'3% Rule Relaxation' Cosmetic Amendment... Cannot Defend Management Rights of 5 Major Groups

Over 30% of Audit Committee Members' Terms Expire Next Year
Samsung Electronics' 'Relaxed Rule' Applies to 17.76% Voting Rights
Far Short of Foreign Capital Alliance's 27.61%

[Asia Economy Reporter Kiho Sung] It has been confirmed that 30% of audit committee members of the major five conglomerates' listed companies will have their terms expire next year. If the ruling party's forced passage of the amendment to the Commercial Act, specifically the so-called '3% rule' (limiting the largest shareholder's voting rights to 3% when electing audit committee members), is approved, these companies will also have to appoint audit committee members in accordance with the amendment. This has raised concerns that speculative forces and electoral battles could arise over audit committee seats.

Asia Economy conducted a full survey of the terms of audit committee members of 70 listed affiliates of the five major groups: Samsung, Hyundai Motor, SK, LG, and Lotte. It found that 58 out of 188 audit committee members will have their terms expire next year, accounting for 30.9%.

Specifically, Hyundai Motor Group was found to be the most urgent, with 17 out of 43 audit committee members across 12 companies needing replacement due to term expiration, representing 40%. Samsung Group has 9 out of 40, SK Group 8 out of 39, LG Group 12 out of 36, and Lotte Group 12 out of 30 members whose terms will expire. The situation is even more severe when looking at individual companies. Hyundai Motor Securities and Lotte Confectionery must appoint all three audit committee members anew. Hyundai Glovis must appoint 3 out of 4 audit committee members anew, while LG, Samsung Heavy Industries, Hyundai AutoEver, LG Uplus, LG Hausys, and Lotte Fine Chemical each have 2 out of 3 members whose terms expire.

These companies will have to appoint audit committee members according to the newly amended 3% rule starting from the spring general shareholders' meetings in March next year. The problem lies in the ruling Democratic Party's amendment, which allows up to 3% voting rights for each shareholder without considering the largest shareholder or special related parties when electing audit committee members separately. This raises concerns about the possibility of speculative forces infringing on corporate management rights.

According to the Federation of Korean Industries (FKI), when comparing the voting rights of major shareholders and foreign investors in the separate election of outside director audit committee members, Samsung Electronics, which must appoint one out of three audit committee members anew next year, has only 17.76% of pro-major shareholder shares even when applying the ruling party's amendment, which is far less than the 27.61% held by the foreign investor coalition. The same applies to SK Hynix and LG Chem. Even when applying the individual 3% rule, SK Hynix's largest shareholder voting rights amount to only 9.32%, while the foreign institutional investor coalition can exercise 31.06% voting rights. LG Chem also has about twice the voting rights held by the foreign institutional investor coalition.

According to the Korea Employers Federation, the average foreign ownership of the top 10 companies by market capitalization is 38.1%, and if 60-70% of these investors unite, they can secure around 25% of voting rights.

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