	V	V	V	V	-
Stan Shih Independent Director			V	V	V	V	V	V	V	V	V	V	V	-
Thomas J. Engibous Independent Director			V	V	V	V	V	V	V	V	V	V	V	-
Gregory C. Chow Independent Director (Note 2)	V			V	V	V	V	V	V	V	V	V	V	-
Kok-Choo Chen Independent Director	V	V	V	V	V	V	V	V	V	V	V	V	V	-
Michael R. Splinter Independent Director (Note 3)			V	V	V	V	V	V	V	V	V	V	V	-

Note 1:	Directors, during the two years before being elected and during the term of office,meet any of the following situations, please tick the appropriate corresponding boxes:Not an employee of the company or any of its affiliates; Not an employee of the company or any of its affiliates; Not a director or supervisor of the company or any of its affiliates.The same does not apply, however, in cases where the person is an independent director of the company, its parent company, or any subsidiary in which the company holds, directly or indirectly, more than 50 percent of the voting shares; Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under others’ names, in an aggregate amount of one percent or more of the total number of issued shares of the company or ranks as one of its top ten shareholders; Not a spouse, relative within the second degree of kinship, or lineal relative within the third degree of kinship, of any of the above persons in the preceding three subparagraphs; Not a director, supervisor, or employee of a corporate/institutional shareholder that directly holds fivepercent or more of the total number of issued shares of the company or ranks as of its top fiveshareholders; Not a director, supervisor, officer,or shareholder holding fivepercent or more of the shares of a specifiedcompany or institution that has a financialor business relationship with the company; Not a professional individual who, or an owner, partner, director, supervisor, or officerof a sole proprietorship, partnership, company, or institution that, provides commercial, legal, financial, accounting services or consultation to the company or to any affiliateof the company, or a spouse thereof, provided that this restriction does not apply to any member of the compensation committee who exercises powers pursuant to Article 7 of the “Regulations Governing the Establishment and Exercise of Powers of Compensation Committees of Companies whose Stock is Listed on the TWSE or Traded on the GTSM”; Not having a marital relationship, or a relative within the second degree of kinship to any other director of the company; Not been a person of any conditions definedin Article 30 of the Company Law; and Not a governmental, juridical person or its representative as definedin Article 27 of the Company Law.
Note 2:	Professor Gregory C. Chow’s tenure expired on June 9, 2015 because he was not re-elected at the 2015 Annual Shareholders’ Meeting.
Note 3:	Mr. Michael R. Splinter was elected as TSMC’s independent director at the 2015 Annual Shareholders’ Meeting on June 9, 2015.

Note 1:

Directors, during the two years before being elected and during the term of office,meet any of the following situations, please tick the appropriate corresponding boxes:Not an employee of the company or any of its affiliates;

Not an employee of the company or any of its affiliates;
Not a director or supervisor of the company or any of its affiliates.The same does not apply, however, in cases where the person is an independent director of the company, its parent company, or any subsidiary in which the company holds, directly or indirectly, more than 50 percent of the voting shares;
Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under others’ names, in an aggregate amount of
one percent or more of the total number of issued shares of the company or ranks as one of its top ten shareholders;
Not a spouse, relative within the second degree of kinship, or lineal relative within the third degree of kinship, of any of the above persons in the preceding three subparagraphs;
Not a director, supervisor, or employee of a corporate/institutional shareholder that directly holds fivepercent or more of the total number of issued shares of the company or ranks as of its top
fiveshareholders;
Not a director, supervisor, officer,or shareholder holding fivepercent or more of the shares of a specifiedcompany or institution that has a financialor business relationship with the company;
Not a professional individual who, or an owner, partner, director, supervisor, or officerof a sole proprietorship, partnership, company, or institution that, provides commercial, legal, financial,
accounting services or consultation to the company or to any affiliateof the company, or a spouse thereof, provided that this restriction does not apply to any member of the compensation
committee who exercises powers pursuant to Article 7 of the “Regulations Governing the Establishment and Exercise of Powers of Compensation Committees of Companies whose Stock is
Listed on the TWSE or Traded on the GTSM”;
Not having a marital relationship, or a relative within the second degree of kinship to any other director of the company;
Not been a person of any conditions definedin Article 30 of the Company Law; and
Not a governmental, juridical person or its representative as definedin Article 27 of the Company Law.

Note 2:

Professor Gregory C. Chow’s tenure expired on June 9, 2015 because he was not re-elected at the 2015 Annual Shareholders’ Meeting.

Note 3:

Mr. Michael R. Splinter was elected as TSMC’s independent director at the 2015 Annual Shareholders’ Meeting on June 9, 2015.

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 following major matters:

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;
Potential fraud investigation 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, etc.

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.

