"South Korea, No Improvement Compared to 20 Years Ago"... Obstacles Still Block Foreign Investment

Asia Corporate Governance Association Report... "Obstacles That Existed 20 Years Ago Still Remain"

A foreign investor pointed out that the issues surrounding shareholder meetings of domestically listed companies that hinder the participation of foreign shareholders have hardly improved compared to 20 years ago.

Jamie Allen, Chair of the Asian Corporate Governance Association (ACGA)

According to the financial investment industry on the 10th, the Asian Corporate Governance Association (ACGA) recently published a report titled "Navigating the Labyrinth of Korean Shareholder Meetings," analyzing the difficulties foreign shareholders face at shareholder meetings of Korean listed companies.

ACGA is a non-profit organization established in 1999 to improve the corporate governance environment in Asia. Its members include major global pension funds, sovereign wealth funds, asset management firms, global investment banks (IBs), listed companies, and accounting firms.

ACGA stated in the report that while planning a visit to Korea in March this year to coincide with the regular shareholder meeting season together with its members, they discovered that many obstacles that existed nearly 20 years ago still remain.

In 2006, ACGA published a survey report comparing the voting systems of 10 Asian markets, advocating for the advancement of voting systems across Asia. At that time, Korea ranked 8th out of the 10 countries.

Stephanie Lin, a researcher at ACGA, said, "Based on the experience of the ACGA delegation in March, it appears that little progress has been made," citing issues such as the short 14-day notice period for convening shareholder meetings, business reports disclosed only shortly before the meetings, lack of information on director compensation, voting schedules that are tight only for foreign investors, and the concentration of shareholder meetings at the end of March.

Lin cited a study by the Korea Capital Market Institute showing that over 70% of KOSPI-listed companies issued meeting notices two weeks prior, pointing out that the 14-day notice period stipulated by Korean Commercial Law is excessively short compared to China (20 days), India (21 days), and Taiwan (30 days).

He shared the experience of a member company, saying, "Due to the short notice period, there are cases where shareholders must vote without having the opportunity to review all agenda items. When proposing amendments to the articles of incorporation, only a brief outline is disclosed without specifying the details, so shareholders vote without knowing the specifics. In such situations, it is common to cast dissenting votes."

Additionally, Korean Commercial Law requires business reports and audit reports to be disclosed at least one week before the shareholder meeting, but ACGA explained that this period is also too tight for foreign investors, forcing them to exercise voting rights without access to the latest financial data.

Currently, voting on shareholder meeting agenda items by foreign asset managers in Korea is conducted through local proxy voting service providers and global custodian banks, with the Korea Securities Depository collecting the votes and delivering them to companies five business days before the shareholder meeting.

Lin said, "The Korea Securities Depository closes foreign voting early without clear grounds," adding that foreign shareholders have only 3 to 5 days to review and analyze regular shareholder meeting proposals, and in some cases, less than half a day remained.

However, the Korea Securities Depository stated that according to the Commercial Law, notification of non-unified voting of voting rights (exercising two or more voting rights separately) must be made to the company at least three business days in advance, and the five business days early closing reflects this requirement.

Although shareholder meetings are gradually becoming more 'shareholder-friendly' through recent improvements such as dividend procedures and the introduction of electronic voting systems, Lin pointed out, "These changes have not been widely adopted," adding, "The concentration of shareholder meetings remains excessive, and transparency regarding key information such as director compensation and detailed voting results is still limited." He further noted, "Procedural obstacles such as proxy requirements, language barriers, and coordination among multiple institutions in different time zones make it even more difficult for foreign shareholders to participate."