2-1 Sustainable Governance and Risk Management
Corporate governance is the core of sustainable business operation. It not only responds to the rising expectations of authorities and stakeholders in recent years, but also ensures that the company can operate soundly. We continue to optimize our corporate governance system and practices through sound rules,regulations and corporate systems, which have been recognized by the relevent authority, the Taiwan Stock Exchange. In the 8th
Corporate Governance Review, they ranked the company among the top 5% of the 726 TPEx listed companies, demonstrating the company's excellent overall performance in the four major areas of "protecting shareholders' rights and treating shareholders equally", "strengthening board structure and operation", "enhancing information transparency" and "implementing corporate socialresponsibility".
Board of directors
Novatech's Board of Directors is the highest decision-making and governance unit of the company and is responsible for overseeing the overall operational responsibilities and the results of management's policy implementation. The Board of Directors of the Company adopts a candidate nomination system in accordance with the "Articles of Incorporation" and the "Procedures for Election of Directors" and elects 7 directors
(including 4 independent directors) for a term of 3 years. Independent directors account for approximately 57% of the total number of board seats. In order to achieve women's participation in decision-making and maintain a gender-neutral work environment, and to realize the SDGS goal 5 of
empowering all women, the current number of women directors is two, and the goal is to achieve more than one-third of the total number of board seats held by women directors.
The Board of Directors meets regularly each year to discuss important matters of the Company and, when setting the rules and regulations for the Board of Directors' meetings, specifically lists the matters that should be reported to the Board of Directors and designs a system to avoid conflicts of interest of the Directors. All the directors of Novatech are highly self-disciplined and recuse themselves from discussing and voting on conflict of interest
issues, and do not exercise their voting rights on behalf of other directors in order to protect the interests of stakeholders. 100% Board attendance in 2022. In addition, Novatech has established an Audit Committee, a Remuneration Committee and a Nomination Committee to strengthen the implementation of corporate governance.
Board diversity
According to the Corporate Governance Best Practice Principles,board members should consider the diversity and develop appropriate policies for their own operations, business models and developmentneeds, including but not limited to the basic conditions and values and professional knowledge and skills, and board members should generally possess the knowledge, skills and competencies necessary for the performance of their duties in order to achieve the desired goals of corporate governance. At the same time, board members should generally possess the knowledge, skills and qualities necessary for the performance of their duties in order to achieve the ideal goal ofcorporate governance.
In accordance with the above principles, the 7 members of the 10th term of the Board of Directors of the Company are: LIANG, CHIN-LI, Chairman; HSU, CHUNG-CHENG, Director; WU, BI-HUI, Director, who has experience in the operation of companies in different industries, and who specializes in leadership, operation and management, and has knowledge of different industries, decision-making ability and international market outlook; LI, CHENG, Director, who has experience in legal affairs; CHI, CHIH-YI, Director, who specializes in finance and YANG, SHENG-YUNG, Director; CHIU, HUI-YIN, Certified Public Accountant, who is a licensed public accountant. Directors LI, CHENG with experience in legal affairs; Directors CHI, CHIH-YI and YANG, SHENG-YUNG with expertise in finance; and Directors CHIU, HUI-YIN, certified public accountants. Each of the Directors and Independent Directors has a full range of academic experience, which enables the Board ofDirectors of the Company to fulfill the function of making business decisions and providing leadership and supervision.
Continuing Education of Board Members
The company consistently arranges for board members to participate in continuing education programs, aimed at enhancing their professional
knowledge and managerial skills. These programs cover three main aspects: economic governance, environmental, and social, including
corporate mergers and acquisitions, corporate governance, sustainable business transformation, sustainable financial information disclosure,
climate change, and more. In the 2022 fiscal year, all reappointed directors completed more than 6 hours of continuing education, meeting a 100%
compliance rate with the prescribed education requirements for directors and supervisors. For more details on our continuing education efforts,
please refer to page 73 of our 2022 annual report.
Board of Directors Performance Evaluation
In order to implement corporate governance and enhance the functions of the Board of Directors, Novatech has established the "Rules for
Performance Evaluation of Board of Directors" to regulate the cycle,scope, manner, procedures and standards for the evaluation of theBoard of Directors' performance. The performance evaluation of the Board of Directors of Novatech is conducted annually for internal evaluation and every three years for external evaluation. The results of the evaluation will be used as a reference in the selection or nomination
of directors. The performance evaluation of the Board of Directors includes six major aspects: "alignment of the goals and missions of the company", "awareness of the duties of a director","participation in the operation of the company", "management of internal relationship and communication", "the director's professionalism and continuing education" and "internal control". Internal evaluations in 2022 achieved a score of over 90, indicating that the
Board of Directors is functioning well. The most recent external evaluation was conducted in 2020 with the appointment of the Taiwan Institute
of Ethical Business to conduct an on-site evaluation of the effectiveness of the Board of Directors. Through the guidance and exchanges of the Evaluation Committee, the evaluation helped the Board of Directors to fully perform its functioobjective review report, which is expected to be conducted again in 2023.
