Shareholder Activism Includes Female Outside Directors and Serious Accidents... Busy Corporate General Meetings This Year (Comprehensive)

88% of Listed Companies "Struggling to Prepare for General Meetings"
Female Outside Directors Concentrated Among Professors and Legal Experts... Difficulties in Selection
"Must Prevent Punishment of Group Heads"... Companies Face Urgent Crisis Due to Serious Crime Punishment Act

[Asia Economy Reporters Sunmi Park, Hyunseok Yoo, Chaeseok Moon, Donghoon Jung] The full-fledged season of shareholder meetings for listed companies begins this month, starting with Samsung Electronics' general meeting of shareholders on the 16th. This year, companies have been busier and faced more challenges than ever in their preparations. With shareholder activism intensifying and even "Donghak Ants" (retail investors) raising their voices, companies find it increasingly difficult to respond. The expansion of information transparency, including the prior provision of business reports, phased mandatory ESG (Environmental, Social, and Governance) disclosures, and increased information demands from minority shareholders, has also increased the administrative burden on corporate staff during the preparation process. This year's shareholder meetings will also feature many agenda items, such as the enforcement of the Serious Accidents Punishment Act, mandatory appointment of female outside directors, and strengthened demands for dividend expansion.

As the regular shareholder meeting season in March approaches, companies are deeply concerned about the strengthened shareholder activism. Voices advocating for protecting shareholder rights, such as demands for increased dividends and recommendations for outside directors, are growing louder. Additionally, the overlapping issues of recruiting female outside directors and the Serious Accidents Punishment Act have put companies under intense pressure.

◆Strengthening Shareholder Activism= According to the business community on the 14th, the season will officially begin with the shareholder meetings of Samsung Electronics, Samsung Electro-Mechanics, and Samsung SDS on the 16th. On the 17th, 20 companies including Samsung SDI will hold meetings; on the 25th, 361 companies including Kumho Petrochemical; and on the 29th, 407 companies including LG and Kakao will convene their shareholder meetings.

Most companies have faced more difficulties preparing for shareholder meetings this year than ever before. According to a recent survey of 336 domestic listed companies by the Korea Chamber of Commerce and Industry, 88.4% responded that "preparing for shareholder meetings has become more difficult than in the past." This is due to increased administrative burdens from mandatory prior disclosure of business reports and increased information demands from minority shareholders, as well as the intensified shareholder activism that has increased the complexity of responses. Shareholder activism refers to shareholders moving beyond mere interest in dividends or capital gains to actively intervening in corporate governance to pursue profits.

Many companies have received shareholder letters this year as well. The National Pension Service, holding an 8.69% stake, has decided to vote against the appointment of Kyung Kye-hyun, head of the DS division, and Park Hak-gyu, head of the DX division's management support office, as inside directors at Samsung Electronics' shareholder meeting, as well as against the reappointment of Kim Han-jo, chairman of Hana Financial Public Interest Foundation, and Kim Jong-hoon, chairman of Keyswimobile, as audit committee members. The main reasons cited are "damage to corporate value or infringement of shareholder rights" for Kyung and Park, and "negligence in monitoring shareholder rights violations" for Kim Han-jo and Kim Jong-hoon.

Anda Asset Management has demanded dividend expansion and the introduction of cumulative voting at SK Chemicals. Cumulative voting is a system that grants a number of voting rights per share equal to the number of directors to be elected when appointing two or more directors. KCGI has proposed agenda items for Hanjin KAL to amend its articles of incorporation for governance improvement and to appoint outside director candidates, while the US private equity firm Teton Capital Partners has proposed appointing one outside director and audit committee member at Hanssem.

APG, the asset management firm of the Dutch public pension fund ABP, selected 10 domestic companies last month as a "Climate Focus Group" and sent letters requesting carbon emission reduction actions. The companies include Samsung Electronics, Hyundai Steel, SK, SK Hynix, LG Chem, LG Display, Lotte Chemical, POSCO Chemical, LG Uplus, and SK Telecom.

The strengthening of shareholder activism has the positive aspect of maximizing shareholder value by pointing out corporate dividends, performance, and governance issues.

On the other hand, indiscriminate intensification of shareholder activism is criticized for increasing corporate burdens and infringing on management independence. The industry is most concerned about the possibility of CEOs or controlling persons becoming embroiled in legal lawsuits during the implementation of shareholder activism. A chemical industry official said, "While difficulties in director elections and management rights infringements by so-called 'forces' seeking short-term gains are worrisome, the worst-case scenario is litigation," adding, "If the CEO becomes involved in lawsuits, it could seriously disrupt management decision-making, which is the biggest concern."

The Korea Chamber of Commerce and Industry, in a survey of listed companies on "Recent Difficulties in Shareholder Meetings and Changes in Shareholder Activities," revealed that 68.2% of listed companies have already experienced or are currently experiencing difficulties due to the introduction of the separate election system for audit committee members. They also pointed out issues with the separate election of audit committee members and the 3% rule, including ▲possibility of director election rejection ▲entry of unfriendly individuals into the board ▲management involvement by minority shareholders focused on short-term gains. The 3% rule and separate election of audit committee members were introduced to strengthen the independence of audit committees established within boards and to enhance minority shareholder rights.

