"40 Million Won to Send Son to University..." 'Mother's Leg' Stepped on by Security Guard's Shoe Heel [Small Shareholders' Tears]④

The "Flower" of a Corporation, the Shareholders' Meeting, Is a One-Way Street for Management
Small Shareholders' Voices Are Excluded
"It Is Structurally Difficult for the Current System to Reflect Their Demands"

Editor's Note402.5 billion KRW. This is the amount of embezzlement and breach of trust disclosed by 29 listed companies last year, during which the government's value-up project was underway to enhance corporate value. Small shareholders are neither protected nor included in crimes occurring within companies. Even if the management commits embezzlement and breach of trust, leading to trading suspension and delisting, small shareholders cannot monitor or hold them accountable in advance. They have no choice but to bear the losses and wait. Ahead of the regular shareholders' meeting season in March for listed companies, we focus on the tears of small shareholders excluded from the domestic stock market, which continuously calls for corporate value enhancement.

"This is money that must be recovered within two years."

On the 17th of last month, Baek Seung-hyun (46, female), a small shareholder of Daeyu, a KOSDAQ-listed company, sighed deeply while mentioning 40 million KRW. The 40 million KRW was money saved to support her son, currently a high school sophomore, through his university life. Thinking it was a waste to leave the money idle, she purchased about 8,000 shares of Daeyu stock at the end of 2022. She thought it was a good stock because it was a well-known fertilizer brand with a solid sales structure. That was until the trading suspension occurred.

On December 13 last year, a special shareholders' meeting of Daeyu, a KOSDAQ-listed company, was held at the Construction Hall in Gangnam-gu, Seoul. Minority shareholders, including Ms. Baek Seung-hyun (46, female), expressed dissatisfaction with the conduct of the meeting and engaged in a physical altercation with the company's security guards, prompting police intervention. Provided by Daeyu Minority Shareholders Alliance

Daeyu was suspended from trading in April 2023 due to breach of trust charges against former CEO Kim Woo-dong. Despite several warnings from the Korea Exchange about delisting, since August 2023, the company has only focused on buying time through appeals and injunctions against the delisting, failing to find ways to recover shareholders' losses or revive trading. Baek said she did not expect Daeyu's trading suspension to last this long. She said, "Honestly, when the trading was suspended due to former CEO Kim's breach of trust charges, I thought it would be lifted soon," adding, "As the situation worsened, I fell into 'menbung' (a Korean slang for mental breakdown)."

Baek was angry at the company's attitude. Small shareholders of Daeyu, including Baek, expected the appointment of a full-time auditor who could reflect their voices at the extraordinary shareholders' meeting held on December 13 last year at the Construction Hall in Gangnam-gu, Seoul. They believed that appointing a full-time auditor who could properly monitor the company would resolve issues like breach of trust. However, at the extraordinary shareholders' meeting, the voices of small shareholders were thoroughly excluded. The new Daeyu CEO, Lee Beop-jong, who chaired the meeting, applied the '3% rule,' which limits voting rights to 3% ownership for small shareholders who collectively held 28.88% of the voting rights. The appointment of the full-time auditor was rejected. Small shareholders protested and filed a lawsuit to invalidate the resolutions passed at the extraordinary meeting. However, a Daeyu representative stated, "We applied the 3% rule after legal consultation," maintaining that there was no problem.

Baek cited her injuries as evidence of the company's 'one-way street' approach. The injuries were a sprained ankle and a leg stepped on by shoes during a scuffle with company security guards. After the extraordinary shareholders' meeting, small shareholders continuously protested the unilateral conduct of the meeting. Although the company initially allowed a representative of the small shareholders to participate in the proxy vote counting, they obstructed this. Then Baek saw the company's security guards moving a box containing proxy votes. "Where are you going?" Baek immediately blocked the large security guards. Although she is less than 160 cm tall, she said she did not think about that at the time. However, after a physical struggle, the security guards loaded the box into a vehicle prepared outside the building.

Baek expressed her frustration along with mentioning that she sustained injuries requiring three weeks of medical treatment. "If the Korea Exchange ultimately decides on delisting, the remaining small shareholders will bear the losses. Honestly, it feels like everything is collapsing."

The 'Flower' of a Corporation, the Shareholders' Meeting, Excludes Shareholders... "Falling into Menbung"

The Korea Zinc Extraordinary General Meeting of Shareholders is taking place on the afternoon of the 23rd at the Grand Hyatt Seoul in Yongsan-gu, Seoul. Photo by Jo Yong-jun

The shareholders' meeting is called the 'flower' of a corporation. Shareholders can demand what they want and have it reflected at the meeting. However, cases where small shareholders or those opposing the company are excluded from the meeting are repeatedly occurring. The chairperson, who represents the company, effectively holds all authority at the meeting. According to Article 366-2 of the Commercial Act, the chairperson must maintain order and organize the meeting and may suspend speeches or order removal for intentional disruptions. There is no law that specifically defines or limits the chairperson's authority.

