[In-Depth Review] Succession Policy Disclosures That Promote Conflict and Disputes

Asia Exclusive Interview_Jung Wooyong, Vice Chairman of Policy at the Korea Listed Companies Association./Photo by Kim Hyunmin kimhyun81@

[Asia Economy Reporter Hwang Yoon-joo] Since 2017, listed companies have been required to disclose their compliance with the 10 core principles of corporate governance selected by the Korea Exchange through the "Corporate Governance Report." This was introduced to encourage companies to voluntarily improve management transparency by explaining whether they comply with the core principles and the reasons for any non-compliance. Recently, the Financial Services Commission announced the revised "Corporate Governance Report Guidelines." Among various measures, the mandatory disclosure of CEO succession policies is expected to burden companies and cause conflicts and disputes.

Previously, only KOSPI-listed companies with assets of 2 trillion won or more were required to disclose the Corporate Governance Report, but from 2022, the scope of disclosure has been expanded to include KOSPI-listed companies with assets of 1 trillion won or more. It is expected that a total of 265 companies will be required to submit reports this year, with 90 companies preparing reports for the first time.

Currently, most companies disclose succession procedures and contingency plans in accordance with the Commercial Act and their articles of incorporation in the Corporate Governance Report, but specific details have been kept confidential. CEO succession policies are confidential for management strategy reasons, and disclosure could significantly impact the market, making this a very sensitive issue. However, under the Financial Services Commission’s revised guidelines, compliance with the core principles of governance will only be recognized if companies disclose more detailed information than currently provided, including the establishment and operation entities of succession policies, candidate selection, management, and training.

The government claims to have used the "G20 and OECD Corporate Governance Principles" as guidelines, but in reality, these only contain the fundamental principle that "the board of directors has the duty to oversee the succession process." In other words, no country mandates the detailed disclosure of CEO succession policies, as succession-related policies and tasks are very complex and sensitive, making mandatory disclosure difficult.

Whether more detailed disclosure of CEO succession policies will strengthen corporate governance competitiveness and enhance medium- to long-term corporate value, as expected from the introduction of the governance report disclosure, remains uncertain. Companies undergoing succession processes often face management rights attacks, and whenever news of management disputes is reported, the company’s stock price fluctuates and its image is shaken.

Research also shows that disclosure of succession policies can have negative effects on smaller companies. However, according to the plan, from 2026, all listed companies will be required to prepare Corporate Governance Reports. Although succession policies are sensitive matters for both companies and shareholders, requiring detailed disclosure risks sowing unnecessary discord.

Every year, articles ranking companies based on how well they adhere to key governance indicators are frequently seen. Even though companies have not violated laws, those with many non-compliance issues are labeled as "bad companies" in terms of governance. To comply with guidelines that are merely recommendations, companies must align their governance closely with the government’s prescribed standards.

Corporate governance is an area where it is difficult to uniformly judge good or bad. Each company’s management direction varies according to its industry and environment, and so does its governance. The same applies to succession policies. They need to be frequently adjusted according to the management environment and company strategy, and the pros and cons of disclosure differ. Succession policies should be left to corporate autonomy, and only illegal acts arising in this process should be strictly supervised. Unnecessary conflicts and disputes must be avoided. It is important to remember that corporate management should be based on "private autonomy," not "government control."

Jung Woo-yong, Vice Chairman of Policy, Korea Listed Companies Association

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