Minority Investors Gain New Heft in 3 Schemes

The introduction of electronic, postal and cumulative voting, with the support of civic groups may lead the way to far greater participation of minority shareholders in shareholders' meetings.

The purpose of both electronic voting and postal voting is to encourage minority shareholders to participate in shareholders' meetings, since they would not normally attend due to lack of time or interest or because they do not possess a large enough number of shares to influence the ballot. Often a small number of equity owners with large number of shares control such meetings, leading to under representation of the interests of minority stockholders.

Currently, annual shareholder meetings are advertised in major newspapers. In addition, each stockholder is notified by mail about the meeting. Under the postal voting system, shareholders receive ballots and detailed information about issues to be voted on at the forthcoming meeting. Stockholders are to complete the ballots and return them by mail to the issuing company.

"Postal voting is neither too much of an extra burden nor a significant extra expense for companies," said Kim Sok-yon, a lawyer involved in minority shareholder movements led by People's Solidarity for Participatory Democracy. Although there is no precedent anywhere in the word for shareholders to vote electronically, it is theoretically possible to organize such a system through the computer system of the Korea Securities Depository. A company wishing to offer electronic voting must connect its computer system to that of the depository and install programs that can facilitate the voting process. Since equity purchases and stock trading are conducted electronically, it is possible for shareholders to cast their ballots electronically, said Mr. Kim.

One of the drawbacks of the two new voting systems is that shareholders who vote through the mail or or electronic means cannot cast their ballots for impromptu amendment proposals that arise during meetings. Those shareholders who did vote by mail or electronically would thus leave themselves open to the possibility of missing the chance to vote on amendments.

Another innovation to enhance the participation of minority shareholders is the cumulative voting system. Under this system the voting power of minority shareholders is boosted by the number of directors who are up for election. Not long ago, the Korean Chamber of Commerce and Industry argued that cumulative voting could take away management control from majority shareholders, but the argument is extreme and unrealistic, said Mr. Kim. In the case where only one director is up for election, such as at Samsung Electronics' shareholder meeting in March, where Lee Hak-soo, Samsung's recommended candidate was elected, cumulative voting would have no effect. When selecting two or more directors, minority shareholders need more than an aggregate 33 percent stake to elect one of two directors and a 25 percent stake for one of three directors, even with cumulative voting. These are difficult levels for minority shareholders to attain.

Mr. Kim said, "Cumulative voting would be unnecessary if there were measures to regulate incompetent and irresponsible management. Unlike in other countries, management here faces little threat of takeover, so there is no way to replace managers who caused serious damage to their companies."

The amendment proposal that mandates cumulative voting has been introduced in the National Assembly.

by Limb Jae-un