Many Listed Firms Fail to Appoint Auditor Due to Lack of Quorum at Shareholders' Meetings

More than 100 companies have failed to handle auditor appointment and other issues at their general shareholders meetings so far, mainly due to lack of a quorum. The figure is expected to surge on March 29, the super general shareholders meeting day when a total of 597 listed companies will hold their general shareholders meetings. In addition to auditor appointment, many companies have been unable to handle various matters including the amendment of the articles of incorporation due to their failure to meet the quorum at their shareholders meetings. As a result, there is a growing call for reform of the general shareholders meeting system through an amendment to the commercial law.

The Korean business community estimated on March 28 that there were about 100 listed companies that failed to handle auditor appointment at their shareholders meetings by March 27. The Korea Listed Companies Association predicted that figure would surge to 154 this year from 56 last year. Yet the actual figure is expected to surpass the association’s estimate, considering the fact that 597 companies are scheduled to hold general shareholders meetings on March 29 following 223 companies on March 27. "There is a limited number of accounting firms and they usually audit big listed companies first. So, audits of small companies are delayed and concentrated on a certain period of time,” an industry official said. “There will be many general shareholders meetings where auditor appointment and other matters will be rejected due to lack of a quorum on March 29," an industry official said.

Among the 213 KOSDAQ companies that held their regular general shareholders meetings on March 27, 24 firms failed to pass auditor appointment due to lack of a quorum. Approximately one third of 83 companies which had auditor appointment in their agenda failed to handle it. Apart from auditor appointment, 11 firms failed to pass proposal to amend their articles of association.

The rejection of auditor appointment is mainly blamed on the "3 percent rule" which only allows up to 3 percent of voting rights of the largest shareholders and their affiliate persons, and the abolition of the shadow voting system at the end of 2017. Before the abolition of the shadow voting system, even if votes for a quorum were not enough, it was possible to prevent the rejection of an agenda item via the shadow voting system. As an alternative, the online e-voting system is spreading, but it is not embraced by many listed companies and their shareholders.

Experts say that rejecting agenda items will eventually weigh more on corporate management. "An amendment to a company’s articles of incorporation defines important directions of management and audit plays a role in monitoring the company’s management activities. If related items are not properly passed by shareholders, it will generally impede corporate management,” said Hwang Se-woon, a researcher at the Korea Capital Market Institute.