Must Disclose Reasons for Adjusting Board Size to 'Circumvent Cumulative Voting'; FSC Unveils Draft Revisions to Corporate Governance Report Guidelines

Listed companies seeking to adjust the number of directors or their terms of office—a move seen as an attempt to circumvent cumulative voting—must state in their corporate governance reports the reasons for the adjustment and its impact on cumulative voting. They must also provide specific details, such as the size of a capital increase and the discount rate, when pursuing a paid-in capital increase.

On November 6, the Financial Services Commission and the Korea Exchange announced proposed revisions to the Corporate Governance Report Guidelines, which include these measures.

To prevent listed companies from circumventing cumulative voting, the proposed revisions require them to state in their reports the reasons for adjusting the number of directors or their terms of office and the impact of those adjustments on cumulative voting. Concerns have been raised that listed companies have sought to circumvent cumulative voting by adjusting the number of directors or their terms of office.

When pursuing measures that could undermine shareholder value, such as duplicate listings or paid-in capital increases, companies will be required to disclose shareholder protection measures and details of their communications with shareholders. In particular, for paid-in capital increases, they must provide specific details, including whether shares will be allotted to a third party, the size of the increase, and the discount rate.

The proposed revisions also require companies to disclose business reports two weeks before shareholders' meetings, rather than one week beforehand. This is intended to give shareholders enough time to review meeting agendas and exercise their voting rights. The revisions also require listed companies to explain why they are unable to submit their business reports two weeks before a shareholders' meeting.

Listed companies will also be required to disclose whether they have made information, such as dividend amounts, available to shareholders in advance of the six-week deadline before a shareholders' meeting for submitting shareholder proposals. In addition, they must provide information on the past three years, including treasury share purchases and cancellations, so investors can readily assess the extent of improvements in shareholder returns.

A Financial Services Commission official said, "Starting this month, we will provide consulting, training, and briefings to disclosure officers at listed companies required to submit reports to ensure that these revisions are fully reflected in the corporate governance reports to be submitted next year."

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