Name/Criteria	Meet the Following Professional Qualification Requirements, Together with at Least Five Years Work Experience			Criteria (Note 1)										Number of Other Taiwanese Public Companies Concurrently Serving as an Independent Director
Name/Criteria	An Instructor or Higher Position in a Department of Commerce, Law, Finance, Accounting, or Other Academic Department Related to the Business Needs of the Company in a Public or Private Junior College, College or University	A Judge, Public Prosecutor, Attorney, Certified Public Accountant, or Other Professional or Technical Specialists Who Has Passed a National Examination and Been Awarded a Certificate in a Profession Necessary for the Business of the Company	Have Work Experience in the Area of Commerce, Law, Finance, or Accounting, or Otherwise Necessary for the Business of the Company	1	2	3	4	5	6	7	8	9	10
Stan Shih Independent Director			V	V	V	V	V	V	V	V	V	V	V	-
Sir Peter Leahy Bonfield Independent Director			V	V	V	V	V	V	V	V	V	V	V	-
Thomas J. Engibous Independent Director			V	V	V	V	V	V	V	V	V	V	V	-
Gregory C. Chow Independent Director (Note 2)	V		V	V	V	V	V	V	V	V	V	V	V	-
Kok-Choo Chen Independent Director	V	V	V	V	V	V	V	V	V	V	V	V	V	-
Michael R. Splinter Independent Director (Note 3)			V	V	V	V	V	V	V	V	V	V	V	-

Note 1:	Directors, during the two years before being elected and during the term of office,meet any of the following situations, please tick the appropriate corresponding boxes:Not an employee of the company or any of its affiliates; Not an employee of the company or any of its affiliates; Not a director or supervisor of the company or any of its affiliates.The same does not apply, however, in cases where the person is an independent director of the company, its parent company, or any subsidiary in which the company holds, directly or indirectly, more than 50 percent of the voting shares; Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under others’ names, in an aggregate amount of one percent or more of the total number of issued shares of the company or ranks as one of its top ten shareholders; Not a spouse, relative within the second degree of kinship, or lineal relative within the third degree of kinship, of any of the above persons in the preceding three subparagraphs; Not a director, supervisor, or employee of a corporate/institutional shareholder that directly holds fivepercent or more of the total number of issued shares of the company or ranks as of its top fiveshareholders; Not a director, supervisor, officer,or shareholder holding fivepercent or more of the shares of a specifiedcompany or institution that has a financialor business relationship with the company; Not a professional individual who, or an owner, partner, director, supervisor, or officerof a sole proprietorship, partnership, company, or institution that, provides commercial, legal, financial,accounting services or consultation to the company or to any affiliateof the company, or a spouse thereof; Not been a person of any conditions definedin Article 30 of the Company Law.
Note 2:	Professor Gregory C. Chow’s tenure expired on June 9, 2015 because he was not re-elected at the 2015 Annual Shareholders’ Meeting.
Note 3:	Mr. Michael R. Splinter was elected as TSMC’s independent director at the 2015 Annual Shareholders’ Meeting on June 9, 2015.

Note 1:

Not an employee of the company or any of its affiliates;
Not a director or supervisor of the company or any of its affiliates.The same does not apply, however, in cases where the person is an independent director of the company, its parent company, or any subsidiary in which the company holds, directly or indirectly, more than 50 percent of the voting shares;
Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under others’ names, in an aggregate amount of
one percent or more of the total number of issued shares of the company or ranks as one of its top ten shareholders;
Not a spouse, relative within the second degree of kinship, or lineal relative within the third degree of kinship, of any of the above persons in the preceding three subparagraphs;
Not a director, supervisor, or employee of a corporate/institutional shareholder that directly holds fivepercent or more of the total number of issued shares of the company or ranks as of its top
fiveshareholders;
Not a director, supervisor, officer,or shareholder holding fivepercent or more of the shares of a specifiedcompany or institution that has a financialor business relationship with the company;
Not a professional individual who, or an owner, partner, director, supervisor, or officerof a sole proprietorship, partnership, company, or institution that, provides commercial, legal, financial,accounting services or consultation to the company or to any affiliateof the company, or a spouse thereof;
Not been a person of any conditions definedin Article 30 of the Company Law.

Note 2:

Professor Gregory C. Chow’s tenure expired on June 9, 2015 because he was not re-elected at the 2015 Annual Shareholders’ Meeting.

Note 3:

Mr. Michael R. Splinter was elected as TSMC’s independent director at the 2015 Annual Shareholders’ Meeting on June 9, 2015.

Director and Committees Members’ Attendance

Each Director is expected to attend every Board meeting and the committees meeting on which he or she serves. In 2015, the average Board Meeting attendance rate was 85% and the attendance rate for the Audit Committee and Compensation Committee’s Meetings were 85% and 100% respectively.

Board of Directors Meeting Status

Dr. Morris Chang, the Chairman of the Board of Directors, convened four regular meetings and two special meetings in 2015. The directors’ attendance status is as follows.