The problem is that most chairpersons are company representatives such as CEOs. There is a high possibility that the chairperson will lead the meeting favoring the company. This phenomenon can be seen even in large companies. On January 23, Park Ki-duk, CEO of Korea Zinc, chaired an extraordinary shareholders' meeting and restricted the voting rights of Korea Zinc shares held by Youngpoong according to the Commercial Act's provisions limiting cross-shareholder voting rights. However, MBK and Youngpoong, who are in a management dispute with Korea Zinc, claimed the voting restriction was clearly illegal and filed an injunction to suspend the resolution's effect, leading to a legal battle. A legal expert said, "Even if the chairperson proposes 'time-buying' agendas such as applying the 3% rule to small shareholders' voting rights, small shareholders find it difficult to dispute immediately at the meeting," adding, "Since small shareholders find it hard to unite, cases where they successfully push through desired agendas are rare."

Even Entering Legal Disputes Takes 'Forever'... Only Shareholders' Losses Snowball

"Legal disputes? We will spend all our time breaking the company's lies." Another small shareholder, Park Su-bon, vice representative of the Cellivery Small Shareholders Solidarity, expressed skepticism about the legal disputes following shareholders' meetings. He took legal steps, judging the shareholders' meeting of Cellivery, a KOSDAQ-listed company, to be unfair but only felt helpless because the lawsuits were ineffective.

Cellivery held an extraordinary shareholders' meeting on March 13 last year. Small shareholders proposed to dismiss CEO Cho Dae-woong, who was accused of embezzlement and breach of trust, and to appoint Yoon Joo-won, representative of the Cellivery Small Shareholders Solidarity, as an inside director. However, Cho, who chaired the meeting, did not appear even after the scheduled start time of 9:30 a.m. Around 2 p.m., Cho announced that the votes could not be counted and declared all proposals rejected. According to the Cellivery Small Shareholders Solidarity, the company said the venue was only available until 2 p.m., so the extraordinary meeting could not continue.

On March 29 last year, at the regular shareholders' meeting of Cellivery, a KOSDAQ-listed company, CEO Cho Dae-woong proceeded with the agenda voting excluding the voting rights of minority shareholders. Minority shareholders and the company clashed and engaged in a physical altercation in protest against the one-sided conduct of the shareholders' meeting. Provided by Cellivery Minority Shareholders Solidarity

The Cellivery Small Shareholders Solidarity protested the company's unilateral disruption of the extraordinary meeting. However, they could not file any lawsuits related to the meeting because all proposals were rejected, leaving no legal grounds to dispute. Vice representative Park said, "The company probably aimed to prevent small shareholders from taking legal action by simply rejecting the proposals."

Legal disputes also take a long time. Cellivery held its regular shareholders' meeting on March 29 last year and appointed Kim Hyung as an inside director, as the company desired. During this process, the company excluded all voting rights of small shareholders, claiming it could not recognize proxy votes collected through the small shareholder platform 'ACT,' and proceeded with the agenda vote. The Cellivery Small Shareholders Solidarity filed an injunction to suspend Kim's duties, protesting the company's unilateral conduct. On December 30 last year, the Seoul Southern District Court recognized the company's unfair actions and suspended Kim's duties. This was the result after seven months of litigation. Vice representative Park said, "While the lawsuit was ongoing, the Korea Exchange decided to delist Cellivery in June last year. Ultimately, the damage fell on the small shareholders." CEO Cho was indicted last month on charges of fraudulent trading and insider trading under the Capital Markets Act.

Small shareholders point out the need for institutional improvements to prevent damage at shareholders' meetings and elsewhere. In cases where conflicts of interest between the company and small shareholders are intense, such as stocks suspended due to embezzlement and breach of trust, they argue that appointing an independent third-party chairperson should be mandatory. Cheon Jun-beom, vice chairman of the Korea Corporate Governance Forum, said, "Under the current Korean system, it is difficult for small shareholders' voices to be reflected through shareholders' meetings," adding, "Instead of shareholders exercising voting rights for each director appointment, we could consider introducing systems like Japan's 'cumulative voting,' where multiple directors are elected at once by cumulative votes."

Series on 'Tears of Small Shareholders'

"The Korean Capital Market Killed My Younger Brother"
①Trading Suspended Due to Executive Embezzlement... A Family Broken by the Capital Market

Over 1 trillion KRW Embezzlement Crimes in Listed Companies Over 3 Years... 402.5 Billion KRW Last Year Alone
②Trading Suspensions and Delistings Continue... Embezzlement and Breach of Trust Punishments Are 'Lenient'

Only 7 out of 78 Cases of Embezzlement Over 500 Million KRW Received Enhanced Punishment... Despite Shareholders' Calls for Severe Punishment, Penalties Are 'Lenient'
③Comprehensive Survey of First Trial Verdicts on Embezzlement under the Special Act... Difficult to Punish High-Value Embezzlement Crimes

▶Shareholders' Meetings Excluding Small Shareholders... Worries over 'One-Way Street'
④Voices of Shareholders Ignored at the 'Flower' of Corporations, the Shareholders' Meeting

Embezzlement Punishment Strengthening Stalled... Urgent Need to Solve Information Asymmetry Issues
⑤Small Shareholders and Experts Discuss Laws to Protect Small Shareholders