Method for Appointing Top 2 of 4 Internal and External Directors
Exercise 2 Voting Rights per Share
Unanimous Votes Possible Including Shareholder-Nominated Candidates
KT&G is set to hold a shareholders' meeting on the 28th at the KT&G Headquarters Talent Development Center in Daedeok-gu, Daejeon Metropolitan City, where a fierce vote battle is expected over the agenda to appoint directors, including the next president candidate, Bang Kyung-man. This follows the KT&G board of directors submitting an agenda requesting the appointment of one representative director and one outside director candidate each, while the second-largest shareholder, IBK Industrial Bank, and the activist fund Flashlight Capital Partners (FCP), which holds less than 1% of shares, have also proposed outside director candidates through shareholder proposals.
According to industry sources on the 4th, the upcoming KT&G shareholders' meeting will implement a cumulative voting system where four candidates, including inside and outside directors, will compete, and the top two will be appointed as directors. The cumulative voting system grants voting rights equal to the number of directors to be appointed per share, rather than one vote per share at the shareholders' meeting. Previously, the KT&G board accepted the activist fund FCP's demand for the cumulative voting system. This cumulative voting system is unprecedented. When appointing two directors, shareholders can exercise two votes per share and concentrate their votes on specific candidates. The candidates for appointment include Bang Kyung-man, the next president candidate for the inside director position, and outside directors Lim Min-gyu (both recommended by the KT&G board), Son Dong-hwan (recommended by IBK Industrial Bank), and Lee Sang-hyun (recommended by the activist fund Agnes).
IBK Industrial Bank holds a 7.11% stake in KT&G, the second-largest after the U.S. asset management firm First Eagle Investment Management (7.31%). Previously, in 2018, IBK Industrial Bank opposed the reappointment of KT&G President Baek Bok-in by proposing two outside director candidates through a shareholder proposal. The agenda proposed by IBK Industrial Bank was submitted but rejected at that time.
IBK Industrial Bank has proposed outside director candidates again after six years, and with the introduction of the cumulative voting system, its voting power has increased. There is also a possibility that IBK Industrial Bank will express opposition to the current management by casting all votes for the candidates they recommend at this KT&G shareholders' meeting.
Following IBK Industrial Bank, the third-largest shareholder, the National Pension Service, which holds a 6.36% stake, is also a variable factor. Recently, FCP sent a letter urging the National Pension Service to exercise voting rights in the appointment of KT&G's representative.
If the first and second largest shareholders and foreign investors concentrate their votes on the outside directors proposed through shareholder proposals rather than on Senior Vice President Bang, there is a concern that the new president appointment may be rejected.
An industry insider said, "It is important to note that there have been many demands for the inclusion of outside directors recommended by shareholders to monitor management during the process of selecting KT&G's next president," adding, "The voting results for the outside director positions, recommended by both internal and external parties, are likely to be closely contested rather than the representative director appointment."
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