[Viewpoint] Did You Successfully Hold Your Shareholders' Meeting?

Choi Jun-seon, Honorary Professor, School of Law, Sungkyunkwan University

This year’s regular shareholders’ meeting season is entering its final stage after this week. The difficulties repeatedly faced during shareholders’ meetings have continued without exception this year as well. In February, the Federation of Korean Industries conducted and announced a survey on the ‘Difficulties in Shareholders’ Meetings of the Top 500 Companies by Sales.’

The biggest challenges in preparing for the meetings were identified as ‘finalizing the business report and various prior disclosures before the shareholders’ meeting’ (49.4%) and ‘securing quorum and confirming voting rights’ (31.2%).

The ‘business report’ is originally required by the Capital Markets Act to be submitted to the Financial Services Commission and the stock exchange within 90 days after the end of the fiscal year. Within 90 days roughly means by the end of March. However, the revised ‘Enforcement Decree of the Commercial Act’ from January 2020 allows this report to be replaced by sending it electronically to shareholders or posting it on the company’s website at least one week before the shareholders’ meeting. The problem is that the content of this report is very extensive, and companies responsible for preparing it face significant time constraints. Moreover, due to the standard audit hours system and audits of internal accounting control systems, the time required for external auditors has greatly increased, so companies cannot arbitrarily finalize the report.

Since the report must be completed at least one week before the shareholders’ meeting, the meeting naturally tends to be pushed to the end of March to maximize preparation time. If the meeting is held in early March, the business report must be completed by the end of February, which is too tight a schedule. As a result, most companies hold their meetings in the last week of March. According to surveys by the Korea Listed Companies Association and the KOSDAQ Association, the 2022 regular shareholders’ meetings were concentrated on March 25 (Friday), 29 (Tuesday), 30 (Wednesday), and 31 (Thursday).

The authorities, concerned that holding shareholders’ meetings on a specific day (Super Shareholders’ Meeting Day) might hinder small shareholders’ exercise of rights, have allowed meetings to be held until April if the articles of incorporation are amended. However, amending the articles requires a special resolution at the meeting, which is not simple. While encouraging the dispersion of meetings, the policy simultaneously requires delaying them as late as possible to secure physical time, which is contradictory. Since the business report is made available from one week before the meeting, wouldn’t that be sufficient?

‘Securing quorum’ is also problematic. Ordinary resolutions require at least one-quarter of the total issued shares and a majority of voting rights present, while special resolutions require one-third of the total issued shares and two-thirds of voting rights present. However, low attendance by small shareholders makes securing quorum difficult. The criteria should be revised to require a majority of voting rights present for ordinary resolutions and two-thirds for special resolutions. Meanwhile, the National Pension Service, which should be an ally, has opposed or plans to oppose the appointment of executives at several companies including Samsung Electronics. Recently, demands for data submission from the National Pension Service have also increased significantly. Korean companies now may need to operate a National Pension Service response team in addition to their Fair Trade Commission response team.

Identifying special related parties of the largest shareholders and confirming changes in their shareholdings is also a headache. In some cases, the number of relatives within six degrees of kinship and relatives within four degrees exceeds 150 people. This is a matter of personal privacy, so how can this be properly identified?

A ‘business-friendly country’ is nothing else. If even such seemingly minor issues without conflicting interests cannot be properly fixed, the notion of a ‘business-friendly country’ becomes an empty slogan.

Choi Jun-seon, Honorary Professor, School of Law, Sungkyunkwan University