EERI champions voting rights of investors ahead of general shareholder meetings

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Stewardship reference material suggests preventing reappointments of directors convicted of embezzlement

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The Economic Reform Research Institute (ERRI) published “stewardship code” reference materials for the proactive exercise of voting rights by institutional investors ahead of regular shareholder general meetings for listed companies this coming March and April. With reference to Samsung Electronics, the materials urged institutional investors to demand revisions to articles of association limiting eligibility to serve as a director for those convicted of embezzlement and breach of trust. With Hanjin Group Chairman Cho Won-tae’s reappointment as a director scheduled to be raised at a Hanjin KAL general shareholder meeting, the report called for opposition to the reappointment.

On Jan. 8, ERRI published a report titled “Listed Companies Requiring Shareholder Involvement by Institutional Investors,” with a focus on 20 listed companies deemed to have “vulnerable” governance structures. The 20 companies in question all have two or more institutional investors, including the National Pension Service, and were selected in general consideration of their need for amended articles of association or management improvements, the institute explained.

In the cases of Samsung Electronics and Hyosung, the report proposed the amendment of articles of association to deny the eligibility of individuals convicted of embezzlement and/or breach of trust to serve as directors. Samsung Electronics Vice Chairman Lee Jae-yong is currently facing trial in Seoul High Court after a remand and reversal decision by the Supreme Court, which found him guilty of paying bribes to then President Park Geun-hye and others for the sake of his succession to management authority within the Samsung Group. Hyosung Chairman Cho Hyun-joon was convicted of breach of trust and embezzlement following an indictment in 2018, when he was already involved in an appellate trial after an embezzlement conviction.

“It is a governance structure risk factor to have a controlling shareholder who committed embezzlement exercising major influence as a company executive,” the institute said.

“[Institutional investors] must demand that articles of association include terms limiting the eligibility of those convicted of breach of trust and/or embezzlement to serve as directors,” it continued.

Hyundai Motor Group Chairman Chung Mong-koo and Hanjin Group Chairman Cho Won-tae were named as directors whose reappointment should be opposed if proposed during the upcoming general shareholder meetings. Chung, whose term as a registered director ends in March 2021, had a 0% attendance rate for board meetings between March 2017 and the third quarter of 2019 and was convicted in an embezzlement and breach of trust case involving a past company. The institute insisted that institutional investors should exercise their rights to oppose his reappointment as a registered director if it is proposed at the shareholder meeting.

In the case of Cho Won-tae, whose reappointment as director is scheduled for proposal at the Hanjin KAL shareholder meeting, the report called for “exercising their right to oppose him on the basis of his record of damaging corporate value,” citing his history of having work “funneled” from affiliates by way of companies with majority ownership by his own family, including Cyber Sky and Uniconverse.

The report also called for “asking the company’s position regarding giving back to shareholders and demanding the formulation of dividend policies” at the general shareholders’ meeting for Shinsegae, which showed an average dividend payout ratio of just 5% (consolidated) over the past three years despite an increase in company profits. While it is not a shareholder meeting agenda item, the report additionally noted “issues with the compensation payment practices” of the CJ Group under Chairman Lee Jay-hyun, who received 16.01 billion won (US$13.81 million) from three affiliates in 2018 as an unregistered officer. The report recommended an examination of whether the affiliates’ compensation committees are playing a practical role.

By Shin Min-jung, staff reporter

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