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Morris Chang’s ‘Last Contribution’

Resolving TSMC’s Succession Dilemma

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Resolving TSMC’s Succession Dilemma

Source:Kuo-Tai Liu

The face of TSMC for 30 years, Chairman Morris Chang, announced on Oct. 2 that he will be retiring in June 2018, and he laid out a succession plan involving “dual leadership.” Can this new model really replace the semiconductor legend?

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Resolving TSMC’s Succession Dilemma

By Liang-rong Chen
From CommonWealth Magazine (vol. 633 )

Ever since TSMC Chairman Morris Chang announced in 2013 that Mark Liu and C.C. Wei had been promoted to co-CEOs, industry insiders have closely followed their performances and freely speculated on which one would emerge as Chang’s successor and take the reins of the world’s 29th biggest company.

It’s a race that has finally crossed the finish line.

At a press conference at TSMC headquarters on Oct. 2, Chang announced he will retire after the company’s annual shareholders meeting in early June 2018, and will not serve as a board director or participate in any TSMC management activities after that.

At that point, the world’s largest contract chipmaker will adopt a “dual leadership” system, with Liu becoming chairman of the board and Wei serving as CEO.

How will management responsibilities be divided between the two? Chang said Liu will lead the board of directors, be the company’s top representative in the public sphere and have the final say on strategy. Wei will be responsible for TSMC’s strategic management based on principles set by the board. The company will report to the CEO, and he will report to the board of directors and the chairman.

In the eyes of people in the industry, the TSMC CEO will be the person with the most real power in Taiwan’s semiconductor sector in eight months’ time.

“I’m pretty surprised. Wei got more (authority) than I had imagined,” says an analyst with a foreign brokerage.

A majority of outside observers had expected Liu to emerge as the biggest winner and be named both chairman and CEO.

That was the case until early 2016, when Chang assigned Wei to take over as president of the Taiwan Semiconductor Industry Association, signaling he was in pole position for bigger responsibilities. Yet, even though Chang and Rick Tsai (TSMC’s CEO from 2005 to 2009) had previously served in the post, there were still insiders who saw the move as hinting that Liu would succeed Chang because an association post like this was likely given to “the one who is not that busy.

Wei’s Sales Acumen Wins the Day

A senior executive with a TSMC customer, an IC design house, who is very familiar with both Liu and Wei said excitedly when seeing news of a dual leadership system: “This kind of arrangement is very clever.”

He said that having Liu, known for his careful consideration of issues and high standards of corporate governance, take care of the board and having Wei, known for his decisiveness and strong business skills, run TSMC’s daily business is a match made in heaven.

“The two are highly complementary. In this case, one plus one equals more than two,” Chang himself said in describing the duo.   

In fact, the executive with the IC design house told this CommonWealth Magazine reporter last year that TSMC’s succession arrangement might surprise everybody, for one reason: sales.

At the Oct. 2 press conference, Chang talked about the importance of sales since Wei and Liu were named co-CEOs in 2013.

“One of the most important responsibilities of a CEO is contacting the senior executives of customers, and [I] turned over that responsibility to them,” Chang said.

Chang, of course, was testing them. He also mentioned that customers were evenly divided, with Wei assigned to customers starting with the letters “A, B, C, D, E,” Liu given those starting with the letters “F, G, H, I, J,” and then continuing the rotation through the rest of the alphabet.

TSMC’s two most important customers in recent years have been Apple Inc., which currently accounts for more than 20 percent of TSMC’s revenue, and Qualcomm Inc. Wei drew Apple, and Liu was assigned Qualcomm.

The personable Wei, who boasts an impressive network of personal contacts, worked very closely and effectively with Apple, but the more impersonal Liu allowed Qualcomm to get away and defect to Samsung.

CommonWealth Magazine reported on this turn of events in October 2016. After TSMC successfully secured all of Apple’s orders for its A10 processors, dealing a blow to Samsung, which had supplied some of the A9 chips used in earlier Apple phones. Samsung turned around and offered preferential pricing to lure Qualcomm away from TSMC.    

