Recently, there has been an increasing number of cases where minority shareholders, such as activist funds and minority shareholders’ associations, exercise their rights to make proposals and to request access to, and copying of, accounting books, and/or solicit to object the agenda items proposed by a company at its general shareholders’ meeting. Regarding the foregoing, appropriate responses to minority shareholders and the operation of the general shareholders’ meeting have been drawing keen attention as important issues in relation to the investor relations and governance of companies. In particular, the exercise of voting rights by institutional investors, including pension funds and asset managers, has had significant impact on the actual results of general meetings of shareholders.
With respect thereto, as previously explained in our newsletter (Link), since April 2023, the Financial Supervisory Service (“FSS”) has formed a task force with the Korea Financial Investment Association (“KOFIA”), the Korea Capital Market Institute and major asset managers and explored ways to improve the overall practice of asset managers’ exercise of their voting rights, including amending the “guidelines on exercise of voting rights by asset managers” (the “Guidelines”). Accordingly, on August 2, 2023, the FSS announced as the first step that it would improve the system to manage the determination and disclosure of the details of voting rights exercised by asset managers, based on which it would build a database of information on such exercise of voting rights.
Following the improvement of the disclosure system, on October 26, 2023, the FSS and the KOFIA announced a proposed amendment to the Guidelines to enhance the effectiveness thereof.
There has been criticism that the existing Guidelines (June 2016) were categorized by abstract themes irrespective of the order and details of the agenda items proposed at general meeting of shareholders, resulting in inefficiency, lacked specific examples and did not reflect the latest trends and issues while often proposing unclear principles, and thus they are difficult for asset managers to refer to when actually exercising their voting rights. The FSS and the KOFIA announced their plan to make an amendment to the Guidelines to enhance their effectiveness in practice as below:
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1) |
Creation of general principles: Prior to addressing specific guidelines, the standard best practices regarding internal control, including policies on the exercise of voting rights and disclosure, decision-making systems and procedures, were presented as “general principles.” |
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Reorganization of the Guidelines focusing on working-level analysis: To enhance the efficiency of agenda analysis at working-level, the Guidelines were reorganized to reflect the order of listing the agenda items in the notice of general meeting of shareholders as set forth in the corporate disclosure form, as follows: |
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Organization of Existing Guidelines |
Organization of Amended Guidelines |
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A. Governance B. Capital structure C. Corporate social responsibility |
① Approval of financial statements ② Amendment to articles of incorporation ③ Appointment of directors, auditors and members of audit committee ④ Approval of ceiling amount of remuneration of directors and statutory auditors ⑤ Granting of stock options ⑥ Mergers, business transfer, etc. ⑦ Change of capital structure ⑧ Other agenda of general meetings of shareholders |
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Differentiation between laws and regulations and recommendations, and clarification of principles and cases: With respect to the matters that provide criteria for determination different from those prescribed by laws and regulations, relevant laws and regulations were stated additionally to provide grounds for determination. In addition, regarding the criteria for determination based on abstract concepts, such as shareholder value, factors or cases that may be considered in determination were added. |
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4) |
Supplementation and updates of cases: The latest cases including in the field of ESG, etc. were added by referring to the voting rights guidelines of major voting advisory institutions at home and abroad and the K-ESG Guidelines, among others, as follows. In particular, as for governance structure (see below, section (G)), a number of cases have been added that may help strengthen shareholder rights and enhance the responsibility and transparency of the board of directors: |
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Classification |
Amended Matters |
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Environment (E) |
In the case of the “greenhouse gases emission control companies” as defined in the Framework Act on Carbon Neutrality and Green Growth, to object the re-appointment of directors who are liable for failure to take proper actions, including failure to perform obligations under applicable laws |
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To vote for a proposal demanding the establishment or strengthening of an environmental management system by establishing and performing specific environmental management goals for the sustainable growth of a company |
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Social responsibility (S) |
To object a proposal to limit diversity (including regarding gender, experience and capability) of the composition of the board of directors |
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To vote for a proposal demanding support for ESG management of a company’s subcontractors for the company’s long-term and stable growth |
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To vote for a proposal demanding strengthening, and disclosure of operation status of, data security systems to prevent a decline in corporate value |
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Governance (G) |
Strengthen shareholders’ rights |
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Strengthen responsibility of board of directors |
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Enhance transparency and compliance |
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5) |
Clarification of meanings and terms: Certain expressions that were inconsistent with laws and regulations or ambiguous have been clarified. |
Please note that the amended Guidelines came into effect immediately upon the announcement thereof. Going forward, in relation to proper responses to minority shareholders and the operation of the general shareholders’ meetings, the agenda of the general shareholders’ meeting may need to be composed, and the proxy solicitation for the exercise of voting rights may need to be made to institutional investors’ shareholders, both in accordance with the standards set forth in the amended Guidelines in order to secure institutional investors’ support for such agenda.
