With Low Major Shareholder Stakes, Samsung Electronics and SK hynix Face Potential Board Election Battles at Next Shareholders’ Meeting [Commercial Act Amendment 1 Year]③

'3% Rule' This Month, Cumulative Voting in September: Minority Stakeholders May Gain Board Entry
Survey Reveals "Ease of Board Entry" Among Top 100 Listed Companies by Assets

Financial Holding Groups, POSCO, and KT&G with Dispersed Ownership

Editor's Note
With the implementation of amendments to the Commercial Act focused on strengthening shareholder rights one year ago, Korea's capital market has taken its first step toward resolving the 'Korea Discount.' Over the past year, starting with the expansion of directors' fiduciary duties, a series of institutional reforms have been introduced to bolster shareholder rights and improve corporate governance. However, there are still considerable challenges to enhancing the effectiveness of these measures. On the first anniversary of the amended Commercial Act, The Asia Business Daily is launching a four-part series based on surveys and domestic and international interviews with experts from the financial investment industry, academia, business, and the legal sector to assess the impact of the legislation on the capital market and identify tasks necessary to usher in the era of the 'Korea Premium.'

With the implementation of follow-up measures to the amended Commercial Act, such as the mandatory cumulative voting system set for September, the boards of major Korean companies will soon face a significant test. Not only dispersed ownership companies like financial holding firms, POSCO Holdings, and KT&G, but also owner-led companies such as NAVER, Samsung Electronics, and SK hynix—where the largest shareholders have relatively low stakes—are expected to become targets for shareholder proposals and board entry attempts by activist funds and other stakeholders. At the corporate level, there are rising concerns that restrictions on the voting rights of major shareholders may dampen business decision-making.

Dispersed Ownership Companies: Greater Board Entry Potential with Smaller Stakes

According to a comprehensive survey conducted by The Asia Business Daily on July 23, which analyzed the shareholding ratios of controlling shareholders (largest shareholders and specially related parties), the shareholding ratios of the National Pension Service and foreign investors, and the number of directors whose terms end this year across the top 100 listed companies with total assets over 2 trillion won, the 'ease of board entry index' (0–100 points) placed major financial holding firms at the top, with KB Financial Group scoring 95.2, Hana Financial Group scoring 92.8, and Shinhan Financial Group scoring 90.5.

These firms have minimal friendly shares held by their largest shareholder groups, while foreign ownership reaches about 60–70%. The introduction of cumulative voting establishes a structure in which outside shareholders can consolidate their votes and gain board seats relatively easily. Companies such as Woori Financial Group (80.0), iM Financial Group (75.7), and JB Financial Group (68.4) are in similar positions.

The same holds true for privatized dispersed ownership entities such as POSCO Holdings (81.1) and KT&G (79.2). Here, holdings by major shareholders and related parties are minor, so shifts in board composition can result from the voting decisions of the National Pension Service or institutional investors. According to one business industry source, "Companies with dispersed ownership and no controlling family, like these, were already prime targets for external shareholder rights exercises even before the Commercial Act amendment, but now the cumulative voting system allows entry into the board with even smaller stakes."

‘Low Ownership’ Owner-Run Firms Also Set to Open Up

Major conglomerates with founding families or owner groups but low or dispersed controlling stakes are also expected to feel the impact of the new regulation. In the past, controlling shareholders maintained board dominance with stakes in the 20–30% range, but this will change beginning in September. When electing audit committee members separately, the combined voting rights of major shareholders and their affiliates will be capped at just 3%. Moreover, the application of cumulative voting will further limit the practical voting power of major shareholders in board seat contests, even for those with high stakes. The cumulative voting system grants shareholders voting rights equivalent to the number of board members to be elected for each share they hold, allowing them to allocate all their votes to a single candidate. This significantly increases the possibility of outsiders, recommended by external parties, joining the board.

NAVER (63.2) is a typical example. The combined ownership of NAVER Global Investment Officer Lee Haejin and his specially related parties stands at around 4%. If the 3% rule and cumulative voting both apply, first-ranked shareholder National Pension Service (9.25%), or foreign/institutional investors, could secure a board seat through shareholder proposals.

SK hynix (60.5) shows a similar situation: the largest shareholder holds a 20.07% stake, but foreign investors hold 53.82%. With three directors’ terms expiring, the company is expected to be significantly affected by governance reforms.

Samsung Electronics (54.2) is structured much the same. The founding family holds 19.84%, while foreign shareholders account for 52.34%. If the number of board positions up for election increases, the likelihood of outside directors joining the board through cumulative voting may rise accordingly. Other owner-run companies with relatively low majority stakes, such as Hanjin KAL, Shinsegae, DL E&C, and SK Square, are also within the sphere of impact.

Kim Woojin, a professor of business at Seoul National University and an expert in corporate governance, remarked, "Once the follow-up regulations take effect in September and the annual general meeting season ramps up in March next year, there will be a much higher number of board entry attempts and shareholder proposals from external investors compared to previous years." According to Align Partners, the number of shareholder proposal motions (excluding ESG-related items) during annual general meetings rose from 134 cases in 2024 (before the Commercial Act amendment passed the National Assembly), to 151 cases in 2025, and to 218 in 2026, showing an annual increase.

Mounting Concerns in Business Circles ... “Decision-Making Delays Expected”

While Korean companies are refining their governance structures in accordance with the intent of the law, there are also concerns that justifiable and rational business activities could be inadvertently constrained. It is pointed out that institutional improvements are needed, since only the capacity for stable, strategic decision-making—such as in long-term investments, business restructuring, and entry into new industries—can truly enhance corporate value.

Particularly in the current climate of intensifying global competition, prolonged boardroom conflicts can delay swift decisions involving large-scale R&D investments or new business initiatives. One conglomerate official stated, "If an activist-appointed director joins the board and delays decisions by focusing only on immediate return on investment (ROI) or short-term financial metrics, companies could lose critical timing in the fast-paced global technology race."

Another insider added, "Since there are few precedents related to the amended Commercial Act and its contents are still quite abstract, small and medium-sized companies face significant on-the-ground difficulties, such as high legal costs. A corporate environment must be shaped so that companies can pursue long-term investments and visions."

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