The controversial 'exclusion of the representative director cumulative voting system' agenda was passed at KT&G's shareholder meeting on the 26th. This was due to the opposition recommendation from the National Pension Service and global proxy advisory firm Institutional Shareholder Services (ISS), which argued that it contradicts the purpose of cumulative voting.
Cumulative voting is a system that grants shareholders a number of votes equal to the number of directors they wish to appoint when selecting directors. For example, when appointing six directors, a shareholder with one share can cast six votes. Because it is possible to concentrate votes on a single person, it is considered one of the systems that enhances the rights of minority shareholders by making it easier to include a director who represents their voice on the board.
According to KT&G, at the regular shareholders' meeting held at the KT&G Talent Development Center in Daedeok-gu, Daejeon, the articles of incorporation were passed to distinguish between the representative director president and other directors when appointing directors through cumulative voting. Accordingly, KT&G can separate the procedures for selecting directors and appointing the representative director president.
A KT&G official said, 'The future agenda for the appointment of the representative director president will accurately reflect the will of all shareholders through the shareholders' meeting.'
Regarding KT&G's 'exclusion of the representative director cumulative voting system' agenda, the global proxy advisory firm ISS has previously recommended opposition. Activist hedge fund Flashlight Capital Partners (FCP), which has been in conflict with KT&G for several years, and the National Pension Service also expressed their opposition. It is anticipated that it will not be easy to appoint a representative director who voices minority shareholders because only one vote can be exercised per share during the selection of the representative director, which is viewed as contrary to the enhancement of minority shareholders' rights.
However, according to the results of this shareholders' meeting, it seems that KT&G shareholders valued corporate management stability more than strengthening minority shareholder rights. Although cumulative voting has the effect of enhancing the speaking rights of minority shareholders, it also increases the potential for management disputes.
Additionally, the majority of shareholders interpreted that implementing cumulative voting only for the appointment of directors not intended to be the representative director does not infringe upon the rights of minority shareholders. This suggests that even if the agenda of 'exclusion of the representative director cumulative voting system' is passed as KT&G wishes, there remains the possibility for individuals representing minority shareholders to still enter the board.
In the distribution industry, it is believed that KT&G should actively pursue company growth and distribution while backed by shareholder support. This is based on the idea that when shareholder dissatisfaction arises and activist funds exploit this, the likelihood of outcomes like those seen in this shareholders' meeting diminishes.
Seemingly aware of this, KT&G's representative director, Bang Gyeong-man, emphasized, 'Enhancing profitability and accelerating growth are the top priorities that underpin the enhancement of corporate value.' He also stated, 'We will respond to the rapidly changing market environment by introducing new concept products expanded from the cigarette-centered business to solidify our leading position in the market.'
Meanwhile, cumulative voting has recently emerged as a point of interest in corporate shareholder meetings. Some companies are at a crossroads for its introduction, while others, like KT&G, wish to amend it after already adopting it. A notable example is Coway.
The activist fund Align Partners, which has taken shareholder action against Coway, announced its push for the introduction of the cumulative voting system and the proposal for the appointment of outside directors at this regular shareholders' meeting. Regarding this, the proxy advisory firm ISS stated, 'Cumulative voting grants greater power to minority shareholders, but it may be misused if the individual circumstances of the corporation, such as board composition, are not adequately considered,' which is a stark contrast to the recommendations that seemed to weigh the positive functions of cumulative voting in the case of KT&G.
A securities industry official noted, 'As the opinions of proxy advisory firms can vary depending on the company's management situation, discussions on how to view cumulative voting continue,' adding, 'However, it may be worth referring to Japan's earlier experiences.' Japan introduced mandatory cumulative voting in 1950, considering concerns that the interests of minority shareholders could be violated, but it was transitioned to a voluntary provision by 1974 due to controversies over hindering corporate management and threatening management rights.