Governance Forum: "Even Samsung Attempts Staggered Terms... All Directors Should Be Reappointed Annually"

"Regret Over Amendments Aimed at Avoiding Cumulative Voting System"

"Calls for One-Year Director Terms at Listed Companies, Like in the US and Japan"

"Even Samsung Electronics is not exempt from criticism regarding its proposed amendment to the articles of incorporation, which seeks to adjust director terms in an attempt to avoid the cumulative voting system and introduce staggered terms." The Korea Corporate Governance Forum has argued that the terms of directors at listed companies, including Samsung Electronics, should be set at one year, with all directors subject to reappointment each year, similar to practices in the United States and Japan.

In a statement released on March 13, the forum said, "At the very least, for listed companies, we should adopt a system like the United States and Japan, where all directors are subject to reappointment every year. If directors are reappointed annually, there would no longer be any need for the six-year term limit on independent directors."

The forum also pointed out, "Many of the agenda items at this year’s regular general shareholders' meetings involve proposed amendments to the articles of incorporation in line with recently revised provisions of the Commercial Act. The most notable of these is the proposal to adjust the number and terms of directors. Even Samsung Electronics, whose market capitalization recently exceeded 1,000 trillion won, has put forward a proposal (Agenda Item No. 1-3) to change the existing three-year term to 'no more than three years.' The only explanation provided for this agenda item is a single line stating 'revision of director term provisions.'"

Furthermore, the forum explained that this agenda item appears to be a preparation for the adoption of staggered terms: "If all directors have the same term, several directors' terms would expire simultaneously, necessitating the implementation of the cumulative voting system. To prevent this, companies are mixing directors with two-year and three-year terms so that the terms of multiple directors do not expire at the same time." This move is interpreted as an attempt to circumvent the revised Commercial Act, which strengthens shareholder rights by introducing the cumulative voting system. The cumulative voting system allows shareholders to concentrate their voting rights on specific candidates, thereby increasing the influence of minority shareholders on the board of directors.

The forum criticized this practice, stating, "It is regrettable that such an important provision of the articles of incorporation as director terms is being changed without proper explanation to shareholders, leaving the market to interpret the intent on its own. If even Samsung Electronics, one of the leading companies, is doing this, it is hard to expect other companies to behave differently." The forum also noted, "Among the companies included in the KOSPI 200 index, which represent Korea, 15 companies—including HD Hyundai Heavy Industries, Samsung SDS, Hanwha Solutions, and Ottogi—have put forward similar amendments to change the three-year term to 'no more than three years,' as Samsung Electronics has done. It seems that so-called 'legal technicians' disguised as experts are devising clever tricks to evade the intent of the Commercial Act amendment."

Accordingly, the forum insisted that to ensure independent board operations, Korea should follow the example of advanced countries like the United States and Japan by setting director terms at one year and requiring annual reappointment. The forum explained, "In the United States, most companies set director terms at one year. All directors are subject to reappointment each year, and there are usually no limits on consecutive terms. While there may be concerns that this could encourage short-termism, in reality, most shareholders do not reappoint directors who focus solely on short-term gains, so this does not present a problem." In Japan, while the default under the Companies Act is two years, large companies and listed firms—including Sony, Toyota, and Hitachi—mostly adopt the committee system, where director terms are one year.

The forum further argued, "This is the global standard, yet leading companies in Korea, including Samsung Electronics and other KOSPI constituents, are clearly attempting to avoid implementing the cumulative voting system by introducing staggered terms through these proposed amendments. It is deeply disappointing and embarrassing."

The forum also emphasized, "Despite three rounds of amendments to the Commercial Act, there is still much to be done. At the very least, for listed companies, director terms should fundamentally be set at one year, with annual reappointment by shareholders to fully realize the purpose of introducing the cumulative voting system."

The forum added, "No further amendments to the Commercial Act or the Capital Markets Act are required. The Korea Exchange could simply establish this as a standard article of incorporation. If directors are reappointed each year based on merit, there is no need for term limits. There is also no need to impose a six-year term limit on independent directors."

The forum also called for active participation from shareholders at this year’s general meetings. "With respect to amendments to the articles of incorporation that could be abused to reduce the number of directors or shorten their terms in order to implement staggered terms and avoid cumulative voting, shareholders—including institutional investors—must demand thorough explanations from companies. If companies fail to provide satisfactory explanations, we hope shareholders will actively oppose and vote down such proposals," the forum stressed.

This content was produced with the assistance of AI translation services.