Heated Korea Zinc Shareholders’ Meeting... Debate Over ISS Recommendations

ISS, the World's Largest Proxy Advisor, Releases Report

ISS Sides with Korea Zinc on Number of Directors for Cumulative Voting

Chairman Choi's Defense Tactics Criticized in Detail

Tens of Billions in Compensation for Honorary Chairmen

As the regular general meeting of shareholders for Korea Zinc approaches on March 24, the conflict between Chairman Choi Yoonbum's faction and the camp of Young Poong and MBK Partners is intensifying. Both sides are engaging in a public opinion battle, each interpreting the report from ISS, the world’s largest proxy advisory firm, on the meeting’s agenda in a way that favors their interests.

According to the investment banking (IB) industry on March 10, ISS released its 'Proxy Analysis and Benchmark Policy Voting Recommendation' report for Korea Zinc’s regular general meeting the previous day. Both Korea Zinc and the Young Poong–MBK camp have claimed that ISS supports their respective positions. However, the original report obtained by The Asia Business Daily indicates that ISS emphasized "checks and balances" within a framework of balance, rather than showing clear support for either side.

ISS Supports Korea Zinc’s Proposal on Cumulative Voting Agenda

First, regarding the main agenda item—the number of directors to be elected through cumulative voting—ISS supported Korea Zinc’s proposal to elect five directors. The cumulative voting system allows shareholders to cast votes equivalent to the number of shares they hold multiplied by the number of directors to be elected, enabling minority shareholders to concentrate their votes on specific candidates.

ISS explained that this decision was made in consideration of the importance of separate election of audit committee members under the revised Commercial Act. Currently, Korea Zinc’s board consists of 19 members, but four of them have been suspended from their duties due to an injunction. With six of the 15 active directors needing to be newly appointed, ISS determined that at least one audit committee member could be separately elected only if five directors are selected through the cumulative voting system.

ISS stated, “While the Young Poong–MBK camp supports the separate election of audit committee members, their argument to postpone the implementation of the system until proper governance and board oversight are restored is acknowledged.” However, ISS added, “It is not desirable to delay structural governance improvements in the current situation for short-term tactical gains.”

Additionally, ISS recommended voting in favor of five out of the seven director candidates proposed by both sides. These included Hwang Deoknam, chairman of the board recommended by Korea Zinc; Walter Field McLellan, nominated as an outside non-executive director candidate by the US Crucible JV; and Park Byungwook, Choi Byungil, and Lee Sunsook, recommended by the Young Poong–MBK camp. ISS recommended voting against both Chairman Choi Yoonbum, proposed by Korea Zinc, and Choi Yeonseok, Vice President of MBK Partners, proposed by the Young Poong–MBK camp.

This point led to differing interpretations from both sides. The Young Poong–MBK camp emphasized that ISS opposed the appointment of Chairman Choi, while Korea Zinc countered by citing a statement in the report that “not recommending in favor of a candidate does not necessarily imply the candidate is unqualified.”

Caption of the report related to the agenda of ISS Korea Zinc’s regular general meeting

Criticism of Management’s Defensive Tactics: ‘Questionable Tactics’

However, ISS strongly criticized Korea Zinc management’s response in its analysis of the cumulative voting agenda. Although the company’s performance has been record-breaking, ISS assessed that management’s methods of defending control were inappropriate. ISS characterized these as “questionable tactics,” citing examples such as the attempted high-priced purchase of treasury shares followed by a low-priced rights offering, and the use of cross-shareholding structure to restrict the voting rights of the largest shareholder, Young Poong.

While the company explained that it is working to improve corporate governance and strengthen shareholder communication, ISS’s assessment was harsh. ISS stated, “These measures should be evaluated in the context of serious governance concerns raised during the recent management control dispute,” and criticized, “After employing questionable tactics designed to entrench control, these steps are merely part of a process to regain trust.” ISS further added, “Such progress is also attributable to the continued activities of the opposing shareholders (Young Poong–MBK).”

ISS also recommended voting in favor of the amendment to the executive severance pay regulations proposed by the Young Poong–MBK camp, contrary to the company’s position. Currently, Chairman Choi’s family members, honorary chairmen Choi Changyoung and Choi Changgeun, receive annual compensation of about 5 billion won each, despite not being registered executives. At the 2023 general meeting, shareholders approved a proposal to raise the chairman’s severance pay multiplier from three to four times and to apply the same standard to the honorary chairmen. ISS pointed out, “While the company claims this structure was approved with shareholder support at a past general meeting, providing the same benefits as the chairman to individuals without responsibilities and obligations does not align with sound principles of corporate governance.”

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