Corporate Governance in South Korea

Sources of corporate governance rules and practices

What are the primary sources of law, regulation and practice relating to corporate governance? Is it mandatory for listed companies to comply with listing rules or do they apply on a ‘comply or explain’ basis?

The primary source of law relating to corporate governance is the Korean Commercial Code (KCC), which applies to both listed and unlisted companies. For listed companies, additional regulations relating to public disclosure, establishment of audit committees and election of outside directors, insider trading and the prohibition of unfair trade practices, among other matters, are contemplated in the Financial Investment Services and Capital Markets Act (the Capital Markets Act).

It is mandatory for listed companies to comply with listing rules, including the Rules on Issuance of Securities and Disclosure, which are derived from the Capital Markets Act, as well as the applicable listing rules of the Korea Exchange, including KOSPI Market Listing Rules, KOSDAQ Market Listing Rules, KOSPI Market Disclosure Rules and KOSDAQ Market Disclosure Rules.

In this chapter, we focus on the laws, regulations and practices that apply to a Korean joint-stock company (chusik-hoesa), which is the most common form of company in Korea.

What are the primary government agencies or other entities responsible for making such rules and enforcing them? Are there any well-known shareholder groups or proxy advisory firms whose views are often considered?

The power to enact and amend Korean laws is vested with the legislative body of the National Assembly, wherefrom ministries of government under the executive branch have the authority to enforce laws that are within their jurisdiction.

The Ministry of Justice and the Financial Services Commission are the primary government agencies responsible for enforcing rules on corporate governance derived from the KCC, the Capital Markets Act and the Act on the Corporate Governance of Financial Companies (ACGFC).

There are no well-known domestic shareholder groups whose views are often considered, albeit there are organisations such as the People’s Solidarity for Participatory Democracy whose main objective is to protect the rights and interests of minority shareholders. Although there are no well-known large-scale domestic proxy advisory firms whose views are often considered, the Korea Corporate Governance Service is a renowned think-tank whose views are respected.

The Korea Corporate Governance Service released its Korea Stewardship Code in 2016, in which it recommends that major institutional shareholders should actively participate in matters of corporate governance. As a result, it is foreseeable that the influence and relevance of proxy advisory firms in Korea will increase in the years to come.

Rights and equitable treatment of shareholders

What powers do shareholders have to appoint or remove directors or require the board to pursue a particular course of action? What shareholder vote is required to elect or remove directors?

Shareholders have the power to appoint or remove directors through the general meeting of shareholders. Under the KCC, the appointment of directors will require a majority of votes of shareholders present at the general meeting representing more than a quarter of the total outstanding shares of the company; for the removal of directors, more than two-thirds of the votes will be required of those shareholders present at the general meeting representing more than a third of the total outstanding shares of the company.

The board of directors is empowered to execute the business of the company in accordance with the KCC. Accordingly, apart from their ability to appoint or remove directors, shareholders do not otherwise possess any power to require the board to pursue a particular course of action.

What decisions must be reserved to the shareholders? What matters are required to be subject to a non-binding shareholder vote?

Under the KCC, the following decisions must be reserved to the shareholders, which may be resolved by a majority of votes of shareholders present at the general meeting of shareholders representing more than a quarter of the total outstanding shares of the company:

• appointment of a director or a statutory auditor;
• approval of annual financial statements;
• approval of remuneration of directors and statutory auditors; and
• declaration of dividends.

For the following decisions that are reserved to the shareholders, the KCC requires a special resolution comprising more than two-thirds of the votes of shareholders present at the general meeting of shareholders representing more than a third of the total outstanding shares of the company:

• transfer of all or a material portion of the company’s business;
• removal of directors and statutory auditors;
• amendments to the articles of incorporation of the company;
• capital reduction;
• mergers and spin-offs of the company;
• dissolution or continuance of the company; and
• granting of stock options.

In addition, when exempting directors or statutory auditors from liability incurred by the company, the unanimous approval of shareholders will be required.

Under the KCC, there are no matters for which a non-binding shareholder vote is required.

To what extent are disproportionate voting rights or limits on the exercise of voting rights allowed?

