A Failed Succession, a Bold Return, and the Making of a Legacy — A Valuable Lesson in Corporate Leadership Transition

Morris Chang (張忠謀) founded TSMC at the age of 56. In 2005, at age 74, he handed over the CEO position to Rick Tsai (蔡力行). However, four years later, Chang removed Tsai from the role and resumed leadership himself. It was not until 2018 that he officially passed the baton to Mark Liu (劉德音) and C.C. Wei (魏哲家) and retired from TSMC.

Why did Morris Chang’s first attempt at succession fail? How did he handle Rick Tsai after stripping him of authority and watching him fall from the top? And once power returned to his hands, how did Chang lead TSMC to reach even greater heights?

Let’s begin with Rick Tsai. He joined TSMC in 1989, just two years after the company was founded. Before that, he worked at Hewlett-Packard (HP) in the United States and returned to Taiwan at the invitation of Fan-Cheng Tseng（曾繁城）. Known for his strong execution, Tsai steadily rose through the ranks from deputy fab director and was even referred to internally as the “Little Morris Chang.” In 2001, he was promoted to President and Chief Operating Officer (COO), and was widely regarded as the successor chosen by Morris Chang.

As expected, Morris Chang appointed Rick Tsai as CEO of TSMC in 2005. During the following four-year term, Tsai maintained steady performance, and TSMC’s operations did not experience any decline. However, the global financial crisis of 2008 posed severe challenges and ultimately disrupted Chang’s original succession plan.

At the time, the global financial crisis triggered a sharp economic freeze. Many companies in Taiwan’s science parks saw their orders shrink drastically, and TSMC’s performance also declined steadily. According to multiple media reports, Rick Tsai decided to postpone equipment purchases for the 40nm advanced process and led the implementation of a performance evaluation system that called for the dismissal of the bottom 5% of employees.

In response, the terminated employees held an overnight demonstration outside Morris Chang’s residence in Dazhi, holding white banners. The incident provoked strong indignation from Chang, who had been committed to fostering a “happy company,” prompting him to remove Rick Tsai and return as CEO himself.

Be honest with employees—even layoffs must be handled with transparency

Morris Chang’s return as CEO marked a pivotal moment in TSMC’s development. I believe this episode can be analyzed from four key perspectives.

First, I believe one of the key reasons Morris Chang decided to retake the helm was to defend TSMC’s core management philosophy of being honest with its employees.

For years, TSMC had implemented a performance evaluation system known as PMD (Performance Management and Development), originally modeled after frameworks from Texas Instruments (TI) and ITRI (Industrial Technology Research Institute), and later refined over time.

However, under Rick Tsai’s leadership, the management team invoked PMD to mandate the dismissal of the bottom 5% of performers, without any observation period or transition buffer—causing widespread unease among employees.

According to a senior executive familiar with the matter, Morris Chang had previously overseen layoffs involving thousands of employees during his time at Texas Instruments. He was not opposed to layoffs per se, but firmly believed that any such decision should be conducted with transparency and backed by a credible, persuasive evaluation system.

After the overnight protest by employees, Rick Tsai’s management team insisted that it was merely a “stricter application of PMD,” and even claimed that “employees left voluntarily.” It may have been this response that led Chang to reconsider Tsai’s suitability as his successor.

To this day, Morris Chang has never publicly explained the real reason behind his decision to replace Rick Tsai.

Based on my interviews with several senior executives at TSMC, many believe the layoff controversy was merely the trigger. During Tsai’s four-year tenure as CEO, there were reportedly several actions that may have displeased Chang—such as an overemphasis on short-term performance, aggressive cost-cutting toward suppliers, and contentious pricing strategies with customers.

As for the true reason, only Chang himself may one day be able to shed light on it.

Removing a subordinate from power—while offering a dignified exit

The second point I focused on was how Morris Chang arranged a graceful exit for Rick Tsai.

It’s easy to imagine that falling from a position of power would be psychologically difficult, and Tsai was no exception. So how did Chang manage to reassure and retain the loyalty of this senior executive?

At the press conference where Morris Chang announced Rick Tsai’s removal, I noticed that he never explicitly stated what Tsai had done wrong.

Instead, he expressed “pain and regret” over the layoff incident, and each time he mentioned Rick, he emphasized that Tsai remained a highly valued talent at TSMC.

Morris Chang not only kept Rick Tsai on TSMC’s board of directors without any reduction in compensation, but also appointed him as General Manager of the company’s new business division. Chang even stated that Tsai would still be considered a candidate for succession if the CEO role were to be handed over again in the future. Later, TSMC split the new business into two companies—Solid State Lighting and Solar—with Tsai serving as chairman of both.

