"South Korean Companies Severely Lack Measures to Defend Management Rights... Only 8 out of Top 100 Companies Adopt Defense Measures"

Only 7 of the 8 Introduced Locations Have Increased Shareholders' Meeting Resolution Requirements, 1 Has Staggered Terms System

[Asia Economy Reporter Park Sun-mi] It has been pointed out that South Korean companies have an insufficient number of measures to defend their management rights.

On the 20th, the Federation of Korean Industries (FKI) announced that, after analyzing the articles of incorporation of the top 100 companies by assets (including financial firms), only eight companies had adopted management rights defense provisions in their articles. The defense measures introduced were limited to slightly strengthening the director dismissal regulations beyond the special resolution requirements under the Commercial Act (‘enhanced director dismissal requirements’) or adopting a staggered term system.

In the case of hostile mergers and acquisitions (M&A), existing directors can be dismissed or articles of incorporation can be amended, or business transfers can be conducted through shareholder meeting resolutions. Companies can respond by strengthening the resolution requirements in their articles of incorporation.

Among the top 100 companies by assets surveyed by the FKI, seven companies set the director dismissal resolution in their articles of incorporation to require ‘at least 70% of voting rights of attending shareholders,’ or ‘at least half of the total issued shares,’ or ‘more than two-thirds of the total issued shares,’ slightly exceeding the special resolution requirement stipulated by the Commercial Act (approval by at least one-third of the total issued shares).

Only one company explicitly adopted the ‘staggered term system’ in its articles of incorporation, a defense measure that prevents the simultaneous expiration of the entire board’s term. Typically, directors serve three-year terms, and if the board is structured so that one-third of the directors’ terms expire each year, it becomes difficult for hostile forces to replace the entire board even if they acquire a majority of the shares. Considering that it is rare for the entire board of a listed company to be replaced at once, most companies are effectively using the staggered term system, but this is not well reflected in their articles of incorporation.

As shown in the FKI survey, the current management rights defense measures that Korean companies can include in their articles of incorporation are ▲enhanced director dismissal requirements, ▲staggered director terms, ▲increased quorum requirements for approval of M&A proposals, and ▲golden parachute shares. These measures only make it difficult to pass agenda items at shareholder meetings or prevent the simultaneous replacement of executives, which is a significant difference from overseas competitors who actively use defense measures such as ▲dual-class voting rights, ▲poison pills (rights to purchase new shares), and ▲golden shares.

Above all, since amending the articles of incorporation to introduce defense measures requires a special resolution at the shareholders’ meeting, even adopting new defense measures is not easy in reality.

An FKI official advised, “Recently, as seen in cases like Hanjin KAL and Kyobo Life Insurance, temporary cracks in governance have occurred, and private equity funds have taken advantage of these to threaten corporate control and attempt hostile M&A,” adding, “Given the confirmed lack of management rights defense measures in our companies, it is urgent to expand defense measures that meet global standards.”

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