Title	Name	Attendance in Person	By Proxy	Attendance Rate in Person (%)	Notes
Chairman	Morris Chang	6	-	100%	Renewal of office(Note)
Vice Chairman	F.C. Tseng	6	-	100%	Renewal of office(Note)
Director	National Development Fund, Executive Yuan Representative: Johnsee Lee	6	-	100%	Renewal of office(Note)
Independent Director	Sir Peter Leahy Bonfield	4	2	67%	Renewal of office(Note) Sir Peter Bonfieldparticipated in the discussion through telephone at 01/09 and 04/24 Special Meetings, represented by proxy.
Independent Director	Stan Shih	6	-	100%	Renewal of office(Note)
Independent Director	Thomas J. Engibous	4	2	67%	Renewal of office(Note)
Independent Director	Gregory C. Chow	1	1	33%	Term expired (Professor Chow’s tenure expired on June 8, 2015 because he was not re-elected at the 2015 Annual Shareholders’ Meeting)
Independent Director	Kok-Choo Chen	6	-	100%	Renewal of office(Note)
Independent Director	Michael R. Splinter	3	-	100%	New officeassumed (Note)
Annotations: There were no written or otherwise recorded resolutions on which an independent director had a dissenting opinion or qualifiedopinion in 2015. Recusals of Directors due to conflictsof interests in 2015: Directors recused themselves from the discussion and voting of their compensation resolution. Measures taken to strengthen the functionality of the Board: - Five of the eight Directors are Independent Directors. The number of Independent Directors is more than 50% of the total number of Directors. - The Chairman and Vice Chairman of the Board of Directors are not executive officersof the Company. - TSMC Board delegates various responsibilities and authority to two Board Committees, Audit Committee and Compensation Committee. Both the two Committees consist solely of the fiveIndependent Directors. Each Committee’s chairperson regularly reports to the Board on the tactivities and actions of the relevant committee.

Note:	TSMC’s 13th Board of Directors was elected at TSMC’s Annual Shareholders’ Meeting on June 9, 2015. Their respective tenures are from June 9 2015 to June 8, 2018.

Audit Committee Meeting Status

Sir Peter Bonfield, Chairman of the Audit Committee, convened four regular meetings and one special meeting in 2015. 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	1	80%	Renewal of office(Note) Sir Peter Bonfieldparticipated in the discussion through telephone at 01/09 Special Meeting, represented by proxy.
Member	Stan Shih	5	-	100%	Renewal of office(Note)
Member	Thomas J. Engibous	4	1	80%	Renewal of office(Note)
Member	Gregory C. Chow	1	-	50%	Term expired (Note)
Member	Kok-Choo Chen	5	-	100%	Renewal of office(Note)
Member	Michael R. Splinter	3	-	100%	New officeassumed (Note)
Financial Expert	J.C. Lobbezoo	4	-	100%	Mr. Lobbezoo did not have to attend 01/09 Special Meeting.
Annotations: 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 2015. There were no recusals of independent directors due to conflictsof interests in 2015. Descriptions of the communications between the independent directors, the internal auditors, and the independent auditors in 2015 (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 findingsof 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 2015, 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 findingsof their quarterly review or audits on the Company’s financialresults. 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 2015, 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, Kok-Choo Chen and Michael R. Splinter were elected as TSMC’s independent directors and became members of the Audit Committee on June 9, 2015. Their respected tenures are from June 9, 2015 to June 8, 2018.

Compensation Committee Meeting Status

Mr. Stan Shih, Chairman of the Compensation Committee, convened four regular meetings in 2015. The Committee members’ attendance status is as follows:

Title	Name	Attendance in Person	By Proxy	Attendance Rate in Person (%)	Notes
Chair	Stan Shih	4	1	80%	Renewal of office(Note)
Member	Sir Peter Leahy Bonfield	5	-	100%	Renewal of office(Note)
Member	Thomas J. Engibous	4	1	80%	Renewal of office(Note)
Member	Gregory C. Chow	1	-	50%	Term expired (Note)
Member	Kok-Choo Chen	5	-	100%	Renewal of office(Note)
Member	Michael R. Splinter	3	-	100%	New officeassumed (Note)
Annotations: There was no recommendation of the Compensation Committee which was not adopted or was modifiedby the Board of Directors in 2015. There were no written or otherwise recorded resolutions on which a member of the Compensation Committee had a dissenting opinion or qualifiedopinion.

Note:	At the meeting of June 9, 2015, TSMC’s Board of Directors approved the appointment of all fiveindependent directors, Stan Shih, Sir Peter Leahy Bonfield,Thomas J. Engibous, Kok-Choo Chen and Michael R. Splinter, as members of the Compensation Committee. Their respective tenures are from June 9, 2015 to June 8, 2018.