Listed companies are expressing concerns over the recently revised enforcement decrees of the Commercial Act and the Capital Markets Act, which are scheduled to take effect next month.
According to the former decree, the term of an outside director in a listed company cannot exceed six years and it is limited to nine years when a subsidiary is included. The latter decree is to relax the duty of disclosure applied to an institutional investor in possession of at least 5 percent of a listed company. It is predicted to allow the National Pension Service (NPS) to intervene more in management by demanding, for example, a change in the articles of association or executive resignation at a regular shareholder meeting.
At present, any largest shareholder’s voting right is limited to 3 percent with regard to auditor and audit committee member appointment. The so-called 3 percent rule has remained effective for as long as 58 years. In addition, shadow voting was repealed in late 2017. As a result, rejections regarding auditor and audit committee member appointment are becoming more and more frequent in listed companies. The same is likely to occur with regard to outside director appointment due to the outside director term limitation mentioned above. Experts point out that the government needs to reduce its intervention.
According to the latter decree, an institutional investor’s request for a change in the articles of association applied to a listed company’s board, governance, dividends, and so on is no longer regarded as an activity for the purpose of affecting its management and such a request is subject to summary report within a month instead of detailed report within five days. Experts point out that this can lead to more intervention in corporate management by the NPS, civic organizations, etc. Recently, some civic groups asserted that the NPS needs to exercise its shareholder rights in Samsung C&T, Samsung Heavy Industries, Hyosung and Daelim Industrial.
The NPS introduced a stewardship code in 2018 and guidelines for active shareholder activities late last year. It is expected to exercise its shareholder rights actively at this year’s regular shareholder meetings. The shareholding of the NPS was 5 percent or more in 313 listed companies at the end of last year and the NPS is currently the second-largest shareholder in major corporations such as Samsung Electronics, SK Hynix and Hyundai Motor Company. In addition, it is the largest shareholder in POSCO, KT, KT&G, Shinhan Financial Group, KB Financial Group and Naver.
There is an opinion that the NPS is close to a government-affiliated organization under the Ministry of Health and Welfare although it can exercise its voting rights as an institutional investor and shareholder. Concerning the guidelines, the Korea Listed Companies Association said that the governance structure of the NPS needs to be improved first so that its independence and professionalism can be guaranteed with regard to national pension management.