TCB Chairperson Removed
When Professionalism Hampers Party Politics?
The removal of Sean Chen as chairperson of Taiwan Cooperative Bank may well be a glimpse at a much bigger trend. With no room for professionalism, just what type of future is there for Taiwan’s financial reforms?
When Professionalism Hampers Party Politics?By Man-Peng Tiao
From CommonWealth Magazine (vol. 363 )
On December 22, just one day ahead of a shareholder's meeting scheduled for the discussion of a capital increase, Taiwan Cooperative Bank (TCB) chairperson Sean Chen, who had achieved extraordinary successes in leading the bank along its path to privatization and through its merger with Farmers Bank of China, was replaced without warning.
After seeing the media reports early that morning, one disappointed investment banker said over the telephone, “They only see political stripes, not professionalism. If they won't even accept a talent such as Sean Chen, then this heralds the end of Taiwan's financial reforms!”
Party Politics Destroys Careers
Chen's professional abilities are evidenced by his accomplishments in whatever position he has held. The establishment of the exchange traded fund “Taiwan 50 Index” on the Taiwan Stock Exchange and the transformation of TCB are two of his successes in recent years. People with connections to Taiwan's financial world invariably praise Chen's performance.
""If you're not from the same political party, you won't be trusted."" This is the real reason behind Chen's removal. One former senior official with the Ministry of Finance notes that Chen is one of the few senior finance officials over the last six years to be able to work with both the Chinese Nationalist Party (KMT) and Democratic Progressive Party (DPP) governments. This shows the DPP government is not unaware of Chen's professional skills. However, in working with the government, Chen on repeated occasions demonstrated his professionalism by making the ""politically incorrect"" move of placing himself above political allegiances. One such example was revealed in the indictment filed over the Taiwan Development Corporation insider trading case. Despite President Chen Shui-bian's son-in-law, Chao Chien-ming, expressing on numerous occasions his ""concern"" that Chen ought to take sides in the conflict surrounding Waterland Financial Holdings Co., the TCB chairperson refused to budge.
Yet, the battle for control of the government in 2008 is nearing. Elections require funding and the DPP does not have any party assets. Naturally, it would prefer to keep the control of state-run corporations and financial institutions under the national treasury in its own hands.
The aforementioned former MOF official notes that, with Chen leading the transformation of TCB, employee morale received such a boost that employees have been enthusiastic about exercising their stock options for years running. Over the last two years, TCB employees have increased their stock holdings to twelve percent of the bank's stock. This amounts to a market value approaching NT$10 billion. The bank's 8,000 employees have thus opted to tie their financial well being to the future of the bank they work for.
TCB recently formed a strategic partnership with BNP Paribas, a major French bank with a twenty-fifth place global ranking. If this new partner acquires a 5-to-8 percent stake in TCB under the bank's latest capital increase plan, its share combined with that of the bank's employees would reach twenty percent. Together, the French bank and the bank employees would constitute the largest stock-holding block outside of the government.
The government will be left with a stake of around 30% once this capital increase is completed. With BNP Paribas, the bank employees, and the government controlling over fifty percent of TCB's stock, the bank will be securely protected from corporations looking to take over its operations.
Having established a firm hold on the largest market share in the banking sector, (TCB has nearly 300 branches and its NT$2.5 trillion in assets exceed Bank of Taiwan's NT$2.4 trillion), TCB is currently in a good position to carry out its development plan – taking Development Bank of Singapore as a model, TCB aims to develop into a government-held regional bank run by a professional manager.
It's a shame the future jointly laid out for the bank by Sean Chen and the bank employees has failed to meet with acceptance from the ruling government.
A former high-level official with the Securities and Futures Commission points out that, by allowing an overseas partner to take part in board meetings, TCB is better situated to promote corporate management and transparency and to develop its global financial operations. However, this would surely prove a hindrance to the longstanding custom in Taiwan of illegally lobbying the government to interfere in the operation of state-run banks.
"Take one look at the Taiwan Development Corporation indictment and you'll understand just how business groups rely on the Presidential Office and the family of the president to exert influence, so they can conduct trading prior to mergers carried out by holding companies,” this former official notes. “How could they allow control of TCB to slip from their hands? Where would money for the election come from?"
The Relationship between Finance and Parties
Why would political parties want to control the financial sector? ""There are too many advantages,"" says one high-level official at a state-run bank.
He observes that banks, as arteries for money, are the places where the flows of money converge. There is no need to withdraw cash, as there are any number of methods for the acquisition of funding, and people on the outside have absolutely no way of knowing. The most commonly observed abuse of this type is when enterprises that have run into financial trouble exploit connections with the administration to obtain financing from state-run banks.
Determining the ""legality"" of financing also involves cooperation from professional bankers. From the design of interest structures to the appraisal of the value of collateral to the division of huge loans into smaller ones in order to make them legal, there are countless ways to circumvent the law which are difficult for judicial units to discover. Furthermore, the resulting overdue loans are never noticed while an official still holds his post and only emerge as a problem after he has left.
This state-run bank official notes that this situation already existed when the KMT was the ruling party. Before privatization, the bad loan situations at provincial government banks, Farmers Bank of China, and Chiao Tung Bank were caused by just such practices. When it comes to banks with massive assets that grant loans worth billions of NT dollars, it is especially hard to dig up clues pointing to these illegal practices. It is regrettable that after coming to power the DPP failed to seize the opportunity to promote financial reforms, and instead followed in the footsteps of its predecessors.
One high-level official at Taiwan's Central Bank of China who has known Sean Chen for many years points out that Chen, as a man who has accumulated a lifetime of experience and practice in the world of banking, insurance, and securities, is the single best choice for chairperson of the Financial Supervisory Commission. Yet, why has he never been listed as a candidate for this position? Instead, we have seen those with dubious personal integrity in the world of finance, such as Kong Jaw-sheng, or some unknown newcomers taking over the post. This has caused Taiwan's financial reforms to suffer greatly over the last two years.
It is clear that professionalism stands as an obstacle to the maneuverings of unscrupulous politicians.
Political Parties' Interests Greater than Nation's?
One Asia Pacific chief executive officer of an investment bank sighs with regret when he mentions that a nation's financial industry, which serves as the arteries of its economy, is an indicator of global competitiveness. Both Hong Kong and Singapore have made the globalization of their finance sectors a goal of their strategic development. China has already observed positive results from its institution of financial reforms in 2003. South Korea completed consolidation efforts in the wake of its financial crisis, while Japan is currently pursuing its own policy of consolidation. Each of these countries has enjoyed improved economic growth due to its financial reforms.
Speaking during an interview from his headquarters in Hong Kong, this CEO notes that human talent has always been the greatest asset in the finance industry. He says that at the same time banks in markets all over the world cannot move fast enough to grab up good people, Taiwan is pushing talented people out. The removal of Sean Chen, a professional the country has cultivated for years, from his post as chairperson of TCB is a reflection in miniature of a larger state of affairs. ""Once there is no room for professionalism, then the future of Taiwan's financial sector is in doubt,"" this executive stresses.
The change in government in 2000 resulted from voters choosing to renounce a corrupt regime. If the current ruling party hopes to win in the coming election, it should learn a lesson from the previous ruling party. It needs to pursue professionalism and establish systems in order to set benchmarks for government administration.
Translated from the Chinese by Stan Blewett