This Year's Regular General Meeting Issues... Biggest Variable COVID-19, Major Event Hanjin Kal

Domestic Economic Downturn Inevitable
Institutional Voices Likely to Diminish
Electronic Voting Usage Expected to Surge

Hanjin Proxy Battle Draws Market-Wide Attention
Outside Director Appointment Crisis, Outcome in Focus

[Asia Economy Reporters Jihwan Park and Minji Lee] The regular shareholder meeting season for listed companies has arrived. Companies are fully prepared to handle key agenda items that will determine their business plans and board composition for the year at this week’s shareholder meetings.

This year, there are several major issues to watch. In particular, the strengthening of voting rights by institutional investors such as the National Pension Service (NPS) amid the spread of the novel coronavirus disease (COVID-19) is drawing attention. At the Hanjin KAL shareholder meeting scheduled for the 27th, the reappointment of Chairman Cho Won-tae, triggered by the sibling management dispute within the Hanjin Group, will be a key point of interest.

According to the Financial Supervisory Service’s electronic disclosure system on the 6th, the National Pension Service changed its investment purpose from "simple investment" to "general investment" for 56 listed companies including Samsung Electronics, SK, Hyundai Motor, and LG earlier this month. Asset management firms have also joined the NPS’s move to strengthen voting rights. KB Asset Management announced that it changed the investment purpose to general investment for a total of seven listed companies including Gamevil, Golfzon, and SM the day before. Korea Value Asset Management also recently changed its holding purpose for companies such as KISCO Holdings and Nexen.

This change is due to the relaxation of the "5% rule" applied to institutional investors such as pension funds and asset management firms at the end of last year. The 5% rule requires disclosure within five days if an investor holds more than 5% of a listed company’s shares or if there is a change of more than 1% in their shareholding ratio. Institutional investors have thus reduced their disclosure burden while establishing channels to exercise shareholder rights beyond simple investment for companies classified as general investment. They can now more easily request companies for △management meetings △shareholder proposals △dismissal of executives involved in illegal activities △amendments to articles of incorporation than before.

A representative from a listed company expressed concern, saying, "Institutional investors can now more easily engage in step-by-step shareholder activities, from management meetings to shareholder proposals, regarding issues such as corporate dividend policies and executive compensation."

Yoon-ah Lee, a senior researcher at the Korea Corporate Governance Service, explained, "Since the introduction of the Stewardship Code, shareholder engagement activities and shareholder proposals by institutional investors targeting domestic listed companies have surged. The proportion of dissenting opinions among all invested companies has also steadily increased."

The biggest variable in institutional investors’ exercise of shareholder rights at this year’s shareholder meetings is expected to be COVID-19. If the COVID-19 outbreak worsens, it could hinder institutional investors’ plans for active voting rights exercise. Given the inevitable domestic economic downturn due to COVID-19, institutional investors are likely to adopt an approach that minimizes the burden on companies rather than raising strong voices.

COVID-19 is also expected to significantly change the landscape of this year’s shareholder meetings. The electronic voting system, which had been largely ineffective, is expected to gain prominence, amplifying the voices of minority shareholders. Last year, the exercise rate of electronic voting rights among domestic listed companies remained at around 5%. However, this year, major companies such as Samsung Electronics, Hyundai Motor, and CJ Group have already decided to adopt electronic voting and are actively promoting it. As of last month, 1,486 listed companies, accounting for 63.1% of the total 2,354 listed companies, have signed contracts to use electronic voting with institutions such as the Korea Securities Depository.

Board composition, which holds the company’s management decision-making power, is also a key agenda item at shareholder meetings. The terms of inside and outside directors at major listed companies are expiring one after another, requiring resolutions for reappointment or new appointments at this year’s meetings. In particular, due to the amendment of the Enforcement Decree of the Commercial Act limiting the term of outside directors to a maximum of six years (nine years including affiliates), a surge in outside director appointments is anticipated. According to the Korea Listed Companies Association, 566 listed companies need to appoint new outside directors, totaling 718 new outside directors. A representative from a KOSDAQ-listed company said, "Since the talent pool is limited, candidates under consideration often overlap in similar industries," highlighting the difficulty.

Individual agenda items by group are also attracting attention. The Hanjin Group is expected to see a fierce battle at this year’s shareholder meetings. The holding company of Hanjin Group, Hanjin KAL, and the shareholder coalition (KCGI, Ban Do Construction, and former Korean Air Vice President Cho Hyun-ah) are expected to compete for control. On the 5th, Hanjin KAL’s board resolved to reappoint Chairman Cho as an inside director and to recommend Ha Eun-yong, Korean Air’s Chief Financial Officer (CFO and Vice President), as a new inside director candidate. However, the shareholder coalition demands the resignation of Chairman Cho and the current management and a shift to a professional management system, intensifying the confrontation between the two sides.

Additionally, in the case of Daelim Industrial, the appointment of Chairman Lee Hae-wook as an inside director is expected to be a key issue. Chairman Lee has a history of receiving fines and non-custodial dispositions from the Fair Trade Commission for unfair joint actions and unfair internal transactions, raising the possibility of institutional investors’ non-approval. Concerns also arise from the company’s lower dividend payout ratio and dividend yield compared to peers in the same industry.

This content was produced with the assistance of AI translation services.