"Distorted governance" ISS recommends voting against reappointment of Chairman Choi Yun-bum as inside director at Korea Zinc [fn Market Watch]

According to The Financial News, Institutional Shareholder Services (ISS), the world’s largest proxy advisory firm, has clearly recommended voting "against" the proposal to reappoint Chairman Choi Yun-bum as an inside director in its agenda analysis report released ahead of Korea Zinc’s annual general meeting of shareholders on the 24th.
ISS stressed that the essence of this shareholders’ meeting is not a simple management control dispute, but rather "correcting repeated distortions in corporate governance and failures of oversight."
ISS expressed support for electing five directors through cumulative voting and, on that basis, backed the appointments of Hwang Deok-nam, the board chair nominated by Korea Zinc, Walter Field McLellan, nominated as an additional non-executive director candidate by the U.S. Crucible JV side, and three candidates put forward by the Young Poong Group–MBK Partners consortium: Byung-uk Park, Choi Byung-il, and Lee Sun-sook.
In contrast, it recommended voting "against" the proposal to reappoint Chairman Choi Yun-bum as an inside director. This stance is being interpreted as effectively formalizing the international investment community’s structural distrust of the current management regime.
While acknowledging Korea Zinc’s improved performance and share price gains in recent years, ISS argued that the core issue in this case is not performance but "governance."
The report cited several concerns: the attempt to carry out a discounted rights offering after buying back treasury shares at high prices, the controversy over restricting Young Poong Group’s voting rights through the use of an allegedly illegal cross-shareholding structure, and procedural problems in board deliberations during large-scale strategic investments. ISS assessed that, taken together, these actions effectively used corporate funds and the company’s equity structure as a shield to protect Chairman Choi’s personal control over management.
This can be seen as an international-standard warning that Chairman Choi Yun-bum and the management have used the company’s capital and decision-making framework as tools for private control.
ISS also took issue with a structure that grants a retirement payout standard four times base salary—the same as that of the CEO—to honorary chairmen who are not registered directors and therefore bear no legal responsibility. It recommended voting in favor of an amendment to revise these rules. ISS judged that the fact that the two honorary chairmen are members of the current chairman’s family, and the large compensation they receive, are difficult to reconcile with global governance principles. In response to the company’s argument that such arrangements had been approved at past shareholder meetings, ISS drew a clear line, stating that prior approval does not automatically guarantee appropriateness.
ISS emphasized that what is most needed at this point is the restoration of checks and balances. It argued that only a balanced board composed of directors with independence and expertise can put an end to recurring oversight controversies and restore investor confidence.
A source in the investment banking industry commented, "Global investors view the issues at Korea Zinc not as a matter of earnings, but as structural defects in its corporate governance. They have concluded that a decision-making structure centered on the Choi family, the use of corporate funds and equity arrangements to maintain control, and a system that grants large compensation and retirement perks to individuals with no legal responsibility can no longer be tolerated under global standards." The source added, "This shareholders’ meeting is likely to be a critical turning point that will determine whether Chairman Choi Yun-bum’s leadership shifts toward aligning with these international governance standards, or instead chooses to preserve the existing control structure."


kakim@fnnews.com Reporter Kim Kyung-a Reporter