163 Companies with Unregistered Executives Who Do Not Take Responsibility for the Owner Family

Fair Trade Commission 2024 Governance Status Analysis
54% Employed at Companies Subject to Private Interest Appropriation Regulations
Hite Jinro, Kumho Petrochemical, Junghung Construction, Celltrion Severely Affected

Yonhap News

The number of companies where the family members of the heads of large business groups serve as non-registered executives rather than board members in their affiliates has reached 163. These non-registered executives from the head families were predominantly listed in companies subject to private interest regulation where the head families hold high equity stakes.

On the 19th, the Korea Fair Trade Commission (KFTC) announced the '2024 Analysis of Governance Status of Publicly Disclosed Business Groups,' which includes this information. The survey covered 80 publicly disclosed business groups (large business groups) and 2,899 affiliates this year.

The proportion of companies where the head families serve as non-registered executives rather than board members was 163 companies (5.9%), an increase of 0.7 percentage points from the previous year (5.2%).

The company with the highest ratio of head family members serving as non-registered executives was HiteJinro at 63.6% (7 out of 11 companies). This was followed by Kumho Petrochemical, Jungheung Construction, Celltrion, and DB in descending order.

On average, heads of business groups served as non-registered executives in 2.5 companies. The second and third generations of the heads averaged 1.7 companies.

The number of concurrent non-registered executive positions held per person by the head families was highest in Jungheung Construction, Eugene, HiteJinro, Hanwha, Hyosung, and KG, in that order. Among these, the head themselves held the most concurrent non-registered executive positions in Jungheung Construction, Eugene, CJ, HiteJinro, and Hanwha, respectively.

More than half (54.1%) of the companies where the head families serve as non-registered executives were subject to private interest regulation. This indicates ongoing cases where the head families enjoy the authority of non-registered executives without bearing the responsibilities of registered executives.

Companies subject to private interest regulation refer to those where the head family holds 20% or more equity and their subsidiaries in which these companies hold more than 50% equity. The Fair Trade Act recognizes that unfair internal transactions such as preferential treatment of orders are likely to occur in such structures and thus imposes separate regulations.

Regarding the board operation status of 344 listed companies within 80 large business groups, the proportion of outside directors was 51.1%, slightly down from 51.5% last year but still maintaining a majority. The attendance rate of outside directors at board meetings rose by 1.2 percentage points from the previous year to 97.8%.

The proportion of outside directors was highest in Korea Aerospace Industries, MDM, KT&G, and Jungheung Construction, while it was lowest in E-Land, JoongAng·DN, and Global S&.

The establishment of committees such as audit committees, internal transaction committees, and Environmental, Social, and Governance (ESG) committees?introduced to ensure objectivity and expertise in decision-making within large business groups?continued to increase, complying with the minimum standards under the Commercial Act.

The KFTC assessed that "checks and balances on management (controlling shareholders) decision-making are being stably established."

However, the approval rate of original board agenda items was 99.4%, similar to 99.3% last year. In companies where the head family members accounted for 30% or more of the directors, all board agenda items were approved as originally proposed. In companies where the head family members accounted for less than 10%, 99.3% of agenda items passed as originally proposed.

The KFTC pointed out, "It will be important to create an environment where the internal checks and balances of the board can function effectively and to enhance market monitoring."

The adoption rate of at least one of the shareholder meeting voting systems?cumulative voting, written voting, or electronic voting?introduced to strengthen minority shareholders' voting rights increased to 88.4%, continuing the upward trend. In particular, the adoption rate of electronic voting steadily increased to 86.3%, but the number of cases exercising voting rights through this system was only one, the same as last year.

Shareholder rights introduced by the Commercial Act to protect minority shareholders?such as shareholder proposal rights (12 cases), shareholder registry inspection rights (6 cases), and accounting book inspection rights (4 cases)?were exercised a total of 32 times, a decrease of 4 cases from the previous year.

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