Anyone familiar with the situation could see that the so-called “new business” sounded good on the surface, but in reality, it was an extremely challenging assignment—one that was unlikely to match the scale or strategic importance of TSMC’s semiconductor foundry operations.

It was evident that this role was designed by Morris Chang as a graceful exit path—a way for Rick Tsai to stay on with dignity and continue serving the company.

Afterward, Rick Tsai continued working at TSMC for another four years. In November 2013, when Morris Chang stepped down once again as CEO, TSMC’s board of directors appointed Mark Liu and C.C. Wei as co-CEOs. Interestingly, Tsai himself was one of the board members who voted for the new leadership. Shortly after casting that vote, Taiwan’s Executive Yuan approved his appointment as chairman of Chunghwa Telecom, and he left TSMC.

Readers can imagine how difficult it must have been for Rick Tsai to go from overseeing tens of thousands of employees to managing a small team of just over twenty.

Enduring such a dramatic change requires extraordinary patience and mental resilience. At the time, I believed that if Tsai could overcome this test, his career would be far from over—and I was right. After stepping down as chairman of Chunghwa Telecom, he was soon invited to become CEO of MediaTek（聯發科）, continuing his rise in the corporate world.

Bold bets that propelled TSMC to industry leadership

The third key point I observed was how Morris Chang, upon returning as CEO, realigned TSMC’s strategic direction, dramatically increased capital expenditures, and widened the gap with its competitors.

In June 2009, Morris Chang returned as CEO and took advantage of the post-financial-crisis downturn to make bold investments. This move became a crucial step in propelling TSMC to the top of the industry, far ahead of its competitors.

One of his first actions was to bring back Shang-Yi Chiang（蔣尚義）from retirement to lead R&D. He then made an aggressive decision to double TSMC’s 2010 capital expenditures to $5.9 billion.

When Chang proposed this plan to the board, two independent directors expressed opposition—one of them being Thomas J. Engibous, former chairman and CEO of Texas Instruments. Nonetheless, Chang ultimately succeeded in persuading the board to approve the plan.

TSMC’s decision to sharply increase capital spending at the time stunned the capital markets and many analysts. In the first half of 2009, the global economy was still mired in the bleak aftermath of the financial crisis, and many companies were struggling to secure even basic orders.

Against this backdrop, Morris Chang’s bold bet left foreign investors deeply uneasy and on edge.

Unexpectedly, 2010 saw a strong rebound in the global economy, and the semiconductor industry grew by 31.8%—the largest annual increase on record.

Thanks to Morris Chang’s foresight, TSMC had already significantly expanded its 28nm production capacity, positioning the company perfectly to capitalize on the boom. As a result, TSMC captured about 80% of the global 28nm market—a resounding success.

In fact, TSMC’s board had some reservations about reinstating Morris Chang as CEO at nearly 80 years of age, and the decision was preceded by extensive discussions.

Ultimately, however, they chose to place their trust in him and approved his aggressive capital spending plan.

Looking back, the nearly nine years between his return and his formal retirement in 2018 solidified TSMC’s foundation and allowed Chang to step down with confidence and composure.

A rare interview that crossed an unspoken line?

This brings me to the fourth point I observed. During Rick Tsai’s tenure as CEO, the only time he granted a media interview was in May 2009—at my request.

At the time, I was working for Business Today (今周刊), and the resulting cover story was titled “Iron-Fisted Management: Rick Tsai.”

I was honored to have had the opportunity to interview Rick Tsai and to document a part of this pivotal history.

However, I later heard on several occasions that Tsai’s media appearance was seen as a breach of TSMC’s unspoken rule that its CEOs should remain low-profile—a move that reportedly displeased Morris Chang and may have contributed to Tsai’s eventual removal.

As one longtime employee at TSMC told me, “Everyone noticed that interview. It was the first time a senior executive had been so publicly visible. Honestly, some people felt Rick had crossed a line.”

“But later, Morris Chang made a powerful comeback and led TSMC to an entirely new level. That, in turn, helped transform it into the ‘national protector’ it is today,” the friend said.

“From that perspective, your cover story played no small part in the journey.”

Of course, I never thought of it that way, nor do I consider myself to have played any significant role. But having had the chance to witness and document Morris Chang’s succession journey, I came to realize just how complex corporate leadership transitions can be.

Choosing a successor involves numerous considerations, and the transitions into and out of leadership require a great deal of foresight and strategic planning.

From handing over the reins, to returning, and then handing them off once again, Chang ultimately built TSMC into a global powerhouse. His story may well serve as a source of insight and inspiration for many business leaders.

As a business journalist, having the opportunity to closely observe Morris Chang and document the real story of one of Taiwan’s most pivotal industrial figures is, without a doubt, one of the greatest honors of my career.

This memory also reminds me that the values I truly believe in—regardless of how things turn out—are always worth recording in words.