All Kospi-listed firms required to comply starting this year

Companies must provide sufficient information for shareholders to exercise rights

Listed firms pursuing paid-in capital increases required to communicate with minority shareholders

The Korea Exchange's Yeouido office in Yeongdeungpo-gu, Seoul [Korea Exchange]
The Korea Exchange's Yeouido office in Yeongdeungpo-gu, Seoul [Korea Exchange]

The Financial Services Commission and Korea Exchange on Thursday announced revisions to the corporate governance report guidelines aimed at strengthening shareholder protection and encouraging more active shareholder returns among listed companies.

Corporate governance reports are a disclosure tool that provides investors with information on a company's governance structure and policies for protecting shareholder rights. Starting this year, all Kospi-listed companies are required to submit them.

The revisions focus on improving the transparency of corporate governance information and ensuring that shareholders and investors receive sufficient information when making decisions and exercising their shareholder rights.

Companies will be required to disclose whether they have adopted a cumulative voting system, and to provide additional explanations — including reasons and the impact on cumulative voting — whenever the number of directors or their terms of office change.

An amendment to the Commercial Act passed in September last year made cumulative voting mandatory for listed companies with total assets of 2 trillion won ($1.49 billion) or more that seek to appoint two or more directors. The new disclosure requirement is designed to prevent listed companies from circumventing the revised law by reducing the number of directors or adjusting their terms.

When a company pursues a dual listing or paid-in capital increase that raises concerns about shareholder value dilution, it will also be required to disclose the protective measures taken for shareholders and any communications with minority shareholders during the decision-making process.

When a paid-in capital increase has taken place or is planned, companies must disclose specific details — including whether shares are allocated to a third party, the scale of the increase, the discount rate, the intended use of funds, and whether the controlling shareholder is acquiring shares.

To better protect shareholders' voting rights, companies will be required to record the submission date of their business reports in their corporate governance reports, with the goal of making those reports available at least two weeks before a general shareholders' meeting rather than the current one week. If a company fails to submit its business report two weeks before the meeting, it must also explain why.

Disclosure requirements related to shareholder returns will also be strengthened. Information on dividends and treasury shares will be expanded so shareholders can more easily check the shareholder return status and policies of companies they invest in, and track improvements over time.

For shareholders to propose changes to a company's dividend policy, key information such as the dividend amount must be made public at least six weeks before the general shareholders' meeting — the deadline for shareholder proposals under the Commercial Act.

Authorities said shareholders have faced limitations in exercising their rights, however, because meeting notices are typically sent out two weeks before the meeting and business reports are disclosed only one week prior.

Going forward, companies will be required to disclose in their corporate governance reports whether they announced the final dividend decision and amount at least six weeks before the general shareholders' meeting — the window during which shareholder proposals are permitted.

In addition, companies will be required to report treasury share acquisition, cancellation and holdings data covering not just the current year but the past three years, making it easier for investors to compare trends and gauge progress.

To ensure the revised guidelines are reflected in corporate governance reports submitted next year, the government plans to provide consulting and education support to disclosure officers at listed companies subject to the requirement, beginning this month.

Companies that miss submission deadlines, make false disclosures, or fail to comply with correction requests for misfiled or omitted disclosure items may be designated as poor disclosure entities.

The Korea Exchange earlier published for the first time a list of listed companies that have recorded persistently low price-to-book ratios. While the focus had previously been on encouraging companies to voluntarily draw up value-up plans and expand shareholder returns, the exchange said it intends to enhance the effectiveness of the regime by directly naming undervalued companies to the market and offering tailored consulting.


jiyun@heraldcorp.com