At This Year's First General Meeting, an 'Audit Crisis'... Appointment Rejections More Than Double Compared to Last Year

Frequent Quorum Failures Despite Electronic Voting Introduction
315 Companies Reject Auditor Appointment, Up 211% from 149 Last Year
"Shadow Voting Ban Hits Hard... Need to Revise Resolution Requirements and Abolish '3% Rule'"

Provided by=Korea Listed Companies Association

[Asia Economy Reporter Minwoo Lee] The number of companies that failed to appoint auditors and audit committee members due to a lack of quorum at this year's regular shareholders' meetings more than doubled compared to last year.

On the 2nd, the Korea Listed Companies Association and the KOSDAQ Association jointly surveyed the status of shareholders' meetings for 2,029 listed companies with December fiscal year-end (754 KOSPI companies and 1,275 KOSDAQ companies). They found that 16.8% (340 companies) of companies had agenda items rejected due to insufficient quorum at this year's meetings. This is nearly double the 9.4% (188 companies) recorded last year. Among the companies with rejected agenda items, 85% had introduced electronic voting systems but still failed to meet the quorum requirements.

In particular, the number of companies that failed to appoint auditors increased even more. Of the total rejected companies, 92.6% (315 companies) failed to appoint auditors and audit committee members. This is more than double (211%) the 149 companies from last year.

Compared to 56 companies in 2018, immediately after the abolition of proxy voting (shadow voting), this represents an increase of more than five times. It has been difficult to secure quorum because of the '3% rule,' which limits the voting rights of the largest shareholder to 3% when appointing auditors in listed companies. Therefore, listed companies had been utilizing 'shadow voting,' where the Korea Securities Depository exercises the voting rights of shareholders who did not attend the meeting, until its abolition in 2017.

Other rejected agenda items included amendments to the articles of incorporation (41 cases, 12.1%) and approval of directors' remuneration (18 cases, 5.3%).

By market, more agenda items were rejected in KOSDAQ-listed companies (274 companies) than in KOSPI-listed companies (66 companies). By company size, the order was small and medium-sized enterprises (194 companies), mid-sized companies (137 companies), and large companies (9 companies).

The associations stated, "Following the abolition of the shadow voting system, the demand for auditor appointments increased, resulting in a mass rejection crisis," and argued that "the resolution requirements under the Commercial Act must be urgently revised and the 3% rule abolished."