Crackdown on schemes to evade cumulative voting ... mandatory disclosure of impact when board size or directors’ terms change

[Financial News] Going forward, listed companies will be required to state in their corporate governance reports the reasons for changing the number of directors or their terms of office, and the impact of those changes on the cumulative voting system. Disclosures on shareholder-protection measures in dual listings and capital increases, as well as shareholder returns such as dividends and treasury-share cancellations, will also be strengthened.
The Financial Services Commission and the Korea Exchange announced on the 6th a proposed revision to the Corporate Governance Report Guidelines containing these measures. The revised guidelines will apply starting with corporate governance reports submitted in 2027.
Under the Commercial Act, amended in September last year, listed companies with total assets of at least 2 trillion won must use the cumulative voting system when electing two or more directors. However, suspicions have been raised that some listed companies are trying to avoid the requirement by reducing the number of directors or adjusting their terms of office.
Accordingly, the revised guidelines will require companies to disclose not only whether they use the cumulative voting system, but also the reasons for changing the number of directors or their terms of office and the impact of those changes on the system.
Disclosures on shareholder protection related to dual listings and capital increases will also be strengthened. Companies pursuing a dual listing or capital increase must disclose shareholder-protection measures and details of communications with minority shareholders and others during the decision-making process.
Companies that have carried out or are planning a capital increase must also state whether shares were allotted to a third party, the size of the increase, the discount rate, the intended use of the funds, and whether controlling shareholders acquired shares, among other details. The aim is to enable investors to assess more concretely the possibility that existing shareholders’ stakes may be diluted.
The guidelines also aim to encourage earlier submission of business reports. Listed companies must state the date they submit their business report in their corporate governance report and explain why if they fail to submit it at least two weeks before the shareholders’ meeting. This reflects concerns that most listed companies currently publish their business reports about one week before shareholders’ meetings, making it difficult for shareholders to adequately review the agenda items.
Information on dividends and treasury shares will also be expanded. Companies will have to disclose in their corporate governance reports whether they made key information public—including whether they would pay a year-end dividend and the dividend amount—by six weeks before the shareholders’ meeting at which shareholder proposals may be made. They must report the acquisition, cancellation and holding of treasury shares not only for the current year but also for the past three years.
A corporate governance report is a disclosure system that provides investors with information on a company’s governance and policies to protect shareholder rights. Introduced as a voluntary disclosure in 2017, the reporting requirement has expanded in stages, and all KOSPI-listed companies have been submitting reports since this year. As of the end of last month, 826 companies were subject to the requirement.
Starting this month, the Financial Services Commission and the Korea Exchange plan to provide one-on-one consulting, training and information sessions for disclosure officers at listed companies. They are also considering adding “whether the business report was submitted two weeks before the shareholders’ meeting” to the key indicators in corporate governance reports after reviewing compliance going forward.
[email protected] Lee Jeong-hwa Reporter