'3% Rule' First General Meeting... Management Rights Dispute Becomes Real

Kumho Petrochemical, Korea & Company, Hanjin Begin Struggles
Demands for Dividend Expansion and Replacement of Directors and Auditors

An extraordinary general meeting of shareholders is being held at the Korean Air headquarters in Gangseo-gu, Seoul, last January to amend the articles of incorporation for increasing the total number of issued shares for a paid-in capital increase.

[Asia Economy Reporter Choi Dae-yeol] Kumho Petrochemical, Korea & Company (holding company of Hankook Tire), and Hanjin, which are undergoing management rights disputes, have decided to submit shareholder proposal agendas alongside the company’s proposed agendas at the regular general shareholders' meetings scheduled for later this month. The core issue is the proposal to replace directors and auditors, demanded by relatives or private equity funds with differing views from the management team, citing the 3% rule to exercise their rights. The business community is concerned that as the shareholder meeting season officially begins, the feared impact of the 3% rule, following the amendment of the Commercial Act at the end of last year, has become a reality.

According to industry sources on the 11th, Kumho Petrochemical will submit to the general shareholders' meeting on the 26th both the agenda set by the board and the proposal by Executive Director Park Cheol-wan, following a court decision ordering the inclusion of his proposal to increase dividends from 1,500 KRW to 11,000 KRW for common stock and from 1,550 KRW to 11,050 KRW for preferred stock. Previously, Park proposed appointing himself as an inside director, along with nominating three outside directors and two audit committee members of his choice, while also demanding an increase in dividends. The stated reason was that the company’s value was not properly evaluated due to low dividends, but it is interpreted as an attempt to rally individual shareholders’ votes to gain a foothold on the board.

At Korea & Company, where a sibling management rights dispute erupted last year, Vice Chairman Cho Hyun-sik has recommended Professor Lee Han-sang of Korea University as an outside director and audit committee member, and both proposals will be evaluated at the shareholders' meeting. Vice Chairman Cho is the eldest son of Chairman Cho Yang-rae, who last July transferred all his shares to his second son and Cho’s younger brother, President Cho Hyun-beom. Chairman Cho’s eldest daughter, Cho Hee-kyung, chairwoman of the Hankook Tire Nanum Foundation, filed a petition for limited guardianship against the chairman, claiming the share transfer process was flawed, and a family investigation was conducted recently. Vice Chairman Cho, who serves as co-CEO with his younger brother, has taken a defensive stance, including expressing his intention to resign. At Hanjin, a logistics company under the Hanjin Group, shareholder proposals by the private equity firm HYK Partners include dividend increases, changes in audit committee composition, and new audit committee member appointments, all of which will be on the agenda at the shareholders' meeting.

The business community is concerned that the 3% rule, following the passage of the amended Commercial Act at the end of last year, has materialized as a tool for management rights disputes. An industry insider said, "While the independence of the audit committee was the original purpose of the amended Commercial Act, the feared management rights disputes have ultimately become a reality," adding, "Corporate management activities are bound to be constrained."

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