Following the surprise public takeover bid announced by Youngpoong and MBK Partners in September last year, the management rights dispute over Korea Zinc has continued for nearly four months. On the 23rd of this month, the current management and Youngpoong and MBK will have their first voting showdown at an extraordinary general meeting to take control of the board. With both sides holding similar equity stakes, the direction of the management rights of Korea Zinc, the world's leading non-ferrous metal company, will be decided by foreign and institutional shareholders. Here are the main issues at the extraordinary general meeting.[Editor’s note]
In an effort to defend its management rights, the current management proposed the following agenda items for this shareholders' meeting: ▲ introduction of a cumulative voting system ▲ setting a cap on the number of directors ▲ stock split of issued shares ▲ protection of minority shareholders ▲ appointment of an independent director as chair of the board ▲ change of the dividend record date ▲ introduction of quarterly dividends. Youngpoong and MBK, who are attempting to take over Korea Zinc's management rights, have put forward agenda items including ▲ introduction of an executive officer system ▲ appointment of 14 directors.
Both sides oppose each other's agenda items at the shareholders' meeting, including ▲ introduction of a cumulative voting system ▲ setting a limit of 19 on the number of directors ▲ appointment of 14 directors. Other than these points, there seems to be no major disagreement, and the remaining items are expected to pass smoothly. Depending on the stance foreign and institutional shareholders take on the cumulative voting system and the cap on the number of directors, the decision on who will hold the management rights of Korea Zinc will be determined.
The voting at the extraordinary shareholders' meeting will proceed in the order: introduction of the cumulative voting system → cap on the number of directors set at 19 → appointment of director candidates from both sides. If the cumulative voting system is approved, it will be immediately applied to the agenda for the appointment of directors to be voted on the same day. Next, the vote will be conducted regarding the cap on the number of directors set at 19. If both the cumulative voting system and the cap on the number of directors are passed, they can appoint new directors through cumulative voting, excluding the current 12 members of the board. Conversely, if both agenda items are defeated, the appointment of directors will be voted on based on ordinary resolutions (a majority of voting rights) under the premise that there is no cap on the number of directors.
◇ Korea Zinc is focusing on the introduction of the cumulative voting system, while financial authorities and opposition parties also recommend it.
Korea Zinc is focusing on the introduction of the cumulative voting system. The cumulative voting system allows shareholders to cast one vote per share in accordance with the number of agendas for appointing directors per share. For example, if three directors are appointed, three voting rights will be allocated per share. This system is evaluated as favorable for minority shareholders as it allows voting rights to be concentrated on specific candidates rather than major shareholders.
Youngpoong and MBK aim to appoint 14 new directors at this shareholders' meeting. Currently, there are 12 directors at Korea Zinc (excluding the independent director, Sung Yong-rak, who has announced resignation), so if Youngpoong and MBK also fill these 14 positions, they can take control of the board with a majority. Even if personnel from Youngpoong and MBK enter the board, Korea Zinc can maintain its management rights by appointing more friendly individuals to the board. The implementation of the cumulative voting system makes it easier to appoint friendly directors.
Youngpoong and MBK support the introduction of the cumulative voting system, but they noted that this time it is being introduced to defend Chairman Choi Yun-beom's management rights, which they oppose. MBK Partners argued, “The management of Korea Zinc is using the protection measures for minority shareholders as a means to defend Chairman Choi's management rights.” Youngpoong and MBK applied for a provisional injunction on the 30th of last month, stating that the agenda for the appointment of directors based on the cumulative voting system should not be proposed at this shareholders' meeting.
Financial authorities believe that the cumulative voting system is necessary for the protection of minority shareholders and are mandating that the introduction of the cumulative voting system be clearly stated in corporate governance reports. The cumulative voting system is also a matter of significant interest in political circles. The Democratic Party of Korea is pushing for an amendment to the Commercial Code as part of its party policy, advocating for the mandatory implementation of the cumulative voting system and the abolition of the embezzlement provision.
There are also criticisms that Youngpoong and MBK's questioning of the current management's actions to defend management rights is contradictory. If Youngpoong and MBK secure a majority on the board in this shareholders' meeting, they could later use the cumulative voting system themselves to protect their management rights.
◇ Youngpoong and MBK are looking to increase the number of directors to 26... advisory firms say “fewer than 20 is appropriate.”
The key to this shareholders' meeting is how many directors each side secures. Currently, there is no regulation on the maximum number of directors in Korea Zinc's articles of incorporation. Youngpoong and MBK are trying to secure a majority by appointing 14 directors. Korea Zinc aims to limit the number of directors to 19 and plans to appoint 7 new directors, including the position previously held by resigned independent director Sung Yong-rak.
Youngpoong and MBK are opposing the cap on the number of directors. Establishing a limit would disrupt their plans to secure a board majority. If all the director candidates recommended by Youngpoong and MBK are appointed at this shareholders' meeting, the total number of directors will become 26, and the number of Youngpoong and MBK-appointed directors will become 14, allowing them to take control of the board. After gaining a majority on the board, Youngpoong and MBK plan to push for the dismissal of Chairman Choi Yun-beom.
Korea Zinc criticizes that the reason Youngpoong and MBK seek to appoint 14 new directors is solely to oust Chairman Choi. They argue that the number 14 is focused solely on securing a board majority and is far from effective board operation.
Indeed, global advisory firms such as Glass Lewis and ISS view the appropriate number of directors for listed companies to be fewer than 20. Domestic advisory firms like the Korea ESG Standards Institute and Sustainbest also point out that having too many directors can weaken the accountability and authority of the board and diminish its ability to deliberate on agenda items. They argue that a cap on the number of directors is necessary to prevent an oversized and inefficient board.
If the number of directors is limited to 19 as proposed by Korea Zinc, even if 7 new director positions are created, the position of Youngpoong and MBK will be constrained. A Korea Zinc official stated, “The reason Youngpoong and MBK are trying to appoint 14 new directors is solely to remove Chairman Choi Yun-beom. We did not anticipate a management rights dispute, which is why there has been no limitation on the number of directors so far. The move to limit the number of directors to 19 is in accordance with recommendations from global advisory firms for the efficient operation of the board.”