Morris Chang on his Retirement
Ready for a Clean Break with TSMC
TSMC’s 86-year-old Chairman Morris Chang is vowing to make a clean break with TSMC after he retires in June. CommonWealth Magazine caught up with him to see how he feels about the company he’s built and how he thinks it will fare without him.
Ready for a Clean Break with TSMCBy Liang-rong Chen
From CommonWealth Magazine (vol. 641 )
Set to retire in June, Taiwan Semiconductor Manufacturing Co. (TSMC) Chairman Morris Chang presided over his last investor conference on the afternoon of Jan. 18 at the Far Eastern Plaza Hotel in Taipei.
He was far more relaxed and at ease on stage than he had been at similar gatherings in the past. He referred most of the questions to TSMC co-CEOs Mark Liu and C.C. Wei, a clear indication of his gradual handing over of the company’s daily responsibilities.
After the questions from analysts came to an end, Chang concluded the meeting with an emotional farewell in English.
“This is the last time that I plan [to be] in this conference…I really have spent many years with some of you, many years, more than 20 years, although I think most of you probably haven't attended this particular conference that long, but I’ve been here almost 30 years. And I enjoyed it…. I had a good time. I hope that you had a good time, too. And I will miss you, and thank you very, very much,” he said.
In the three days following Chang’s farewell appearance, TSMC’s stock price shot up 9.4 percent and its market capitalization rose nearly NT$700 billion.
Surging demand for chips used in bitcoin mining operations, an unexpected source of revenue, was one of the factors leading analysts at foreign brokerages to increase their target price for TSMC shares.
“A year ago, we didn’t even know what bitcoin was. But now [that sector] has purchased many wafers from us,” said Chang in an exclusive interview with CommonWealth Magazine about three weeks before the investor conference.
The sudden spike in demand coincided with the meteoric rise of three Chinese companies that design ASIC (application-specific integrated chips) for mining bitcoin and other cryptocurrencies.
A Better Environment Built over 30 Years
But such new semiconductor upstarts could not have shaken up the global technology ecosystem in just a year had Chang not spent 30 years forging a large-scale and intricate yet highly efficient specialized IC manufacturing services platform.
“We don’t have to understand final applications ourselves. We can let clients go find them and then work with us,” he said. “They do well, and therefore we do well.”
This is emblematic of the so-called “flywheel effect” coined by management expert Jim Collins in his book “Good to Great: Why Some Companies Make the Leap…and Others Don’t.”
As Collins describes it, getting the flywheel moving requires tremendous effort. Companies have to push it with all their might just to get the flywheel to inch forward. But if they keep pushing, keep moving in the same consistent direction, the flywheel moves faster and faster until the company achieves a breakthrough and the momentum of the heavy wheel kicks in its favor.
At that point, “you aren’t pushing any harder, but the flywheel is accelerating, its momentum building, its speed increasing,” Collins writes, allowing the company to flourish.
After Chang’s 30 years of hard work, TSMC has a market value of nearly NT$7 trillion, and he believes that with its current foundation, TSMC’s blueprint for future development appears to be robust, and there is nothing for him to worry about.
The strong momentum accumulated by this massive flywheel rotating at breakneck speed will enable the company to do well “for at least another 20 years,” he says.
At the final TSMC investor conference presided over by TSMC Chairman Morris Chang, he concluded by telling those in the audience, “I will miss you.”
Chang’s 3 Retirement ‘Noes’
Now, at the high point of his career, Chang has decided to kick back and bid farewell to TSMC, setting a new precedent for corporate culture in Taiwan, where company founders often hang around even after they step down from top posts.
In the interview with CommonWealth, Chang stressed that he will not serve in any capacity related to TSMC after retiring. “I will not serve as a board director, a consultant or an honorary chairman. I will not do any of those things,” he insisted.
He’s determined to stay away after observing many outstanding entrepreneurs in the United States and Taiwan having a hard time giving up power when they had to pass the baton to the next generation.
“That’s not good for the company, and it’s not good for the person who is unwilling to stand aside, only he doesn’t know it,” the TSMC chairman says.
He plans to have incumbent TSMC co-CEOs Mark Liu and C.C. Wei take over as chairman and CEO, respectively, creating a new precedent of a “dual leadership” succession system. (Read Morris Chang’s ‘Last Contribution’:
Resolving TSMC’s Succession Dilemma)
Outside observers have raised many concerns about TSMC facing a future without Chang, and he answered them in the interview with CommonWealth.
