On January 14, 2021, the Financial Service Commission, the Financial Supervisory Service and the Korea Exchange (“KRX”) announced the “Comprehensive Improvement Plan for Corporate Disclosure System.” Pursuant to the plan, the scope of companies that were subject to the requirement of mandatory disclosure of “corporate governance reports” would be expanded from the listed companies with assets of KRW 2 trillion or more since 2019, to those with assets of KRW 1 trillion or more in 2022, to those with assets of KRW 500 billion or more in 2024, and then to all companies listed on the stock market (“KOSPI Market”) in 2026.

Pursuant to the plan, on October 5, 2021, the KRX announced amendments to the KOSPI Market Disclosure Regulation (“Disclosure Regulation”) and the Detailed Enforcement Rules thereunder (“Detailed Enforcement Rules”), which included the expanded scope of companies that are subject to the requirement of the mandatory disclosure of corporate governance reports, and on November 24, 2021 amended them.

The amended Disclosure Regulation and the Detailed Enforcement Rules took effect as of December 13, 2021.  The highlights are:

• A company listed on the KOSPI Market with total assets of KRW 1 trillion or more on a consolidated basis as of the end of the latest fiscal year is required to submit corporate governance reports (Article 24-2(1) of the Disclosure Regulation and Article 7-2(1) of the Detailed Enforcement Rules).

• The deadline for submission of corporate governance reports is now uniformly May 31 of each year (Article 24-2(1) of the Disclosure Regulation).

• The deadline for submission of the English version of the corporate governance reports is extended from one week to three months (Article 48 of the Disclosure Regulation).

Accordingly, starting from 2022, companies listed on the KOSPI Market with total assets of KRW 1 trillion or more are required to prepare and disclose corporate governance reports. Therefore, it would be advisable for each business group to check if any of its affiliates is subject to the aforementioned requirement (in advance so that the reports may be prepared in time given that the disclosure items are quite detailed and extensive). Also, it would be advisable for investors to take such changes into account as well. As you are well aware, the KRX presents the following 15 key indicators of corporate governance and requires compliance status to be disclosed in the company’s corporate governance reports.

①  Notify a general meeting of shareholders 4 weeks prior to the meeting
②  Conduct electronic voting
③  Hold a general meeting of shareholders on a date other than the “concentration date” 
④  Notify shareholders of the dividend policy and the plan for distribution of dividend at least once a year
⑤  Establish and operate policies for succession of CEO (including policies for appointment in case of emergency)
⑥  Establish and operate internal control policies
⑦  Separate the Chairman of the board of directors from the Representative Director
⑧  Adopt cumulative voting system
⑨  Establish a policy to prevent appointment of an officer who is responsible for damaging the corporate value or infringing the rights and interests of shareholders
⑩  Absence of an outside director who has served for more than 6 years
⑪  Provide training to the internal audit organization at least once a year
⑫  Establish an independent internal audit department (i.e., internal audit support organization)
⑬  Have accounting or finance expert(s) in the internal audit organization
⑭  Hold a meeting at least once a quarter between the internal audit organization and the external auditor without management attending
⑮  Have in place procedures for the internal audit organization to access important management information

On March 31, 2020, the KRX amended the "Guidelines on Corporate Governance Reports" to further specify the standards for preparing such reports. The following amendments are particularly noteworthy.

• With respect to the CEO succession policy, it is not sufficient to establish measures to be taken in case of absence of CEO.  It is required to state in the reports (i) who establishes and operates the succession policy, (ii) major contents of the succession policy such as selection of candidates (groups), management and education and (iii) status of the education, etc.

• With respect to the policies to prevent appointment of officers who infringed shareholders’ rights and interests, the infringement should include unfair trade practices under the Financial Services and Capital Markets Act, in addition to embezzlement and breach of fiduciary duties. It is also required to state in the reports explicit standards or procedures to prevent the appointment of officers (including non-registered officers) who have infringed shareholders' rights and interests.

• A standard to determine independence of the internal audit department is spelled out to be: “in order to protect the positions of the members in the internal audit department, the management is restricted from exercising its authority unilaterally because the consent of the audit committee (or the committee’s chairperson) is required to personnel evaluation or transfer, etc. of such members” 

• The scope of disclosure in the report is expanded from the dividend policies to shareholder return policies, which include the dividend policies, by requiring disclosure of mid- to long-term shareholder return policies, including dividend policies, and future plans for shareholder return.

The Guidelines on Corporate Governance Reports may be further amended to reflect the amendments to the Disclosure Regulation. We will keep you updated on further developments in the regulations and rules on the corporate governance reports.

[Korean version]