1 Governance 1. Board Size and Composition 2. Board Committee Structure 3. Board Membership and...

1

Governance

• 1. Board Size and Composition

• 2. Board Committee Structure

• 3. Board Membership and Recruitment

• 4. Director Compensation and Ownership

• 5. Senior Management team Succession

• 6. Other Governance Matters

2

1. Board Size and Board composition

• Board size: 3-25 members in 10th district states

• Board composition: outsiders bring diversity of knowledge, skills and experience to the board table, which is invaluable in advising management and making business decisions.

3

2. Board Committee Structure

• Bank boards use loan committee, ALM committee and investments committee to monitor and manage their credit, liquidity and market risk exposure.

4

4. Director Compensation and Ownership

• Should director compensation take the form of long-term equity

• Good governance recommends for significant stock ownership by directors.

• In US community bank survey indicate that CEOs, on average, own or control about 25% of the outstanding stock in their banks or BHC.

5

Pledge for the Loan and ROA: Quadratic Relation

Source: thesis

6

Pledge for the Loan and ROA:Quadratic Relation

Source: thesis

7

Pledge for the Loan and ROA: Quadratic Relation Source: thesis

8

Pledge for the Loan and Stock Returns: Little Related

(Insignificant)

9

Pledge for the Loan and Stock Returns: Little Related

(Insignificant)

10

Pledge for the Loan and Stock Returns: Little Related (Insignificant)

11

Governance Practice

• Has majority of independent directors

• Business expertise is major recruiting criteria

• Outside directors have equity ownership that represents 25% or more of their personal assets

• Inside directors have equity ownership that represents 25% or more of their personal assets

• Board paid for attendance• Had directors participating

training in 2003

Under $150Min assets

Family Non-family

2 3

1 1

1 1

3 3 3 3

2 1

Over $150M

in assetsFamily Non-family

2 4

1 2

1 1

3 3

3 3

2 1

12

• Performed director assessments

• Has mandatory director retirement

• Has equity ownership by CEO• Has written succession plan• Has a code of ethics• Has a loan committee• Has an ALM committee• Has an investment committee

Under $150M

in assetsFamily Non-family

2 1

1 1

2 1

2 2

3 3

4 4

4 4

4 4

Over $150M

in assetsFamily Non-family

2 2

1 1

2 1

2 1

4 4

4 4

4 4

4 4

13

• Has a operations risk committee

• Has an audit committee • CEO does not serve on audit

committee• Outside directors are a majori

ty of the audit committee• Has a nominating committee• CEO does not serve on nomi

nating committee

Under $150M

in assetsFamily Non-family

3 3

4 4

2 2

2 3

2 3

1 1

Over $150M

in assetsFamily Non-family

3 **

4 4

2 2

2 4

2 **

** **

14

Under $150M

in assetsFamily Non-family

2 3

3 4

1 1

2 4

Over $150M

in assetsFamily Non-family

** **

4 **

1 **

3 **

• Outside directors are a majority of the nominating committee

• Has a compensation committee

• CEO does not serve on compensation committee

• Outside directors are a majority of the compensation committee

15

We might also use the similar criteria to do the first evaluation. However, Bank Governance in

different countries have different check marks

• In US, the CEO may not have many shares • In Taiwan, it should have some minimum requirement.

16

Furthermore, US Bank Stresses CSR, in Taiwan, banks also do but

talk less