As a result, Qualcomm demanded big discounts from TSMC. Chang personally participated in the negotiations in the United States, but Qualcomm CEO Steven Mollenkopf would not budge an inch on his company’s demands. An angry Chang flew back to Taiwan, leaving Liu behind at Qualcomm’s headquarters to reach a compromise solution, but in the end Chang nixed it.

Consequently, Qualcomm turned over production of all of its products made using the 14-nanometer and 10-nanometer processes to Samsung.

According to an estimate by J.P. Morgan Asset Management, Qualcomm accounted for 20 percent of TSMC’s revenues in 2014 when it was still TSMC’s biggest customer, but that share has fallen to 4 percent this year.

Though it was Chang who in the end decided against cutting prices to keep Qualcomm in the fold, Liu was also seen as partly responsible for the unsatisfactory result, his lack of a deft sales touch known to everybody.

As for Apple under Wei’s watch, because all of the processors in its new iPhones are being made by TSMC, the U.S. consumer electronics giant will account for more than 20 percent of TSMC’s revenue in the second half of this year, according to a Goldman Sachs estimate.

Liu to Be an ‘Active Chairman’?

At his press conference, Chang drew clear boundaries between Liu and Wei’s responsibilities. Under the board’s guiding principles, Wei “will lead and manage this company, whether in terms of strategy, tactics and operations,” Chang said, in effect putting most of the power in his hands.

As a result, many are wondering how much influence Liu will have on the company after he takes over as chairman.

An analyst at a foreign brokerage believes that Liu will not necessarily act like the chairman of a Western company and simply lead the board in supervising the company.

“Based on Taiwan’s Company Act, the chairman’s authority [here] is bigger than in the West,” he says.

Chang, himself stands out as a good example of this. Though his only title at TSMC is chairman of the board, he has stressed in the past that under the Company Act the chairman represents the company and is someone actively involved in its affairs. Chang not only often shows up at investor conferences but also manages TSMC’s finances, human resources, and legal affairs.

Chang, however, was the company’s founder and longtime leader. Can Liu wield the same pull after he becomes TSMC’s chairman?

A former TSMC executive noted that Chang at his press conference left some subtle hints of what might transpire, including stressing that Liu would be a “full-time” chairman who has to “be very familiar with the company’s work.”

“Those comments left some possibilities for Mark,” the executive said. Another harbinger of the future could be what happens to other top-level executives. Chang previously said that his successor would not be a single individual but a team of people. Over the past five years, Chang has forged a strong institutionalized decision-making system, but successions at big companies like TSMC often spark chain reactions of executive retirements and the introduction of new blood. 

Chang himself acknowledged at the press conference that there are one or two senior executives who are preparing to retire next year.

According to TSMC’s 2016 Annual Report, five of the company’s executives earn salaries of more than NT$100 million a year – the two co-CEOs, Chief Financial Officer Lora Ho, Chief Information Officer and Senior Vice President for Information Technology Stephen T. Tso, and Senior Vice President for R&D and Technology Development Wei-jen Lo.

They form the company’s core leadership team. Of the five, Ho is relatively young, but Tso and Lo are both approaching the mandatory retirement age for TSMC executives of 67 (though it can be extended with the board’s approval). Tso has been identified as the most likely senior executive said by Chang to be considering retirement.

“He’s already said he wants to retire for a long time,” an industry insider says.

Another executive nearing retirement age is Corporate Planning Vice President Irene Sun, who Chang heavily relies on as a ‘chief of staff’ managing TSMC’s internal operations.

“Will they retire or not? And whose choices will be the next group of people that rise up,” wonders a vendor familiar with TSMC’s internal operations, suggesting it was worth watching how the management team gels and how effective it is in running things.

Morris Chang, himself recognized as something of a management guru, said the dual leadership system is his last contribution to TSMC. If the model succeeds or even produces a system that surpasses what came before it, it may emerge as a benchmark adopted by many Taiwanese companies.

Translated from the Chinese by Luke Sabatier


Additional Reading

Corporate Succesison: Morris Chang's Last Hurrah
♦ Taiwan's Corporate Succession Crisis

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