The following are excerpts of our conversation with Morris Chang:
CommonWealth: TSMC’s management team does not hold a lot of the company’s stock, while foreign investors hold about 80 percent of the shares. After you retire, if a private equity company or some other entity wants to acquire a stake in TSMC or buy it outright, what will happen?
Morris Chang: If the price is good, then sell the stake to them. I feel this is another of Taiwan’s [bad] cultures, holding on at all costs.
TSMC’s stock price right now is between NT$220 and NT$230 a share. [It closed at NT$240 a share on Feb. 7.] If somebody offered NT$300 a share, a NT$300 offer to acquire the company by a private equity firm would result in [a nearly NT$8 trillion purchase price] that would be the highest in history. It would be unprecedented. But our market capitalization is so high right now that if somebody wanted to buy us, it might be theoretically possible, but it’s not a realistic scenario.
It’s also possible that somebody would want to buy a 5 percent stake and get a seat on the board. To be honest, the company has policies to resist that, such as reducing the board’s size.
Right now, we can control about 70 percent of the common shares outstanding on the market. If a new election were held for the board of directors, you would likely need to hold about a 10 percent stake to be elected to a seat. You would have to spend about US$20 billion for just one board seat. It’s not really worth it, and highly unlikely.
CW: But many people in Taiwan believe TSMC is extremely important to Taiwan and even a pillar of Taiwan’s national security. So they are concerned that after you retire, TSMC might become increasingly “de-Taiwanized.”
Chang: These “many people” you are referring to, have they bought our shares?
CW: There’s a feeling in management circles that only companies with the steady support of a major shareholder can have long-term stability and are less likely to face the problem of American companies, which end up sacrificing their long-term competitiveness because they have to cater to the capital market’s pursuit of short-term profits. TSMC has widely dispersed share ownership. Aren’t you worried that once you, as the company’s founder, leave, the company’s direction will go awry?
Chang: Actually, you shouldn’t look at a company as something that will flourish forever. That’s not how it works. Look at RCA. It went out of business a long time ago, and GE isn’t what it once was.
Acting as an Enabler
TSMC has an excellent business model, and the more I’ve looked at it over the years, the better I think it is.
We are an enabler. We focus on one field that is relatively narrow and relatively easy to control, and that’s semiconductor manufacturing technology. This enables clients to concentrate on innovation.
Mark Liu recently wrote the foreword to the Chinese edition of Microsoft CEO Satya Nadella’s autobiography “Hit Refresh” that you [CommonWealth Magazine Publishing] published. He wrote that Microsoft wants to enable others, which is somewhat similar to TSMC. Microsoft empowers people, while TSMC at least empowers our customers.
We were founded over 30 years ago. In the first 10 years, we developed the U.S. market; in the second 10 years, we enabled clients who supplied components for PCs, mainly graphics processing unit suppliers like Nvidia. At the time, we would never have predicted that the graphics market would be so strong, but we helped them by providing them wafers. They did well, and therefore we did well.
In the third 10 years, we enabled mobile devices, Qualcomm, Broadcom, and Apple. There are times when gains from unexpected sources appear. A year ago, we didn’t even know what bitcoin was, but now [the sector] has purchased many wafers from us. We don’t have to understand final applications ourselves. We can let clients go find them. They do well, and therefore we do well.
I don’t think TSMC should have any problems for the next 20 years. As for 50 years down the road, I think TSMC will still exist, but it won’t necessarily continue to grow.
You just talked about the influence of major shareholders. I absolutely believe in companies that stress meritocracies, such as IBM and GE. Today, Microsoft, Amazon and Google are all meritocracies. That kind of company adapts and advances more quickly than companies supported by a big shareholder.
CW: You will be leaving TSMC in June 2018. Is there anything that is particularly hard to let go of?
Chang: The board meeting in February 2018 will be the last regular board meeting I lead. After that there will be a special meeting, but I’m not counting that.
At the board meeting in February, I will present a roadmap for TSMC for the coming few years. I’m still working on it but it already looks pretty good.So when you ask about if there’s anything that’s hard to let go of, there’s really nothing I’m worried about.
Translated from the Chinese article by Luke Sabatier