Compliance

In general, corporate governance principles for Taiwanese companies are set forth in the ROC Company Act, the ROC Securities Exchange Act, regulations promulgated by the Securities and Futures Bureau of the FSC and, to the extent they are listed on the TWSE, listing rules of the TWSE. Corporate governance principles under provisions of ROC law may differ in significant ways to corporate governance standards for non-foreign private issuers listed on the NYSE. Committed to high standards of corporate governance, we have generally brought our corporate governance in line with U.S. regulations. However, we have not adopted certain recommended NYSE corporate governance standards where such standards are not in conformity with ROC laws or regulations or generally prevailing business practices in Taiwan. We believe the following to be the significant differences between our corporate governance practices and NYSE corporate governance rules applicable to non-foreign private issuers listed on the NYSE.

The NYSE corporate governance rules applicable to non-foreign private issuers listed on the NYSE require companies to have a majority of independent directors on the board of directors. The ROC Securities Exchange Act requires the independent directors of a public company to comprise of no less than two persons and one-fifth of the total number of directors. We currently have four independent directors on our twelve-member board of directors. We follow the standards regulated under ROC Securities Exchange Act and by the FSC for determining director independence, which are comparable to the standards imposed by the NYSE.

In addition, under the ROC requirements, our board of directors is not required to make a formal determination of a director’s independence. Nevertheless, we believe that our independent directors are free from any business or other relationships that would impair the exercise of their independent judgment. Furthermore, pursuant to the NYSE Listed Company Manual, non-executive directors must meet on a regular basis without the management directors present. All of our directors attend our board of directors’ meetings; however, no separate meeting is held among non-executive directors.

On April 1, 2003, the SEC adopted final rules relating to the audit committee requirements. Foreign private issuers listed on the NYSE were required to comply with the related NYSE corporate governance rules by July 31, 2005. Our audit committee was established in September 2004 in accordance with the rules set forth in the NYSE Listed Company Manual. According to the NYSE corporate governance rules applicable to non-foreign private issuers listed on the NYSE, the board must review status of any audit member that serves on more than three audit committees. There is no such requirement under the ROC law, which allows a person to serve as an independent director on up to four public companies in the ROC.

Section 303A.07 of the NYSE Listed Company Manual requires issuers to have at least three directors on the audit committee that meets the definition of independence set forth under Rule 10A-3 of the Exchange Act and Section 303A of the NYSE Listed Company Manual. There is no such requirement under the ROC law, which requires all independent directors of a public company to be members of the audit committee if the company has established such a committee.

On February 20, 2013, the FSC of the ROC announced that any (i) financial holding company, bank, bill finance company or insurance company, (ii) listed company whose paid-in capital reaches NT$50 billion or (iii) integrated securities firm controlled by a financial holding company, should establish an audit committee to replace supervisors. As a result, our new audit committee started from the date of the annual general meeting on June 25, 2013. As a result, we now simultaneously comply with the relevant rules of the NYSE Listed Company Manual and the relevant rules and regulations in the ROC.

The NYSE corporate governance rules applicable to non-foreign private issuers listed on the NYSE require companies to have a nominating/corporate governance committee, composed entirely of independent directors. In addition to identifying individuals qualified to become board members, the nominating/corporate governance committee must develop and recommend to the board a set of corporate governance principles. The ROC Company Act does not require companies incorporated in the ROC to have a nominating/corporate governance committee. We do not currently have a nominating committee or a corporate governance committee.

Currently, our board of directors performs the duties of a corporate governance committee and regularly reviews our corporate governance principles and practices. The ROC Company Act requires that directors shall be elected by stockholders. Our articles of incorporation requires us, beginning in the fifth commencement, to establish at least three independent directors in the number of directors. The elections for directors shall proceed with the candidate nomination system; the stockholders shall elect the directors from among the nominees listed in the roster of director candidates. Stockholders holding 1% or more of our outstanding shares are entitled to nominate candidates of directors in written to us. The numbers of candidates nominated by stockholders shall not exceed the numbers of directors to be elected; neither the numbers of candidates nominated by the Board. Elections for independent and non-independent directors shall proceed concurrently, and the number of elected independent and non-independent directors shall be calculated separately.

