As of the end of 2019, the Company had 1,124 vendors in its electronic procurement system (237 more than 2018, an increase of 27%). Of those, 37 suppliers were selected as key suppliers based on the nature of their business and the amount purchased from them to be managed based on a classification system. The businesses were involved in the following fields:
Supplier Qualifications, Evaluations and Purchasing Mechanisms
The Company’s “Electronic Procurement and Vendor Management Regulations” clearly stipulate that vendors who want to become Fubon suppliers must not be barred from operating because of violations of Taiwan’s Counter-Terrorism Financing Act or laws in their place of registration or jurisdiction, and they must submit proof of establishment, credit records, and tax payment certificates. The Company has established an electronic procurement system that openly posts tender information in the “Procurement” zone on the Company’s website and allows qualified suppliers to log in to the system to get tender documents and participate in the bidding. All qualified suppliers can compete with each other through a fair mechanism as part of a procurement process that is open and transparent.
To ensure that suppliers provide high-quality service and effectively manage their occupational safety and environmental practices, the Company evaluates and rates suppliers based on supplier performance records and CSR indicators (such as environmental protection, worker health and human rights). The suppliers with poor performance records or that have not carried out CSR initiatives will probably be downgrated or be disqualified as a Fubon supplier if needed. The suppliers provide outstanding service or perform well on CSR issues will probably be upgrated, or leading to a closer relationship.
Supplier Sustainability Management
In recent years, Fubon has put a high priority on managing supplier sustainability as part of its sustainable development strategy, hoping to exert its influence to strengthen the performance of its suppliers on CSR issues and join with them in acting in a socially responsible way.More About Supplier Corporate Social Responsibility Code of Conduct >
Since 2016, Fubon suppliers have been asked to comply with the Company’s “Supplier Corporate Social Responsibility Code of Conduct,” which clearly commits suppliers to safeguard workers’ rights, health and safety, environment protection and prohibit commissions and kickbacks, and sign the “Supplier Standard of Conduct Pledge.” The pledge commits suppliers to comply with the provisions in the Code of Conduct, and it lays out penalties for non-compliance. As of the end of 2019, all suppliers in Fubon’s electronic procurement system had signed the pledge. The contents of the “ Supplier Corporate Social Responsibility Code of Conduct” and the “Supplier Standard of Conduct Pledge” are posted in the “Procurement” zone of the Company’s website.
To further solidify the sustainability management of its supply chain, the Company has started the supplier sustainability assessment project since 2018. The CSR assessments, the CSR training programs and the CSR Conference for the suppliers have been organized each of the last two years.
- Supplier Assessments
The Company has designed a CSR self-assessment questionnaire for supplier sustainability assessments based on international guidelines (PAS 7000, CERES, GRI Standards and the ISO 20400 standard on sustainable procurement). In 2019, it consisted of 13 questions covering the issues of economy, society and environment. Suppliers meeting a certain threshold for sales to Fubon were invited to fill out the questionnaire so that their implementation of CSR initiatives could be reviewed item by item. On-site inspections were also conducted of 10 suppliers that were chosen from among 37 vendors identified as key suppliers. The on-site observation of these suppliers’ actual operations was used to verify the results of the written assessments. As of 2019, 89% of the Company’s key suppliers had undergone reviews and 54% had undergone on-site inspections.
|The contents of Supplier CSR Self-assessment Questionnaire|
|2019 Questionnaire Summary|
- Supplier CSR Education
Organizing education and training sessions on CSR issues has raised supplier awareness of ESG. Fubon has planned to add an “Education and training” zone on the electronic procurement system in 2020 to make it easier for suppliers to obtain CSR-related information.
- Supplier CSR Conference
The Company organized Supplier CSR Conferences in 2018 and 2019 to announce the results of the supplier CSR assessments. At the conferences in these 2 years, the president of Fubon Financial Holdings personally praised awards to the winners of the suppliers of the year in the assessments. The winners of the suppliers have been invited to share their experiences about managing CSR issues at the conferences. The specific recommendations for all suppliers which participating the assessment to improve their performance have been also shared.
The supplier sustainability assessment program has been continued in 2020 with plans to include supplier CSR performance among the criteria for allowing them to participate in tenders and choosing suppliers. Fubon will also work together with its suppliers in mutually beneficial ways to strengthen sustainability management.
Supplier Human Rights Risk Managemente
- Assessment and identification
The Company initiated a supplier CSR self-assessment questionnaire in 2018 and checked the scores on “labor-related human rights management” questions to understand whether suppliers had labor-related human rights policies or commitments in place (including commitments to prohibit child labor and discrimination, offer equal pay for equal work, and provide compensatory leave or added pay for overtime work), engaged in employee training, and held labor-management consultations. The highest and lowest score on human rights questions for suppliers within each sector and the average of those two scores were used as baselines to identify key risk groups and risk levels. Suppliers in the “renovation and decoration” sector, an area of relatively high importance to the Company, generally posted below average scores and were listed as a key labor-related human rights risk group and determined to be a medium-level risk.
