South Korea's Corporate
Boards to be Elected by Cumulative Voting
"Cumulative Voting Becomes Hot Potato"
June 17, 2004
The class action lawsuit system to be introduced
from next year is expected to change Korea's corporate landscape as it will
empower minority shareholders to claim their rights against management.
And at the heart of the class action lawsuit system is the cumulative
voting system, which minority shareholders want companies to include in
their articles of incorporation.
The cumulative voting system would boost the rights of the minority
shareholders as they are able to cast all of their votes for a single
For example, if a shareholder owned 100 shares and there were three
directors to be elected, the voter would have 300 votes and he or she could give
all of them to the one candidate of his or her choice.
The Korea Securities Dealers Association says that cumulative voting will
discourage controlling shareholders from appointing board members according to
their preference while helping minority shareholders to at least have a say in
who can become a director on the company's board.
With the cumulative voting system, it is expected that businesses will be
under more pressure to introduce more transparent management and improve
At present, around 35 listed firms have introduced the system in their
articles of incorporation but only KT implemented the system at this
year's shareholders meeting.
However, the voting system is also at the center of controversy between the Fair
Trade Commission (FTC) and the Ministry of Finance and Economy (MOFE).
The FTC wants companies to have the voting system in addition to a written
voting system and an internal transaction committee in order to be eligible for
the exemption on the rule banning chaebol companies from investing in other
subsidiaries in amounts beyond 25 percent of their net asset.
But the MOFE contends that the FTC's plans are too harsh on businesses and might
Technically, it is difficult to gather enough shares from minority investors for
cumulative voting at shareholder meetings.
Under the current rule, more than 3 percent of outstanding shares with
voting rights are needed to bring cumulative voting to the floor but
mustering at least 1 percent together is sometimes a daunting task.
Another question is whether executives picked by minor shareholders have
expertise in running a company.
The cumulative voting system will serve minority shareholders well but
it remains to be seen just how effectively it will be implemented in
Korea, a local analyst said.