KT with Strengthened Major Shareholders and Outside Directors, Growing Concerns

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Based on the governance improvement plan of KT's 'New Governance Establishment TF,' the full-scale process of appointing outside directors is underway. New attempts are noticeable, such as directly receiving candidate recommendations from shareholders and enhancing the authority of outside directors. However, under this method, it is difficult to escape the influence of major shareholders like the National Pension Service. There are also concerned voices questioning whether KT is reverting back to being a 'public enterprise.'

Looking at KT's outside director appointment process on the 15th, KT first receives outside director candidate recommendations from the existing pool, external professional agencies (search firms), and all shareholders until the 16th. The shortlisted candidates undergo a first evaluation by a five-member selection advisory group, are finally confirmed by the Outside Director Candidate Recommendation Committee (ODCRC), and are appointed at an extraordinary general meeting of shareholders next month.

The core of this outside director appointment process is the introduction of a ‘shareholder-based preliminary candidate recommendation’ method and changes in the composition of the ODCRC. All shareholders who have held even one share of KT stock for more than six months are given the right to recommend preliminary outside director candidates, and the ODCRC is composed entirely of outside directors.

KT cites strengthening the independence of candidate screening as the reason for adopting these methods, but there are skeptical voices about whether external pressures from political circles and others can be prevented.

First, the shareholder recommendation method inevitably gives major shareholders significant influence. Currently, KT's largest shareholder is the National Pension Service, owning 10.13% of shares. The National Pension Service has represented government positions in the appointment processes of KT's CEO and outside directors. Since Hyundai Motor Group (7.79%) and Shinhan Bank (5.58%), KT's second and third largest shareholders, are under the influence of the National Pension Service as a major shareholder, they must consider the National Pension Service's stance when recommending candidates. Without the approval of these major shareholders, it is difficult for the candidates to pass the shareholders' meeting vote.

In the case of the ODCRC, which completely excludes inside directors, voices within the company can be entirely blocked during the recommendation process. The New Governance TF explains, “The composition of the ODCRC excluding inside directors is a global standard. It can resolve the issue of internal trench construction.” However, if outside directors without even minimal expertise in IT and telecommunications are recommended, KT will be unable to raise any objections. There are concerns that this could hinder rather than enhance the company's independence.

There is also much criticism regarding the decision to use a selection advisory group in the outside director appointment process. This advisory group is determined by the New Governance Establishment TF. Currently, the TF includes many figures who have ties with the current ruling party, such as former Minister of Trade, Industry and Energy Ju Hyung-hwan and former Director of the National Assembly Budget Office Kim Jun-gi. Although the TF explains, “We will create the system but will not intervene in appointments,” some inside the company say it may be difficult to expect advisory results reflecting both ruling and opposition party positions from individuals appointed by the TF.

In the related industry, there is also analysis that there is not much difference from the previous system since continuous KT control is possible as long as outside directors hold the majority. It is evaluated that the problem of political influence has not been completely resolved and only a new possibility of ‘outside director trench construction’ has been opened. After 21 years of privatization and numerous struggles related to governance, KT still cannot escape the shadow of government control.

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