[Opinion] Key Points to Watch at the 2020 Shareholders' Meeting

The season for shareholder meetings to fully commence has arrived. This year, the role of institutional investors, including the National Pension Service, is expected to grow even more significant. At the end of last year, the number of institutions that joined the Stewardship Code reached 116, an increase of 43 companies compared to the previous year. According to an analysis by the Korea Corporate Governance Service on the exercise of voting rights by asset management companies at last year’s shareholder meetings, the opposition rate of asset managers who did not adopt the Stewardship Code showed almost no change compared to 2018, whereas the opposition rate of those participating in the Stewardship Code more than doubled.

In particular, the opposition rate of these institutions for financial statements and dividend agenda items was only 1.1% on average in 2018 but surged to 36.2% last year. Opposition to the agenda for appointing inside directors also rose from 4.8% to 28.9%. Opposition rates for appointing outside directors (6.8% → 22.4%), audit committee members (6.0% → 22.5%), and director remuneration limits (6.6% → 19.1%) also increased sharply.

This trend is expected to accelerate further as related systems improve to support shareholder activities and voting rights of institutional investors, including the relaxation of the 5% rule at the end of last year. The National Pension Service, which has the greatest influence, is anticipated to exercise voting rights and shareholder communication more actively through measures such as establishing shareholder rights exercise guidelines and reorganizing the Stewardship Responsibility Committee. Recently, the National Pension Service changed the holding purpose from simple investment to general investment for 56 out of 313 companies in which it holds more than 5% of shares. Over the past few years, the National Pension Service has raised its voice on agenda items such as dividend expansion and executive compensation appropriateness, so it will be important to watch how actively it exercises shareholder rights on various agenda items this year.

The electronic voting system is expected to be significantly expanded this year. Until last year, electronic voting services were provided only by the Korea Securities Depository and Mirae Asset Daewoo, but Samsung Securities and others have additionally started offering these services. As of last month, 1,486 listed companies, accounting for 63.1% of the total, have signed electronic voting usage contracts with these providers. Large corporations using the electronic voting system are also increasing, including SK, which already implements it, and Samsung Electronics and Hyundai Motor Group, which are expanding its adoption starting this year.

The expansion of the electronic voting system is a very welcome development, as it opens the door for small shareholders, who previously could not exercise their rights due to the concentration of shareholder meetings in March and cumbersome voting and proxy procedures, to actively exercise their rights as shareholders. Companies are expected to listen more closely to the opinions of small shareholders and actively work to enhance shareholder value. However, the voting rate through electronic voting still remains at only 5%, and there are concerns that attendance at shareholder meetings may decline due to the COVID-19 pandemic.

A notable issue at this year’s shareholder meetings is the enforcement of the revised outside director qualification requirements, which stipulate that outside directors of listed companies cannot serve more than six years at the company and more than nine years including affiliated companies. Among listed companies on the KOSPI market, 161 companies and 208 outside directors are currently unable to be reappointed due to the enforcement of this revision, and among them, 75 have served more than nine years and cannot serve as outside directors even at affiliated companies. Considering that the average number of newly appointed outside directors after retirement of those who served more than six years in KOSPI-listed companies over the past three years is 52, the number of new outside director appointment agenda items is expected to increase significantly at this regular shareholder meeting.

Although listed companies are expected to face difficulties appointing new outside directors this year and next due to the enforcement of this revision, the application of stricter outside director appointment requirements is likely to alleviate doubts about the independence of outside directors. Shareholders should carefully verify whether candidates appointed as new outside directors at companies expected to undergo rapid changes in outside director composition due to the enforcement of the revision possess both independence and expertise.

The regular shareholder meeting is almost the only and most important event where shareholders of a corporation can directly express their opinions. We hope that shareholder meetings will become more active and that shareholders’ opinions will be more proactively reflected in corporate management.

Shin Jin-young, President of Korea Corporate Governance Service and Professor at Yonsei University Business School