Non-foreign private issuers listed on the NYSE are also required to adopt and disclose corporate governance guidelines. We currently comply with the ROC Non-Binding Corporate Governance Best Practice Principles for TWSE/GTSM Listed Companies promulgated by the TWSE, or Best Practice Principles, and we provide an explanation of differences between our practice and the principles, if any, in our ROC annual report.

The NYSE corporate governance rules applicable to non-foreign private issuers listed on the NYSE require companies to have a compensation committee, composed entirely of independent directors. The Article 14-6 of ROC Securities and Exchange Act requires all listed companies to establish a compensation committee for directors, supervisors and managers’ compensation, which includes salary, stock options and other rewards, as well as authorizes the Competent Authority (i.e., FSC) to enact a regulation on the authorities of the compensation committee and the qualifications of its members.

The NYSE corporate governance rules applicable to non-foreign private issuers listed on the NYSE require companies must adopt a code of business conduct and ethics for directors, officers and employees and promptly disclose any waivers of the code for directors or executive officers. We have adopted Code of Ethics which applies to our directors, managers and employees, and Ethical Corporate Management Best Practice Principles that applies to our directors, managers, employees and persons having substantial control over us. We have filed Code of Ethics and Ethical Corporate Management Best Practice Principles as an exhibit to our annual report filed with the U.S. SEC and a copy is available to any stockholder upon request.

The NYSE corporate governance rules applicable to non-foreign private issuers listed on the NYSE require that equity compensation plans be approved by a company’s stockholders. Under the ROC Company Act and the ROC Securities and Exchange Act, the distribution of compensation to employees should be decided by the board of directors and reported in stockholders' meeting. The approval of stockholders' meeting is required for any issuances of restricted stock to employees, and the board of director has authority to approve employee stock option plans and to grant options to employees pursuant to such plans, subject to the approval of the FSC, and to approve share buy-back programs and transfer of shares to employees under such programs. We intend to follow only the ROC requirements.

The NYSE corporate governance rules applicable to non-foreign private issuers listed on the NYSE require companies to establish a means for stockholders, employees and other interested parties to communicate with non-management directors. The ROC law does not have comparable requirements. However, according to the Best Practice Principles, companies are required to establish channels of communication with employees and encourage employees to communicate directly with the management or directors so as to reflect employees’ opinions about the management, financial conditions and material decisions of the company concerning employee welfare. We have complied with these provisions.

The NYSE corporate governance rules applicable to non-foreign private issuers listed on the NYSE require companies to establish an internal audit function to provide management and the audit committee with assessments of the company’s risk management processes and system of internal control. We have complied with the Best-Practice Principles by setting up an internal control/audit system in accordance with the ROC Regulations Governing Establishment of Internal Control Systems by Public Companies.

The NYSE listing standards require the CEO of companies to certify compliance with NYSE corporate governance standards annually. ROC law does not contain such requirement. In this regard, we only follow ROC corporate governance requirement which does not require CEO annual certification. However, our CEO and CFO are required to certify in the 20-F annual report that, to his or her knowledge the information contained therein fairly represents in all material respects the financial condition and results of operations of our company.

The directors of Chunghwa Telecom are highly supportive of the company’s efforts to enhance and strengthen corporate governance. Each director has agreed to disclose their individual compensation to enhance the transparency of remuneration information. This initiative is intended to give our shareholders greater confidence in the sustainable development of our company. Effective starting from 2024, the remuneration details will be disclosed in the annual report and the shareholders’ general meeting prospectus.

Chunghwa Telecom continued to strengthen its corporate governance by following international best practices. Through adopting “Incentive Compensation Clawback Policy”, the Company stands as a pioneer in the Taiwan telecom industry and as one of the few companies in Taiwan to facilitate the Compensation Clawback Policy to further enhance interest alignment between top management and shareholders.

