With a nudge, companies move to electronic vote
Previously, the only companies that used web-based voting by shareholders were CKH Food & Health, a China-based business formerly known as China King-Highway Holdings listed on the Kosdaq, and special-purpose companies, known as SPCs.
Since 2010, 232 companies have signed agreements with the Korea Securities Depository to adopt the electronic voting system for shareholders meetings as of Feb. 16.
Among those, 152 signed up this year, including major names like Shinhan Financial Group, GS Global, NHN Entertainment, Ahn Lab and Kwangju Bank.
Even when compared to 2014, when 34 signed up, the surge in 2015 has been a surprise.
“The number of companies that want to sign up for electronic shareholders’ voting has increased this year,” said Kim Yong-shin, who heads the electronic voting system team at Korea Securities Depository. “The number has shot up, with many companies having shareholders meetings in March.”
Although electronic voting systems have been available for five years, many companies appear to be reluctant to adopt them because they fear more active participation by shareholders could hold back management.
Electronic voting eliminates time and space constraints, and encourages shareholders to actively exercise their rights. Smaller stakeholders in particular can easily voice their opinions.
“Majority stakeholders and company management seemed to have been reluctant to adopt the system as they didn’t want to create unnecessary problems for themselves,” said Lee Min-hyung, a researcher at the Korea Corporate Governance Service.
This is the same reasons why companies like to hold the shareholders meeting on the same day of the same month and make it difficult for shareholders to physically attend the meetings, experts say.
According to the Korea Listed Companies Association, 47 percent of listed companies in 2013 held shareholders meeting on March 22. That’s 313 companies from the total of 662 companies whose fiscal year ended in December holding shareholders meetings on the same day, which was a Friday.
The situation was almost the same last year, when 48 percent of listed companies, or 339 of 694 companies, held their shareholders meetings on March 21. A week later, 155 companies, or 22 percent, held their shareholders meetings on the same day. Even worse, most shareholders meetings started between 9 a.m. and 10 a.m.
This year the situation isn’t much different. According to a survey by financial information provider WISEfn, among the 236 listed companies that participated in the poll, 183 companies or 77 percent answered that they plan to hold their shareholders meeting on a Friday - March 13, March 20 and March 27.
Samsung affiliates on Feb. 13 announced that the flagship Samsung Electronics, Samsung Securities and the conglomerates’ largest financial arm Samsung Life Insurance and will all be holding shareholders meetings on the same day, which is March 13.
Additionally, 26 companies said they plan on holding their shareholders meetings on March 20, while 91 companies plan to do the same a week later.
By limiting access and lowering the number of participants, management can more easily pass issues they favor and block any complaints or changes.
For example, one practice is to guard the entrance of the shareholders meeting and only allow in shareholders that side with management, while rejecting opponents on technicalities like a lack of proper documents.
However, this year the situation has changed.
One of the biggest changes in the market is the movement in government and political circles to ban shadow voting.
Shadow voting, or mirror voting, was first adopted in the Korean market in 1991 and is a means of exercising minority voters’ rights on important business issues raised during the shareholders meeting.
In shadow voting, the casting votes of minority shareholders is passed on to the Korea Securities Depository to prevent cancellation of a meeting due to lack of quorum.
Under Korean law, a shareholders meeting is valid only when the stakes owned by participating shareholders exceed 25 percent of the company.
Additionally, issues must be approved or rejected by more than half the participants.
There have been growing concerns over the proxy voting system, as many companies have manipulated it to pass controversial issues that may not be in the interest of shareholders.
According to the Korea Economic Research Institute, 45.7 percent of listed companies signed up for shadow voting last year, an increase from 42.5 percent reported a year earlier.
The government last year revised the capital market act to ban shadow voting and it passed the National Assembly in December, which threw many companies into a panic.
Under the revised law, it would be impossible for the majority stakeholder or company to decide on an auditor.
Complaints skyrocketed and companies claimed they weren’t given enough time to prepare.
Finally, the financial authorities took a step back by postponing the abolishment of shadow voting for three years.
In the meantime, companies that adopt the electronic voting system and those that make an effort to encourage all shareholders to participate in the general meeting will be allowed to use shadow voting.
Such rule changes have been an incentive for companies to adopt the new voting system.
The companies under the nation’s stock exchange law cannot simply ignore the shareholders meeting.
Missing out in naming an outside director or setting up an auditing committee, which is decided during the shareholders’ vote, for two consecutive years, the company could be faced with a situation where it will be delisted from the stock market.
For this reasons - although not too happy - many companies are rushing up to sign for the electronic voting system.
“We believe we will be able to improve the corporate governance structure and enlarge dividend payments as the minority shareholders’ voice will gain strength,” said an official at the financial authority who requested anonymity.
Yet the nation’s largest conglomerate Samsung has shown no signs of joining in.
The company, whose shareholders meeting is to take place on March 13, has several pending issue that need to be put to a vote, including the extension of Kwon Oh-hyun as the Samsung Electronics vice chairman and CEO.
Compared to Korea, other major economies adopted the electronic voting system long ago.
U.S. companies and British businesses adopted the electronic voting system in 2000, and Germany and Japan in 2001.
In Japan, 16.5 percent of companies listed on the stock market now vote electronically.
Since 2012, Taiwan has required companies with more than $10 billion in capital or 10,000 shareholders to adopt electronic voting.
BY CHO MIN-GEUN, LEE HO-JEONG [firstname.lastname@example.org]