Governance Forum: "Notice Period for Shareholders’ Meetings Should Be Extended to Four Weeks"

The Korea Corporate Governance Forum on November 28 called for an amendment to the Commercial Act to extend the notice period for convening general shareholders’ meetings to four weeks. The forum pointed out that the current two-week period stipulated by the Commercial Act is too short, does not meet global standards, and restricts the practical exercise of shareholder rights by those making shareholder proposals.

On this day, the Governance Forum issued a statement titled “Welcoming the Improvement of Corporate Disclosure Systems and Urging Procedural Reforms,” expressing this position. The Governance Forum is a non-profit incorporated association composed of more than 120 domestic and international members, including financial professionals, legal experts, and academics, pursuing the advancement of the capital market through improvements in corporate governance.

First, the forum stated, “For the development of governance in Korea, it is necessary to amend the Commercial Act in terms of ‘content,’ but reforming procedural systems is also urgently needed.” The forum actively welcomed the corporate disclosure improvement plan announced on November 17 by the Financial Services Commission, the Financial Supervisory Service, and the Korea Exchange, which aims to enhance capital market accessibility and shareholder rights. This plan includes expanding the scope of companies required to disclose information in English, disclosing the results of shareholder meeting votes, and reporting the relationship between corporate performance and executive compensation.

However, the forum also pointed out that Korea still lags behind competitor countries that have devoted years to governance reform. The forum emphasized, “The biggest problem is the extremely short 14-day notice period for convening general shareholders’ meetings. Many problems stem from this root cause.” Due to the short notice period, shareholder proposal submitters lack the physical time needed to persuade other shareholders, and opportunities for persuasion and discussion are lost, which in effect restricts the exercise of shareholder rights.

Specifically, the forum highlighted issues such as the problem of a grace period under the Capital Markets Act Article 153, which prevents solicitation activities for two business days, the lack of a clear definition for solicitation activities, and restrictions on the exercise of voting rights by foreign shareholders. The forum further criticized the practice of some companies convening extraordinary shareholders’ meetings to appoint auditors or separate election audit committee members in advance of regular meetings where the 3% rule applies, effectively blocking shareholder proposal rights. “Because of the short notice period, shareholder proposal rights are completely blocked at extraordinary shareholders’ meetings,” the forum noted.

The forum explained, “Under the Commercial Act, shareholder proposal submitters must send their proposals to the board of directors six weeks in advance, making it virtually impossible to exercise proposal rights at extraordinary shareholders’ meetings. If the notice period for convening a shareholders’ meeting were four weeks instead of two, the period from the initial disclosure to the holding of the extraordinary meeting would have been longer, and the effectiveness of blocking shareholder proposal rights would have been reduced.” The forum added, “With the legislative adoption of cumulative voting and the expansion of the number of directors who can serve as separate election audit committee members, this issue requires even more careful consideration, as attempts by companies to block shareholder proposals are expected to increase further.”

According to the forum, while Japan’s law also sets the notice period for convening general shareholders’ meetings at two weeks, various soft law norms encourage companies to provide notice at least three weeks in advance. Most competitor countries, including Taiwan, guarantee a notice period of at least three weeks. The Asian Corporate Governance Association (ACGA) recommends a four-week period.

In line with such global standards, the forum argued that the Commercial Act should be amended to either extend the notice period for convening shareholders’ meetings by two more weeks, allow shareholder proposal rights to be exercised four weeks in advance instead of six, or recognize shareholder proposals as valid if exercised within a certain period after the initial disclosure.

Additionally, the forum stated that “the two-business-day grace period after public notice of proxy solicitation under the Capital Markets Act should be abolished.” The forum also recommended, “To allow free activities to persuade shareholders, the scope of the definition of proxy solicitation under the Capital Markets Act should be clearly narrowed,” and suggested, “The rules of the Korea Securities Depository should be revised to allow foreign shareholders to exercise their voting rights up to one business day in advance.” The forum further emphasized the need to pay attention to unfair practices occurring at shareholders’ meetings.

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