The U.S. Securities and Exchange Commission (SEC) requires all NYSE-listed foreign private issuers must comply with Section 303A.14 of the NYSE Listed Company Manual, to adopt a Clawback Policy by December 1, 2023. ROC law does not contain such requirement. The board of directors passed a resolution to approve “Incentive Compensation Clawback Policy of Chunghwa Telecom Co., Ltd.” (the “Policy”) on November 8, 2023.

This Policy states that the Company should recover Erroneously Awarded Compensation which any portion of such Incentive Compensation is received by the Covered Executives during the last three completed Fiscal Years or any applicable Transition Period preceding the date that the Company is required to prepare a Restatement which resulting from the issuer’s material noncompliance with any financial reporting requirement under securities laws.

Focus on the succession of key executives, the Company conducts “Executive Development Plan, EDP”, which including strict selection , consistent assessment, and leveraging by Individual Development Plan and Mentor guidance as well.  The systematic development programs cover leadership, personality charisma, professional knowledge and management capabilities.  It is expected to discover potentials, make breakthrough of frameworks and restrictions, accelerate beyond capabilities and enhance depth and breadth. This entire key executive development program spans 2 to 3 years.

CHT has formulated the Control Guidelines for Prevention of Insider Trading, which prohibits insiders such as company directors, managers or other internal employees from using undisclosed information in the market to buy and sell securities to make profit. In addition, to establish a sound mechanism for material information processing and disclosure, avoid improper information leakage and ensure the timeliness, consistency and accuracy of CHT's information announced externally, CHT has established the Material Information Processing Procedures for compliance. Relevant measures are as follows:

1.     Directors: CHT regularly holds insider trading prevention task force meetings every year. In 2023, the meeting minutes and awareness training information (identification process of insider trading prevention, trading examples, etc.) were delivered a total of 26 times to all directors on July 24th and December 21st, as to achieve the goal of preventing insider trading through education and promotion. Directors and managers are also regularly notified by letter that it is forbidden to trade their shares during the closed period of 30 days before the publication of the annual financial statements and 15 days before the publication of the quarterly financial statements. Furthermore, when new directors take office, the Control Guidelines for Prevention of Insider Trading are delivered by CHT for them to peruse, understand and abide by. They are also asked to sign a declaration agreeing to comply with all the regulations, fulfill their responsibilities as directors and avoid violations or insider trading.

2.     Managers: Twice a year, CHT conducts education and training on laws and regulations related to insider trading prevention for incumbent managers using digital teaching materials. Incumbent managers must read the digital teaching materials on " Insider trading and Short-swing trading prevention awareness and penalties" and take a test on such materials. The course topics include confidentiality of material information, prohibition of short-swing and insider trading, causes, identification process and examples of short-swing and insider trading, scope of material internal information, confidentiality operations, disclosure operations and handling of violations. In 2023, CHT conducted 2 hours of legal awareness courses and training for 196 incumbent managers by June 16th and December 7th. In addition, the new managers of CHT are required to complete the “Insider trading and Short-swing trading prevention awareness and penalties" education and training program via CHT’s digital learning platform and must pass the associated test before taking office.

3.     All employees: Every year, CHT regularly shares insider trading prevention examples with employees through official documents or the Announcement website to effectively raise awareness on insider trading prevention and implement relevant education and training. From October 2nd to October 31st, 2023, CHT's digital teaching materials were used to conduct one-hour awareness training for 19,839 employees and implement the annual Code of Conduct Comprehensive Test. The topics of the course included the confidentiality operations for material information to prevent insider trading, the causes of insider trading and the handling of violations. For new employees, the above-mentioned awareness education and training are arranged by the Organization and Talent Development Department during the new employee orientation.

4.     After the relevant courses are over, the presentations and audio-visual files are saved in the internal e-Learning system for reference of those who did not attend that day. The responsible unit regularly tracks and inspects the test results of managers and all employees, actively implements the prevention of insider trading, fosters integrity, honesty and moral values, strengthens corporate governance and risk control and builds a corporate culture of rectitude to improve the entire business operations.