No One Expected the Election of Audit Committee Members with Voting Rights Restrictions... Foreseeing Major Management Turmoil

Ahead of This Month's Shareholders' Meeting
Concerns Grow as Agenda Items Beyond Board's Decisions Are Repeatedly Proposed
Audit Committee Members Overseeing Corporate Management and Exercising Voting Rights
Possibility of External Forces Intervening Increases Due to Major Shareholders' Voting Restrictions
National Pension Service Holds the Largest Casting Vote

[Asia Economy Reporter Choi Dae-yeol] Concerns are growing that management disputes could become a reality at any time as shareholder meetings scheduled for this month are seeing the submission of multiple agenda items beyond those set by each company's board of directors. In particular, there have been ongoing criticisms that the major shareholder's voting rights are restricted during the formation of audit committees, which play a crucial role in corporate governance, making companies vulnerable to external forces. These concerns are now mixed with proposals aimed at winning the favor of minority shareholders, such as dividend increases, leading to forecasts that corporate management will inevitably face confusion. Outside directors who also serve as audit committee members participate in both the board of directors and the audit committee, overseeing overall corporate management and exercising voting rights, making them key positions in management disputes.

◆ The biggest issue: Whether Park Cheol-wan, Executive Director of Kumho Petrochemical, will enter as an inside director = At the Kumho Petrochemical shareholder meeting scheduled for the 26th, the shareholder proposal by Executive Director Park Cheol-wan, the company's largest shareholder and nephew of Chairman Park Chan-gu, will be submitted alongside the agenda set by the company, leading to a vote battle. Initially, there were criticisms that Park's dividend calculation was incorrect, but following a court ruling that the revised proposal could be submitted, both the agenda set by the company's board and Park's proposal were submitted simultaneously. Park proposed a dividend of 11,000 won, about 2.6 times higher than the company's suggested amount, and nominated himself and several others he recommended as inside directors and audit committee members.

On the 11th, Park told reporters, "A company is not the exclusive property of the owner family," criticizing the recent decision and procedures by the company's management regarding the acquisition of Kumho Resort. He insisted that his shareholder proposal is not a management dispute or what some call a 'nephew's rebellion,' but a measure to increase the company's value.

◆ Struggles over audit committee appointments at Korea & Company and Hanjin = The management dispute within the Korea Tire owner family, ongoing since last year, is also expected to lead to a vote battle at this week's shareholder meetings. Cho Hyun-sik, vice chairman of Korea & Company and eldest son of Chairman Cho Yang-rae, proposed appointing Professor Lee Han-sang of Korea University as an outside director and audit committee member. Meanwhile, Cho Hee-kyung, chairman of the Korea Tire Sharing Foundation and daughter of Chairman Cho, proposed Lee Hye-woong, CEO of BRB Korea Advisors, as a candidate for outside director and audit committee member at the affiliate Korea Tire & Technology. Both companies have shareholder meetings scheduled for the 30th. Recently, a limited guardianship investigation was conducted on Chairman Cho to assess his health, and depending on the results, this could become a turning point in the management dispute.

Hanjin, a logistics company under the Hanjin Group, is also scheduled for a vote battle with its second-largest shareholder HYK at the shareholder meeting. The company withdrew its plan to appoint Cho Hyun-min, brother of Hanjin Group Chairman Cho Won-tae and vice president of Hanjin, as an inside director. However, HYK proposed numerous agenda items, including dividend increases, increasing the number of directors, establishing new disqualification criteria, amending company bylaws, and appointing audit committee members, all of which have been reflected as agenda items. The shareholder meeting will be held on the 25th.

◆ The power of the 3% rule... National Pension Service as the biggest casting vote = The shareholder vote battles at these companies are drawing attention because this year’s amendment to the Commercial Act introduced variables in the appointment process of outside directors who also serve as audit committee members. While a simple vote battle would likely favor major shareholders or the company side, voting rights for audit committee members are limited to 3% regardless of major shareholder stakes. In Kumho Petrochemical’s case, Executive Director Park holds over 10% individually, making him the largest shareholder, while Chairman Park and his family and related parties hold less than 15%. This makes winning the support of minority shareholders, including the National Pension Service, crucial. Given that the National Pension Service has previously opposed the reappointment of Chairman Park Chan-gu as a director, the company side cannot be complacent.

Korea & Company’s CEO Cho Hyun-beom, who inherited Chairman Cho’s shares, holds 42.9%, but voting rights for audit committee appointments are significantly reduced. Other owner family members such as Vice Chairman Cho Hyun-sik (19.32%), Chairman Cho’s second daughter Cho Hee-won (10.82%), and Chairman Cho Hee-kyung (0.83%), as well as the National Pension Service and minority shareholders, could influence unexpected outcomes depending on whose side they take.

Listed companies expressing unease ahead of this year’s shareholder meetings was a predictable development. According to a survey by the Korea Chamber of Commerce and Industry of 308 listed companies, major difficulties include the obligation to provide business and audit reports in advance, disputes over the appointment of directors and auditors, and lack of quorum. Particularly regarding the separate election of audit committee members, one in three listed companies viewed the negative impact as significant. It was seen that minority shareholders, institutional investors, and activist funds, which can shake management control, are likely to exercise their rights. Choi Kyu-jong, head of the Corporate Policy Team at the Korea Chamber of Commerce and Industry, said, "The burdens on listed companies have only increased with issues like lack of quorum, COVID-19 quarantine obligations, external auditor designation system, and mandatory separate election of audit committee members. We should not increase the burden of maintaining listing and should consider lowering it to the level of major foreign countries."

In the business community, there are calls to refine the purpose of the '3% rule,' which, contrary to the original intent of the Commercial Act amendment, is being used as a key tool in management disputes. A business official said, "Rather than applying uniform regulations, companies should be allowed to autonomously choose audit or audit committees according to their management circumstances and perform effective audit functions. It is necessary to reflect companies’ opinions more and make improvements even now."

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