COVID-19 Hits, Then Regulations Strike... Listed Companies Face Double Burden at Annual General Meetings

KCCI Surveys 302 Listed Companies Holding Annual General Meetings This Year
Concerns Include 'Quorum Shortage' (35%), 'Infection Risk and Prevention Measures' (24%), and 'Audit Report Delays' (13%) Due to COVID-19 Challenges

Source: Korea Chamber of Commerce and Industry

[Asia Economy Reporter Changhwan Lee] It has been revealed that listed companies are facing difficulties in preparing for and holding their regular general meetings of shareholders due to new regulations such as COVID-19, the newly implemented limitation on the reappointment of outside directors, and the designated auditor system starting this year.

On the 11th, the Korea Chamber of Commerce and Industry conducted a survey titled ‘Key Issues of the 2020 General Shareholders’ Meetings and Corporate Difficulties’ targeting 302 listed companies in Korea. As a result, due to COVID-19 this year, companies reported difficulties such as concerns over insufficient quorum (35.1%), worries about infection and preventive measures (24.1%), and delays in preparation including delayed audit reports (13.2%) (multiple responses allowed).

Among these, the quorum issue has been recurring every year since the abolition of shadow voting at the end of 2017, but concerns have intensified this year due to COVID-19. As solutions to the quorum problem, companies suggested ‘revival of shadow voting’ (52.6%), ‘relaxation of voting requirements (one-fourth of total shares)’ (29.8%), and ‘introduction and expansion of electronic voting system’ (13.0%).

Shadow voting is a system that considers shareholders as having voted even if they do not attend the general meeting, applying the voting ratio of other shareholders directly to the resolution of agenda items. It was introduced in Korea in 1991 and abolished in December 2017.

Professor Hyunhan Shin of Yonsei University (advisor to the Korea Chamber of Commerce and Industry) said, “Although it is said that the introduction of an electronic voting system can solve the quorum shortage problem, it is practically difficult for individual minority shareholders to decide how to exercise their voting rights by only reviewing the reports provided by the company,” adding, “It is time to consider fundamental solutions to the recurring quorum problem every year.”

Regarding concerns about infection at the shareholders’ meeting venue, companies plan to implement quarantine measures such as checking attendees’ temperatures with thermal cameras and mandating the wearing of masks and gloves. Also, given the nature of general meetings with many external attendees, companies are changing venues to locations outside the company and are fully prepared by scouting second and third venues in case confirmed cases emerge just before the meeting.

Meanwhile, there were also numerous cases of inconvenience caused by regulations newly implemented this year, such as the designated auditor system and the limitation on the reappointment of outside directors. Among companies designated with external auditors due to the periodic designated auditor system, 26.3% reported difficulties such as insufficient understanding of the company by the new external auditor and strict scrutiny of previously unproblematic matters. Regarding external audit costs, 66.2% responded that costs ‘increased’ compared to previous years, which was higher than those who said ‘similar’ (30.8%) or ‘decreased’ (0.7%).

Due to the newly established ‘limitation on the reappointment of outside directors,’ 24.4% of companies that had to replace outside directors this time reported difficulties in selecting candidates due to a limited talent pool and lack of time. The Enforcement Decree of the Commercial Act, which limits the term of outside directors to six years, was implemented immediately without a grace period in January this year, with the regular general meetings of shareholders approaching.

Companies identified ‘appointment of executives such as directors and auditors’ (62.9%) as the biggest issue in this regular general meeting of shareholders, followed by ‘demands for dividend expansion’ (7.0%) and ‘business expansion and strategy’ (3.0%).

Regarding the recently strengthened stewardship code activities by institutional investors, 34.1% of responding companies expressed concerns about excessive management intervention. Detailed concerns included negative perceptions of owner management and management intervention influenced by public opinion (24.8%), application of evaluation criteria lacking objectivity or not suited to corporate realities (18.9%), and demands for excessive checks such as the introduction of cumulative voting systems (10.3%).

To strengthen board independence on their own, companies stated that they have already introduced or are considering introducing measures such as ‘operating audit committees composed of outside directors’ (33.7%), ‘separating the CEO and board chairperson roles’ (16.2%), and ‘operating nomination committees composed of outside directors’ (15.2%).

Kim Hyunsoo, head of the Corporate Policy Team at the Korea Chamber of Commerce and Industry, said, “Companies currently preparing for regular general meetings of shareholders are in a situation where they must catch two rabbits: COVID-19 quarantine measures and smooth meeting operation,” adding, “We will do our best to convey corporate difficulties encountered during the preparation process to relevant government departments and inform member companies nationwide of support measures to ensure safe and smooth general meetings.”

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