[Chatham House Dialogue] POSCO and KT Repeat Homework... "Let's Create a Company Where Shareholders Are the Owners"

Publicly Owned Dispersed Companies with Strong Public Character
Problems Recur with Every Regime Change
Continuous Monitoring Needed... Corporate Self-Cleansing Efforts Also Required

Editor's NoteOn the 3rd of last month, the 3rd Asia Economy Chatham House Roundtable was held at the Asia Media Tower in Jung-gu, Seoul, under the theme "How to Handle Ownership-Dispersed Corporate Governance." Chatham House is the nickname for the UK's Royal Institute of International Affairs (RIIA), a top-tier research institution in the field of diplomacy and security. Our Chatham House was launched in December last year to conduct in-depth discussions with experts in economics and finance. Attendees included Moon Seong, a lawyer at Yulchon; Ahn Sang-hee, Vice President of the Sustainability Center at Daishin Economic Research Institute; Lee Yong-kyung, CEO of CGN (former KT CEO); and Lim Jong-baek, Executive Director of the Citizens' Committee for the Pohang Relocation of POSCO Holding Company (in alphabetical order). They unanimously agreed that "the repetitive homework that resurfaces every time the administration changes must end," and that "boards of directors must be properly formed so that shareholders become the true owners of companies." The participants also agreed that continuous monitoring and interest are necessary to solve the problems of ownership-dispersed companies that arise like annual events. It was also pointed out that companies need to have internal self-purification mechanisms rather than relying solely on shocking external interventions. The Asia Economy Chatham House Roundtable follows the 'Chatham House Rule,' where the list of attendees is disclosed but individual remarks are anonymized. Below is the full transcript of the discussion.

◆ Moderator = Shin Beom-su, Asia Economy Editorial Director and Industry Managing Editor

Today’s discussion topic is "How to Handle Ownership-Dispersed Corporate Governance." Recently, there have been criticisms that the government is excessively intervening under the pretext of enhancing governance transparency and public interest. I would appreciate it if you could discuss how to approach this issue in light of the recent controversies.

On the 3rd of last month, participants are sharing their opinions at the Asia Economic Chatham House roundtable discussion titled "How to Manage Ownership-Dispersed Corporate Governance," held at the Asia Media Center in Jung-gu, Seoul. Photo by Dongju Yoon doso7@

“We must not just be blown by external winds... We need to be prepared to sacrifice and raise our voices”

The problem started when the National Pension Service (NPS) CIO (Chief Investment Officer) made a statement immediately after taking office on December 27 last year that caused a stir. He said, "For companies like POSCO and KT, concerns about emperor-style management need to be resolved through healthy improvements in governance," and "there is a need to change governance to avoid concerns about 'self-renewal'." The media reported this as if he opposed the appointment of the KT CEO. Due to the media’s overly focused and sensational coverage, some distortion occurred.

At that time, the KT shareholders' meeting was still three months away. KT had not even announced the shareholders' meeting yet, so it was impossible to imply opposition. However, the media reported it as if the fund director opposed it. I see a problem there. Because of many 'dark histories,' KT interpreted it as a 'signal' sent by the government and political circles.

Whether the political circles tried to influence the appointment of CEOs of ownership-dispersed companies by using the National Pension Fund or the Corporation cannot be said due to lack of objective evidence. But KT seems to have at least perceived it that way. Therefore, KT itself went through the CEO appointment process twice. As this process repeated, outside directors resigned, and the controversy spread.

No matter how much the chairman was appointed by the previous administration, it is problematic to try to replace the chairman again just because the administration changed. This only causes a vicious cycle. We need to break this cycle. If something is wrong, it should be investigated and filtered out before it becomes a problem. The government must operate properly.

If the government gives the impression that it will selectively conduct tax audits when it feels resentment, the management starts to become intimidated. Since the management themselves do not consider themselves clean, they cannot freely express their grievances and eventually accept the administration’s intentions.

There are voices inside saying that they should not just passively endure. They say that they need to actively raise their voices, prepared for sacrifice. If you are prepared to take a few hits, what can’t you say? Someone may become a scapegoat. Because sacrifice is involved, it will be difficult without determination.

