Abstract
Studying failure of corporate internal controls across Japanese and Taiwanese cases, this paper seeks to resolve Taiwan’s above all. Although Japan and Taiwan have similarly been adopting U.S. independent directors and audit committees during recent years, we find that common issues among these East Asian cases are failure of internal controls in general and dysfunctional internal information sharing mechanisms in particular. To accommodate Taiwan’s reform trend towards further adoption of independent directors and audit committees, this paper would suggest a complementary regulatory framework as prerequisites to make monitors of management have incentives and means to exercise their oversight: First, the board’s duty to monitor should be articulated while being transplanted into corporate governance rules. Second, independent information channels should be established for internal governance information to flow to corporate monitors, thus facilitating their decision making in oversight. Third, external market forces should meanwhile be channeled to safeguard internal corporate governance.