Detailed Guide Distributed in February to Improve Dividend Procedures
Listed Companies Can Apply Improved Procedures Starting Next Year
[Asia Economy Reporter Minji Lee] The Financial Services Commission (FSC) will improve the system so that investors can decide whether to invest by looking at the dividend amount. Since companies' 'dark dividends' have been pointed out as a factor for the Korea discount, the FSC plans to align with global standards by improving the dividend procedures.
On the 31st, the FSC and related agencies such as the Ministry of Justice announced that they will improve the dividend procedures so that investors can decide on investments by viewing dividend amounts through authoritative interpretation of the Commercial Act and amendments to the Capital Markets Act. Additionally, they explained that they will revise the standard articles of incorporation for listed companies to provide guidance and require disclosure of whether dividend procedure improvements have been made in the Korea Exchange's corporate governance reports, encouraging companies to voluntarily and actively adopt the improved dividend procedures.
Until now, the domestic dividend system first confirmed the shareholders eligible for dividends at the end of the year, and then finalized the dividend amount at the shareholders' meeting held in the spring of the following year. Investors had to invest without knowing how much dividend they would receive and accept the dividend decision made several months later. Overseas investors, including global dividend fund managers, have continuously downgraded Korean dividend stock investments as 'dark investments' and have persistently demanded system improvements.
The FSC stated, "If the dividend procedures are improved, it will contribute to the inflow of funds from global investors and the resolution of the Korea discount, and it will be an opportunity to enhance companies' dividend payout ratios. As the low dividend payout ratio gradually improves, continuous cash flow generation through the capital market will become possible, activating long-term dividend investments."
The FSC plans to guide the procedure to be carried out in the order of board resolution to convene the shareholders' meeting → shareholders' meeting to finalize the dividend amount → confirmation of the dividend record date → dividend payment. To this end, they plan to provide authoritative interpretation of Article 354 of the Commercial Act to separate the 'record date for voting rights,' which determines shareholders who decide on dividend payment and amount at the shareholders' meeting, from the 'dividend record date,' which determines shareholders eligible for dividends, allowing the dividend record date to be set after the shareholders' meeting date.
Regarding quarterly dividends, the FSC will amend the Capital Markets Act provision that allows dividends to be paid by a board resolution held within 45 days from the end of March, June, and September to shareholders on those dates, so that the dividend record date can be set after the board resolution date. Furthermore, since setting the dividend record date after the board resolution may result in insufficient preparation time for dividend payment, the payment deadline will be extended from 20 days to 30 days.
The FSC plans to encourage listed companies to actively participate in this dividend procedure improvement. First, they will prepare a revised standard articles of incorporation for listed companies to guide them when amending their articles. From next year, they will require disclosure of whether dividend procedure improvements have been adopted in the Korea Exchange's corporate governance reports so that investors can easily verify this. Moreover, since dividend record dates may vary by company, they plan to establish a unified page by January next year to provide integrated guidance on listed companies' dividend record dates.
The FSC will immediately distribute the authoritative interpretation of the Commercial Act and plans to propose amendments to the Capital Markets Act regarding quarterly dividends in the second quarter. The standard articles of incorporation for listed companies will be revised and guided in February, and the corporate governance report guidelines will be revised and distributed in the first quarter of next year. The system improvements are expected to apply from the dividend payment for this year's settlement (next year) if companies change the dividend record date through articles of incorporation amendments at the regular shareholders' meetings in March. The FSC stated, "We will distribute detailed guidance materials for articles of incorporation amendments for dividend procedure improvements in February and hold explanatory sessions for listed companies to ensure that the improvement measures are well established in the market."
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