Considering the Interests of All Shareholders
Responding to Audit Committee Risks
The Korea Deloitte Group Center for Corporate Governance Advancement announced on August 13 that it has published a card news series outlining the main points of the amended Commercial Act and key considerations for outside directors.
This amendment to the Commercial Act aims to strengthen minority shareholder protection and enhance the functions of boards of directors, as well as improve corporate governance transparency. Key changes include: the introduction of a director’s duty of loyalty to shareholders, the adoption and expansion of independent directors in listed companies, the reinforcement of the 3% rule for the appointment and dismissal of audit committee members in listed companies, and the implementation of electronic general meetings of shareholders for listed companies. As the legal responsibilities and independence of outside directors are further strengthened, companies are now required to conduct a thorough assessment and take proactive measures regarding the composition and operation of their boards.
Accordingly, Deloitte emphasized that outside directors should refine their decision-making frameworks from the perspective of maximizing the interests of all shareholders. It is necessary to prevent decisions that favor or disadvantage specific shareholders, and to transparently document major decision-making processes and their rationales.
Deloitte also addressed the practical risks associated with the composition of audit committees. Due to voting rights restrictions on major shareholders, there is an increased risk of failing to meet quorum requirements and potential difficulties in appointing audit committee members. Therefore, the accounting and financial expertise, as well as the independence of candidates, should be thoroughly reviewed in advance.
Deloitte further highlighted the need to review board structures in light of the expansion of independent directors. “It is essential to establish a strategic and transparent appointment system, including candidate pool management, qualification verification, and linkage between evaluation and reappointment,” Deloitte stated. “In particular, it is desirable to introduce the Board Skills Matrix (BSM) framework at an early stage to strengthen board competency assessments and succession planning.”
Additionally, Deloitte suggested refining operational foundations in response to the introduction of electronic shareholder meetings, and enhancing the functions of the board secretariat and the support organization for the audit committee (internal audit department). Deloitte stated, “IT infrastructure, cybersecurity, and contingency response systems should be established in line with the introduction of electronic shareholder meetings, and the legitimacy of voting procedures and system operations must be ensured.” The firm also emphasized the need to strengthen the capabilities of organizations supporting the board and audit committee so that their strategic decision-making and oversight functions can be effectively exercised. Structural resource support, such as securing professional personnel, budget, and personnel authority, was also highlighted as essential.
Meanwhile, this content covers not only the background and objectives of the amended Commercial Act, but also its potential impact on financial statements and financial transactions. It provides explanations on items that could materially affect accounting treatment, such as the reduction in the scope of consolidated subsidiaries and changes in deferred corporate tax liabilities related to equity investments.
Kim Hanseok, head of the Korea Deloitte Group Center for Corporate Governance Advancement, stated, “This content was prepared to provide practical guidance for effective response to the amended Commercial Act,” adding, “We will continue to provide timely information and insights to help establish responsible corporate governance.”
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