Oscotec's control landscape is shifting after the death of former adviser Kim Jeong-geun, the founder and largest shareholder. Ahead of the regular shareholders meeting, the company signaled a kind of "conciliation gesture" by reflecting some board candidates proposed by the small shareholders alliance as board-recommended nominees, but tensions over the board's composition and changes in control remain. Depending on the alliance's response, there is talk that the largest shareholder status could change at this meeting.
According to the industry on the 16th, Oscotec will put on the agenda at the regular shareholders meeting on the 30th the appointment of directors, a restructuring of the governance of its subsidiary, and an increase in authorized shares.
Earlier, on the 13th, the company corrected the notice convening the shareholders meeting, listing Professor Kang Jin-hyung of Seoul St. Mary's Hospital (inside director candidate) and attorney Lee Kyung-seop of Barun Law (outside director candidate), who were proposed by the shareholders alliance as board candidates, not as shareholder-proposed nominees but as board-recommended nominees, and fixed the number of directors to be appointed at five.
An Oscotec official said, "Oscotec's board judged it more important to reduce unnecessary proxy fights and uncertainty and to lay a foundation to focus on research and development and business results."
However, with the possibility that the shareholders alliance may take additional steps such as separately proposing candidates, the tense standoff is expected to continue.
The equity structure is currently tight. Kim's equity stake is 12.46%, or 12.67% including related parties. By contrast, the small shareholders alliance holds 12.39%, roughly matching the largest shareholder's side. In addition, GK Asset and three others hold 9.9%, and Tiger Asset Management's discretionary accounts hold 5.7%, raising the possibility that the lineup of the largest shareholder could change depending on which side they join.
The inheritance process has also been underway since Kim's death. The market is raising the possibility that some equity may be sold due to an estimated inheritance tax burden of about 140 billion won.
The central issue of this shareholders meeting was originally the board's composition. With the terms of CEO Yoon Tae-young, an inside director, and Hong Nam-ki, former deputy prime minister for the economy and an outside director, set to expire on the 29th, whether to reappoint them was put on the agenda, but Hong was excluded as a candidate.
Of the four candidates recommended by the small shareholders alliance, Professor Kang Jin-hyung and attorney Lee Kyung-seop were converted to board-recommended candidates, while Lee Seung-yong, chief director of Medifium Clinic, and Yoon Soon-nam, CEO of Stanley Consulting, were excluded.
As a result, Oscotec decided on a total of five candidates at this shareholders meeting: for inside directors, CEO Yoon Tae-young, Chief Financial Officer (CFO) and executive director Shin Dong-joon, and Professor Kang Jin-hyung of Seoul St. Mary's Hospital; and for outside directors, Kim Gyu-sik, director at the Korea Corporate Governance Forum, and attorney Lee Kyung-seop of Barun Law.
If the agenda passes as decided, the board's composition will also change. The current four-member board of Co-CEO Lee Sang-hyun, Co-CEO Yoon Tae-young, inside director Gwak Young-shin, and outside director Hong Nam-ki will expand to a seven-member body, consisting of five company-side members and two small shareholder-side members.
Since the number of directors to be appointed is the same as the number of candidates, unless there is a special variable such as a candidate's withdrawal, all five are likely to join the board.
Meanwhile, legal battles continue between the company and the small shareholders alliance over defenses for management control. Earlier, a court rejected a request by Oscotec's small shareholders for an injunction to suspend the effectiveness of the "supermajority voting" provision.
The supermajority voting provision is a device to compensate for the largest shareholder's low equity stake, requiring higher voting thresholds than ordinary resolutions to pass certain items. The shareholders alliance has argued since last year that this system excessively restricts shareholder rights and has demanded its abolition.
However, in the main lawsuit, the shareholders alliance won at first instance. In November last year, the court sided with the alliance in a lawsuit seeking to confirm the invalidity of a shareholders meeting resolution. Oscotec appealed, and the second-instance trial is now underway. The alliance says it will take the case to the Supreme Court if it loses on appeal.
Separately from the legal fight, the shareholders alliance is aiming to enter the board at this regular shareholders meeting by using "cumulative voting." Cumulative voting allows shareholders, when appointing two or more directors, to exercise votes equal to the number of shares held multiplied by the number of directors to be appointed. Because votes can be concentrated on specific candidates, it is relatively favorable to small shareholders.
Attention now turns to the alliance's response. Earlier, the small shareholders alliance planned to concentrate votes on Professor Kang Jin-hyung. Choi Young-gap, head of Oscotec's small shareholders alliance, said, "If small shareholders pool their votes, at least one person can probably get on the board," and "the claim that the alliance aims to take a board majority and seize management control is not true."
In this situation, the outcome of this meeting is seen as a watershed that will shape Oscotec's future governance.
The issue of fully consolidating subsidiary Genosco as a 100% subsidiary is also cited as a variable. Oscotec has pushed to make Genosco a wholly owned subsidiary, but some shareholders have raised potential conflicts of interest.
The shareholders alliance agrees in principle with making Genosco a wholly owned subsidiary but says it differs on detailed terms. To put in place checks by small shareholders, it proposed establishing a separate committee and submitting a charter amendment for that purpose as an agenda item at this meeting.