The results of the performance evaluation are available on the Company'swebsite at: www.novatech.com.tw/investors/corporate/directors
Novatech has established the Sustainable Development Promotion Taskforce to report to the Board of Directors on a regular basis each year
on the progress of sustainable development. The Board of Directors not only regularly monitors the business progress of each group based on the
reports of the Sustainable Development Promotion Taskforce, but also has the mission of formulating a corporate vision for sustainable development
and making statements on corporate sustainable development policies, taking into account the company's operational performance and the
implementation of sustainable issues such as social, environmental and corporate governance. The Company plans to review the effectiveness of
stakeholder communication and channels and methods every six months. The Corporate Social Responsibility Promotion Secretary 2022.11.01 Report
to the Board of Directors on Communications as of Q3 2022.
Communication Mechanisms for Sustainable Major Events
Novatech has set up a Sustainability Promotion Team to report regularly to the Board of Directors on the progress of sustainability every year.
The Board of Directors is tasked with the mission of formulating a vision for sustainable development of the company. In addition to regularly
monitoring the business progress of each team based on the report of the Sustainability Promotion Team, the Board of Directors will also put
forward declarations and recommendations on the policy of sustainable development of the company in consideration of the company's operating
performance and the implementation of sustainability issues such as social, environmental, and corporate governance. The Company plans to
review the effectiveness and channels of communication with stakeholders every six months, and the secretary of CSR promotion will report to the
Board of Directors on November 1, 2022 on the status of communication as of the third quarter of 2022.
Operating Teams
Our management team is composed of the General Manager and managers of each department. We uphold the management philosophy of
"building a high-tech industry eco-chain for our customers and supply chain partners" and follow the principles of sustainable management, integrity
and risk assessment authorization when deciding on important matters by the Board of Directors to ensure the rights and interests of employees and
shareholders. A summary of the operations team is shown in the attached table. For more information about the team's education history and
experience, please refer to page 17 of the FY2022 Annual Report or visit the Market Observation Post System at https://mops.twse.com.tw/mops/web/
index
Risk Management
Risk is an inevitable part of a company's operation and growth. In order to control and reduce the risk of operation, to support the company's growth
and to realize the concept of sustainable management, Novatech has established the "Risk Management Policy" as the highest guiding principle
of risk management and as the basis for implementation, which clearly defines the policy, objectives, scope, organizational structure, unit authority
and responsibility, risk management mechanism and implementation process of risk management, so that colleagues can follow accordingly.
The Board of Directors and the Audit Committee are the highest risk management units of Novatech. The General Manager coordinates and
directs the promotion and operation of the risk management program. Under the General Manager, there are various departments responsible
for promoting the management of various risks faced by each business, and submitting reports to the Audit Committee and the Board of Directors
on a regular basis. All employees are also responsible for identifying and reporting risks. If anyone identifies any significant risks that may affect
the Company's operations, he/she should immediately report the incident to his/her supervisor and the Risk Team, so as to assess and mitigate the
risks and impacts of the incident.
Major Risks and Countermeasures
Internal Audit
Novatech's internal controls are designed by the manager and approved by the Board of Directors in accordance with the "Regulations Governing the Establishment of Internal Control Systems by Public Companies". The Auditing Office is under the Board of Directors and is headed by an Internal Audit Supervisor. In accordance with the Company's size, business conditions, management needs, and other relevant laws and regulations, the Auditing Office will be staffed with appropriate and suitable auditors to perform the related work. The purpose of the audit work is to assist the Board of Directors and managers in checking and reviewing the deficiencies of the internal control system, measuring the effectiveness and efficiency of the operation, and providing timely recommendations for improvement to ensure the continuous and effective implementation of the internal control system.
The audit work of the Company in 2022 included on-site audits or written reviews of the company's operating units and subsidiaries'
operational locations.
Operating Performance
Through good operating performance, Novatech is accountable to its stakeholders and serves as the basis for sustainable business operation,
enabling the Company to invest more resources in optimizing corporate governance, enhancing environmental protection and promoting social
engagement in the future. In view of this, Novatech has established relevant systems and held management review meetings to review and
improve them year by year in order to implement various managementtracking indicators and improve the company's operational and financial
performance.
Operating Performance
Benefiting from the booming semi-conductor industry and aggressive plant expansion, Novatech's consolidated revenue for FY2022 was NT
$8.593 billion, an increase of approximately 37% compared to consolidated revenue of NT$6.26 billion in FY2020. On the profit side, the
consolidated net profit after tax for FY2022 and FY2021 was NT$956 million and NT$624 million, respectively. The economic value generated
and distributed by the organization in FY2022 is shown in the figure below. For more information on operating performance, please see the
consolidated financial reporting website: https://www.novatech.com.tw/investors
Management Review Meeting
Novatech has established a "Management Review Procedure" to regulate and track the achievement of management system objectives as an early warning measure for prevention and improvement during the Company's operation. In order to ensure the continued relevance, correctness and timeliness of the management system, regular management review meetings are held to review and improve the company's operating performance and achievement of performance indicators. The scope of the meeting covers the company's management system process and the practice of integrating risk management measures. The senior executives lead the top executives of each unit to conduct business reviews. In accordance with the resolutions from the meeting, except for those designated with authority to improve before the deadline,all other matters are reported to the General Manager in writing or by e-mail immediately, and the relevant personnel are assigned to the task to ensure that the resolution can immediately receive effective assistance
for improvement and any demand for resources, to achieve the company's performance indicators smoothly.
