Samjong KPMG "Comprehensive Survey of Corporate Governance Key Indicators... Passive Disclosure on Control Rights"

Samjong KPMG and Seoul National University Professor Woojin Kim Joint Research
Comprehensive Survey of Four Key Corporate Governance Indicators

It has been pointed out that the corporate governance report disclosure system has not been properly established, as 98% of companies that did not comply with the mandatory separation of the chairman of the board and the CEO failed to explain the reasons for non-compliance.

On the 7th, Samjong KPMG stated, "Samjong KPMG's Audit Committee Support Center (ACI) and Professor Kim Woo-jin of Seoul National University Business School conducted a full survey of whether 327 companies subject to mandatory corporate governance report issuance last year complied with key indicators, revealing the limitations of the principle-compliance and explanation-of-exception (CoE) method of the corporate governance report disclosure system."

[Provided by Samjong KPMG]

Introduced to improve the transparency of corporate governance, the 'Corporate Governance Report' is a principle-based disclosure system that requires companies to explain whether they comply with key indicators and the reasons for non-compliance (CoE). Countries such as the UK and Germany, which first introduced the CoE disclosure system, are evaluated as having led voluntary corporate governance improvements with low disclosure costs.

This joint research conducted a full survey of four key indicators for companies required to issue reports: ▲dividend policy ▲CEO succession policy ▲separation of chairman of the board and CEO ▲establishment of an independent internal audit department. In addition to the actual compliance rate, the study assessed the reliability of disclosure content and the completeness of the entries to understand the effectiveness and limitations of applying the CoE principle domestically.

As a result, key indicators that included positive investor relations (IR) factors such as dividends were actively shared with information users. Among companies that did not comply with 'notifying shareholders at least once a year of dividend policy and dividend implementation plans,' 92% stated the reasons for non-compliance and alternatives as required by the exchange guidelines. Among compliant companies, 81% provided additional information useful for investment.

Regarding the 'preparation and operation of CEO succession policy' indicator, 72% of non-compliant companies did not have a documented succession policy but provided basic information to users. Among compliant companies, 79% disclosed not only basic information but also succession policies for professional management systems or separate regulations necessary for family management and candidate preparation.

For the key indicators controlling the excessive influence of controlling shareholders on the board, 'separation of chairman of the board and CEO,' and for supervising decision-making by company management, 'establishment of an independent internal audit department,' 98% and 58% respectively of non-compliant companies failed to reasonably explain the reasons for non-compliance. The closer the key indicator is directly or indirectly related to corporate control, the more passive and formal the company’s disclosure was. In particular, the 'separation of chairman of the board and CEO' indicator, introduced proactively for governance improvement purposes, showed that although companies stated separation in their articles of incorporation, 84% did not comply with the practical model rules.

Professor Kim, an advisory professor at Samjong KPMG ACI, said, "In the corporate governance report disclosure system, it is necessary to consider supplementing some important key indicators with insufficient improvement through the CoE method alone by means of legislation." He added, "Since the Korea Exchange has announced it will strengthen sanctions against companies with repeated errors, education support and capacity building for corporate disclosure personnel are required." Samjong KPMG ACI pointed out, "As proven in the study, a thorough review of key indicators and the main text entries is necessary."

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