Status of Major Widely Held Companies in Korea

The key to board changes is outside directors

For example, when I asked about the KT board, they said, "No, it’s difficult because the board keeps changing." When I asked again, "Shouldn’t the board properly block (problems)?" they said, "We are just people who come to have fun." That one phrase clearly shows the company’s current situation. That needs to change.

The audit committee members among KT directors should also be separated from the board. Audit committee members should not be part of the board. If audit committee members participate in board decisions, can they properly conduct audits? I don’t think so. I believe audit committee members and directors should be separated.

Under the Commercial Act, companies with total assets of 2 trillion won or more must have an audit committee system among the appointed directors.

Financial companies apply the "3% rule" to outside directors serving as audit committee members. The 3% rule limits the voting rights that major shareholders can exercise to 3% when appointing audit committee members. Non-financial companies do not have this. If a major shareholder has 50% of shares, they can exercise all of them to appoint members. To select independent and professional outside directors, non-financial companies should consider applying such rules (like the 3% rule) when appointing audit committee outside directors.

It is also not easy to evaluate the board. Since the CEO is included in the board, who and how can evaluate it? Conducting external evaluations is also a good method. Changing the outside director selection process is a way to strengthen board functions. For example, in financial institutions, the law prohibits the chairman of the holding company from attending the chairman selection committee meetings. Since public enterprises cannot be held to the same standards, strengthening board functions is the only option.

The law needs to be changed. In short, the board should be fragmented. Only then can the board exercise self-purification functions. If it operates like a 'country club' where cliques form, the check-and-balance function cannot work properly. The structure should be designed so that individual directors’ personalities emerge and balance is maintained. How can directors who hang out together every day properly check and advise the CEO?

In our corporate reality, candidates are usually proposed by controlling shareholders, the CEO, or the HR team or board secretariat approved by the CEO. It is not easy to guarantee independence. Outside directors recommend each other, or recommend friends as their successors, or recommend people with similar political colors, which is problematic.

We need to seek advice from external professional agencies that recommend outside director candidates. An independent committee composed of outside directors should select advisory agencies without CEO influence, inquire about the results from the advisory agencies, and carefully examine independence issues. Such activities should be conducted within board committees. The important thing is that the board must be independent from the CEO, and the board composition itself should have expertise and diversity.

On the 3rd of last month, participants are taking a photo before the discussion at the Asia Economic Chatham House roundtable titled "How to Manage Dispersed Ownership Corporate Governance," held at Asia Media Tower in Jung-gu, Seoul. From left to right: Lee Yong-kyung, CEO of CGN TV; Moon Seong, lawyer at Yulchon; Lim Jong-baek, executive chairman of the Citizens' Committee for the Relocation of POSCO Holding Company to Pohang; Ahn Sang-hee, director of Daeshin Economic Research Institute. Photo by Yoon Dong-joo doso7@

“Let’s Make Companies Where Shareholders Are the Owners”

In ownership-dispersed companies, the owners or representatives are honestly not shareholders. That means the person in the representative position is not a shareholder. When a non-shareholder representative manages the company, issues arise regarding whether performance is properly evaluated and whether the company is properly controlled. From the outside, since a non-shareholder runs the company and it still operates, it inevitably becomes exposed to sensitive government interference controversies. Even if a non-shareholder becomes the representative, the company must perform well to operate smoothly. At the same time, it is necessary to check whether internal control is properly maintained and whether external control is in place.

The important issue is shareholder participation. In 2021, small shareholders could not attend POSCO’s meeting. This time, only 60 to 70 people were allowed in. In a liberal democracy, why does the government intervene in all real powers of ownership-dispersed companies while shareholders are prevented from entering the shareholders' meeting? This part needs to change.

For example, the POSCO headquarters relocation issue should be discussed in depth by the board regarding whether it helps enhance POSCO’s long-term corporate value. The discussion should be based on objective opinions from experts, not on local public opinion. Ultimately, the board must be independent from political circles and management.

Not only political circles but also social consensus must be formed. However, rather than such voices, the focus is only on who the CEO candidate is this time and whether the National Pension Service supported or opposed. People focus only on immediate issues and lose interest once they pass. Consistent interest is important.