FCP "Opposition to KT&G President's Reappointment and Articles of Incorporation Amendment"

"KT&G Submits Agenda to Exclude Only CEO from Cumulative Voting
Through Amendment to Articles of Incorporation"

Activist fund Flashlight Capital Partners (FCP) announced on the 13th that it "strongly opposes the agenda item on the cumulative voting system for CEO candidates submitted by KT&G for the 2025 regular shareholders' meeting."

On the same day, FCP criticized the agenda as "a clear trick for CEO Kyungman Bang's imperial reappointment, which seriously undermines the original purpose of the cumulative voting system and shareholder value."

The cumulative voting system is a method in corporate general meetings where voting rights are not given as one vote per share for electing board members, but rather voting rights are multiplied by the number of directors to be appointed. This allows certain minority shareholders to concentrate their votes on specific candidates, making it one of the representative means to protect minority shareholders.

Previously, CEO Kyungman Bang was elected at last year's shareholders' meeting through cumulative voting with a 50.9% vote share. Excluding internal shares such as treasury stock donation foundations accounting for 13%, the support was 38%.

Lee Sanghyun, CEO of FCP, stated, "The CEO is also a member of the board of directors and should be subject to the cumulative voting system on equal footing with other directors," adding, "Seeking special treatment only for oneself is a prelude to an imperial reappointment." He further said, "If being elected with a low support rate of 38% is embarrassing, then the CEO should prove his ability through stock price and performance even more diligently," and added, "The idea of surviving through amendments to the articles of incorporation rather than ability is disappointing."

The world's largest proxy advisory firm, ISS, also expressed opposition to this agenda in a report on the 11th. Currently, KT&G's major shareholders include the National Pension Service and the Industrial Bank of Korea. FCP argued, "If these two major shareholders, which are state institutions, vote on this agenda without clear grounds, there will be no future for corporate governance in South Korea."

Questions were also raised about the operation of the Stewardship Committee. The committee opposed the establishment of the CEO's evaluation and compensation committee in 2023, but supported CEO Kyungman Bang's appointment last year. CEO Lee Sanghyun said, "Unlike the National Pension Service, which has been thoroughly audited and verified for morality, the Stewardship Committee, composed of civilians, has never been verified for freedom from external influence," emphasizing, "The public who entrust their pensions to the committee have the right to know whether it is being operated fairly."

Additionally, CEO Lee Sanghyun added, "For KT&G to become a globally competitive company, transparency and enhancement of shareholder value are essential," and stated, "This amendment to the articles of incorporation cannot be justified under any pretext."

Regarding this, a KT&G official said, "This agenda is intended to actively reflect the opinions of prominent domestic and foreign institutional investors and major shareholders," adding, "If the appointment of the CEO is rejected through integrated cumulative voting of CEO candidates and inside and outside directors, a management vacuum may occur as the recommended CEO candidate may not be appointed in time through a fair and independent appointment process, which could harm corporate value."

They also said, "Another proxy advisory firm, Glass Lewis, is known to have recommended full support for this agenda. The amendment to the articles of incorporation aims to more clearly reflect the overall shareholders' approval or disapproval of future CEO appointments," and expressed "strong regret over ISS, which published a low-credibility report without basic understanding of the shareholders' meeting agenda and without presenting substantial reasons for opposition."