Regulations Are Painful Enough, Now COVID-19... Double Hardship for Companies at Shareholders' Meetings

[Asia Economy Reporter Changhwan Lee] Companies preparing for their regular general meetings of shareholders are facing double hardships as new regulatory challenges such as COVID-19 and restrictions on the reappointment of outside directors overlap. Companies are considering various countermeasures, ranging from strengthening quarantine measures to postponing the schedule of general meetings.

On the 11th, the Korea Chamber of Commerce and Industry announced that about 43% of 302 listed companies surveyed reported difficulties in holding general meetings due to COVID-19. Among the respondents, 35.1% cited 'lack of quorum' as their biggest concern. This is because the spread of COVID-19 may reduce the number of shareholders attending the meeting due to infection concerns.

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. 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.

As solutions to the quorum problem, companies suggested 'revival of shadow voting (52.6%)', 'relaxation of voting requirements (29.8%)', and 'introduction and expansion of electronic voting system (13.0%)'.

In fact, major companies such as Samsung Electronics and Hyundai Kia Motors are actively utilizing electronic voting systems starting this year. However, there are also criticisms that introducing electronic voting alone has limitations in solving the quorum shortage problem.

Professor Hyunhan Shin of Yonsei University pointed out, "While it is said that the introduction of electronic voting can solve the quorum shortage problem, it is practically difficult for individual small shareholders to decide how to exercise their voting rights just by looking at the reports provided by the company," adding, "It is time to consider fundamental solutions to the recurring quorum problem every year."

24.1% of companies cited 'concerns about infection and preventive measures' as a worry, and 13.2% pointed to 'delays in audit reports and other preparation setbacks.' Due to the nature of general meetings with many external attendees, companies are making thorough preparations, such as changing the venue outside the company and scouting second and third locations in case confirmed cases emerge just before the meeting.

Samsung Electronics, which will hold its general meeting on the 18th, changed the venue from its existing Seocho office in Seoul to the Suwon Convention Center. Samsung Electronics plans to place hand sanitizers and masks at the entrance of the meeting hall and conduct temperature checks before the meeting starts. SK Hynix, holding its meeting on the 20th, is also focusing heavily on disinfecting the meeting venue.

Additionally, companies are complaining about inconveniences caused by new regulations implemented from this year, such as the designated auditor system and restrictions on the reappointment of outside directors. Among companies designated with external auditors under the periodic designated auditor system, 26.3% reported difficulties due to insufficient understanding of the company by the new external auditor and strict scrutiny of issues that were not problematic in the past. 66.2% responded that external audit costs have increased compared to previous years.

Due to the newly established restriction on the reappointment of outside directors, 24.4% of companies that need 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 approaching.

Kim Hyunsoo, head of the Corporate Policy Team at the Korea Chamber of Commerce and Industry, said, "Companies currently preparing for regular general meetings are in a situation where they must catch two rabbits at once: COVID-19 quarantine measures and smooth holding of the general meetings," adding, "Some companies are struggling to the extent of considering postponing their meetings."

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