- Management mechanism and achievement
To mitigate the human rights risk of suppliers, the Company organized training sessions for suppliers on labor-related human rights risk and guided suppliers in the “renovation and decoration” sector on establishing a human rights policy, holding labor-management consultations, providing training for employees, and developing related mechanisms.
The 2019 supplier CSR self-assessment questionnaire and evaluation did not reveal any other key human rights risk groups, and suppliers in the renovation and decoration field saw their scores on labor-related human rights improve to 21, from 12 in 2018. The higher score reflected the greater emphasis being put on workers’ human rights by these suppliers and the improvements they made in this area.
Establishment of Mechanisms for Tying Compensation to Sustainability Performance
Financial metrics and relative financial metrics corresponding to the revenue and profitability of each company are the key annual performance targets for the CEO and top executives of Fubon Financial Holdings and its major subsidiaries, and they are tied to variable compensation.
Among the financial metrics applied to CEOs of Fubon Financial Holdings and subsidiaries: for Fubon Financial Holdings’ CEO – pretax net profit, after-tax net profit, after-tax ROE; for Fubon Securities’ CEO – gross income and after-tax profit; for Fubon Insurance’s CEO – company-wide sales targets for written premium, company-wide underwriting profit, and pretax profit; and for Fubon Life’s CEO – first-year premium (FYP) and value of new business (VNB). Among the relative financial metrics applied: for Fubon Insurance’s CEO – direct written premium market share, and for Fubon Securities executives – margin-trading market share and underwriting market share. All of the above metrics are closely linked to important sources of Company profits and variable compensation.
Studies have shown that the value of top executives’ shareholdings is positively correlated to a company’s operating profit. At present the value of the shares held by Fubon Financial Holdings’ president is 11 times base salary. For executives at the vice president level and above, the value of their shareholdings average about 1.3 times their base salaries. To strengthen its corporate governance, the Company ties manager bonuses to long-term shareholder value to provide an incentive for good performance and protect the rights and interests of shareholders. The Company has established a “Deferred Bonus Policy” that clearly stipulates guidelines for deferred bonuses, such as whom they apply to, the share of the bonus deferred, time limits of the deferral, deferral methods, and bonus recovery mechanisms.
According to the policies and guidelines described above, 20% or more of annual variable bonuses for key managers are deferred, and converted into “deferred bonus units” based on the closing price of Fubon Financial Holdings common shares. The deferred bonuses must be deferred one or two years, and when the deferment expires, there is an option for deferment of an additional year. On the settlement date, because the bonus is tied to the share price, there can be a discount or premium on the value of the bonus. In addition, to prevent expected or actually incurred losses caused by improper behavior that created business-related risks, each company can recover all or a portion of unvested deferred bonus units of its executives based on related risk reports issued by its risk department. For more on shares held by CEOs and senior managers, see the 2019 Annual Report pgs. 39-43.
As indicated in Section 3.5.2, the Company has incorporated “internal audit and control indicators” among the indicators that must be reviewed in annual performance evaluations to effectively control employee violations of compliance or operational risk rules. The results of these evaluations affect each individual’s performance bonus, effectively strengthening the link between variable compensation and risk.
Non-financial sustainability performance metrics: Fubon Financial Holdings launched a “Fubon ESG Visioning Project” to guide its response to the risks and opportunities created by financial innovation, social change and climate change. The project is focused on six main strategies – sustainable governance, responsible finance, innovative services, employee care, environmental sustainability and tender care – that leverage Fubon’s core financial competencies to develop innovative “digital” and “mobile” solutions or team up with partners from other sectors on innovative initiatives. They are also aimed at improving asset quality by applying the Equator Principles to credit reviews and promoting inclusive and sustainable growth through responsible investment guidelines. The managers and employees of departments involved in the six strategies have ESG tasks included in their job descriptions, and related indicators and the weighting of those indicators are established to measure performance. Managers of investment departments are partly evaluated, for example, on the amount invested in green energy and basic infrastructure targets and whether they have served as a mentor or judge in innovative incubation projects (such as the Ministry of Science and Technology’s FITI innovation & startup project).
Fubon revised existing performance evaluation criteria in early 2018 to encourage its workforce to more actively carry out ESG strategies. Performance evaluations are based on criteria divided into two main categories – personal goals (accouting for 70% of the evaluation) and workplace behavior (30%) – and “positive energy” was added as a required indicator in the workplace behavior category in all employee evaluations and must count for at least 10% of the total workplace behavior score. This top-down performance management system has forged a consensus among all employees on the Company’s strategic ESG roadmap, which guides planning processes and the promotion of services and ultimately encourages employees to apply ESG principles to their daily duties. Employee evaluation results are effectively linked to bonuses based on provisions in the Company’s “Performance Evaluation Policy,” providing a tangible and positive incentive to encourage employees to work and grow together in pursuit of the Company's policies.