Some opinions suggest that actions should be tailored by industry since indiscriminate demands may hinder corporate growth. An industry insider said, "For companies entering new growth or new industries, it is more rational to connect resources to investment rather than paying dividends," expressing concern that "indiscriminate demands could actually harm corporate growth."

◆Seeking Female Outside Directors= The appointment of female outside directors is also a challenging issue. This is due to the still low proportion of female outside directors and the lack of a sufficient talent pool. Most appointments are external, but there is a concentration on professors and legal professionals, and many hold concurrent positions at other companies, making selection difficult. This is because the amendment to the Capital Markets Act, which mandates that boards of listed companies with assets exceeding 2 trillion won must not be composed of only one gender, will come into effect from August.

Samsung Electronics plans to appoint Han Hwajin, a distinguished professor at the Korea Institute of Science and Technology Development (KIRD), as a new outside director at its shareholder meeting. With the expiration of Chairman Park Jaewan's term, there is also interest in whether the company will have its first female board chair. Kim Seonwook, former head of the Legislation Office and former president of Ewha Womans University, who has served as an outside director at Samsung Electronics for four years, is considered a leading candidate for board chair. Samsung Electro-Mechanics and Samsung Engineering also plan to process agenda items to appoint lawyer Lee Yoonjung of Kim & Chang Law Firm and Professor Choi Jeonghyun of Ewha Womans University's Department of Environmental Engineering as new outside directors, respectively.

Within the LG Group, LG Chem, LG Display, and LG Innotek plan to appoint their first female outside directors at their shareholder meetings on the 23rd. LG Chem will propose appointing Professors Lee Hyunju of KAIST and Cho Wasoon of Yonsei University; LG Display will propose Professor Kang Jeonghye of the University of Seoul; and LG Innotek will propose Professor Lee Heejeong of Korea University as new outside directors.

Hyundai Heavy Industries Group has also submitted agenda items to appoint female outside directors at five companies: Hyundai Heavy Industries Holdings, Korea Shipbuilding & Offshore Engineering, Hyundai Heavy Industries, Hyundai Mipo Dockyard, and Hyundai Electric. Hanwha Systems and LX International are also preparing to appoint their first outside directors since their founding.

A representative from the corporate analysis research institute Leaders Index said, "About 43% of newly appointed outside directors at this month's shareholder meetings are women," adding, "Among newly appointed outside directors, professors account for 43.3%, followed by government officials (22.1%) and business executives (18.3%)."

◆Hot Topic: Serious Accidents Punishment Act= Since the law came into effect in January, allowing business owners and management officials to be punished in the event of safety accidents, major companies have been under intense pressure. Companies are actively "dispersing risk" by appointing Chief Safety Officers (CSOs) and shifting from sole representative systems to co-representative systems to avoid punishment of the group head.

Although organizations and personnel have been steadily prepared since last year's political pressure and government legislative notices, the shareholder meeting season is expected to see increased investor demands for risk management, creating an atmosphere of "needing to successfully navigate the shareholder meeting season." Even if safety and health issues are not formally listed as agenda items, pressure can be applied through shareholder letters and other channels. In fact, major credit rating agencies also identify industrial accident risk management as a key monitoring factor.

Specifically, the Serious Accidents Punishment Act states that the mere appointment of a "safety and health officer" responsible for safety and health duties does not exempt the CEO or business owner from their obligations. Therefore, safety and health officers are expected to be appointed as inside or registered directors during this shareholder meeting season while handling their duties.

POSCO, a leading company in the steel industry, appointed Kim Jiyong, head of the Safety and Environment Headquarters (vice president), as an inside director at its founding general meeting on the 2nd of this month after transitioning to a holding company system. Kim is expected to serve as the CSO. Hyundai Heavy Industries Group promoted Vice President Noh Jin-yul to president and appointed him as head of the Safety Planning Office, the company-wide CSO, in January ahead of the shareholder meetings. At the group level, Hyundai Heavy Industries is strengthening its safety organization and infrastructure by ▲increasing safety personnel by 20% ▲establishing a new risk assessment system to identify and improve hazardous factors on-site ▲providing experiential training for workers in high-risk processes ▲enhancing practical safety education. GS Caltex, which already held its shareholder meeting on the 25th of last month, promoted Lee Doohee, Chief Safety Officer and co-CEO as well as head of the Production Headquarters, from vice president to president at the end of last year.

However, regardless of industry, the government is actively pursuing CEO indictments for companies where industrial accident fatalities have occurred, and the ambiguity regarding punishment and responsibility subjects remains a source of tension. A refining industry official said, "Due to vague and comprehensive legal standards, it is difficult to identify the obligated parties, obligation fulfillment, and scope of targets," adding, "There has been a temporary nationwide increase in demand for safety personnel, making it difficult to secure experts."

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