Disproportionate voting rights are not permitted under the KCC. That being said, there may be limits on the exercise of voting rights in exceptional circumstances, such as the following:

• issuance of different classes of shares with no voting rights or restricted voting rights;
• treasury stocks acquired by the company have no voting rights;
• if the company, its parent or subsidiary holds more than 10 per cent of the total outstanding shares of another company, the shares in the company or its parent company held by the other company have no voting rights;
• voting rights of a shareholder is restricted if that shareholder has a special interest in the resolution to be adopted at a meeting of shareholders; and
• when electing statutory auditors, a shareholder who holds more than 3 per cent of the total outstanding shares of the company, exclusive of non-voting shares, may only vote up to 3 per cent of that shareholder’s shares.

Are there any special requirements for shareholders to participate in general meetings of shareholders or to vote? Can shareholders act by written consent without a meeting? Are virtual meetings of shareholders permitted?

There are no special requirements for shareholders to participate in general meetings of shareholders, but a shareholder must first be registered as a holder of the company’s shares as of the applicable record date for shareholders designated by the company.

Although the general requirement is for meetings of shareholders to be held in person, a company with capital of less than 1 billion won may, by unanimous agreement of all shareholders, resolve matters by way of written resolution in lieu of a meeting, which will have the same effect as if such written resolution was passed at a meeting of shareholders.

Although virtual meetings of shareholders are not permitted under the KCC, virtual voting is permitted where a company has determined that its shareholders may exercise their votes by electronic means and its shareholders vote electronically on the premise that a general meeting of shareholders is being held in person.

Are shareholders able to require meetings of shareholders to be convened, resolutions and director nominations to be put to a shareholder vote against the wishes of the board, or the board to circulate statements by dissident shareholders?

A shareholder or group of shareholders holding more than 3 per cent of the total outstanding shares of the company (more than 1.5 per cent for listed companies, held for the preceding six-month period) may requisition from the board that an extraordinary general meeting of shareholders be called. In addition, a shareholder or group of shareholders holding more than 3 per cent of the total outstanding shares of the company, excluding non-voting shares (more than 0.5 per cent for listed companies and more than 0.25 per cent for listed companies with capital in excess of 100 billion won, held for the preceding six-month period) may make a proposal to directors that certain matters be raised as agenda items for a general meeting of shareholders (eg, appointment of a director), which proposal is referred to as a ‘shareholder proposal’. Apart from the foregoing, shareholders are not otherwise authorised to demand that the board circulate statements by dissident shareholders.

Do controlling shareholders owe duties to the company or to non-controlling shareholders? If so, can an enforcement action be brought against controlling shareholders for breach of these duties?

Controlling shareholders do not owe duties to the company or to non-controlling shareholders under the KCC; provided, however, any person, including a controlling shareholder, who instructs a director to conduct business by using his or her influence over the company, conducts business under the name of a director or conducts business by using a title that may give the impression that he or she is authorised to conduct the business of the company, will, in each instance, be seen as a director for purposes of the KCC, thereby attracting liability and responsibility for compensating losses resulting from such actions.

Can shareholders ever be held responsible for the acts or omissions of the company?

Under the KCC, a shareholder’s liability is limited to the acquisition or subscription price of their shares; however, the Supreme Court of Korea has held that there may be exceptions for situations where companies are essentially sole proprietorships or deemed to have no substance, but incorporated merely for the purpose of shielding legal implications that would otherwise apply against the individual proprietor, leading to a ruling that, in such cases, the corporate veil may be pierced thereby imposing personal liability on the individual proprietor. In addition, under Korean tax law, a shareholder who owns more than 50 per cent of the total outstanding shares of a company may, in certain cases, be liable for the company’s secondary tax liability in proportion to his or her ownership interest.

Corporate control

Are anti-takeover devices permitted?

Anti-takeover devices such as the following are prohibited under the KCC:

• any form of poison pills granting shareholders the right to acquire new shares out of treasury at discounted prices;
• any form of golden shares that could veto certain matters such as mergers, irrespective of the proportion of golden shares issued on a fully diluted basis; and
• other forms of securities with anti-takeover attributes such as shares with multiple voting rights.

However, there are requirements for disclosure under the Capital Markets Act, which stipulates that an investor who holds or will hold pursuant to a share purchase agreement 5 per cent or more of the total number of the shares of a listed company must disclose the status and purpose of such shareholding (referring to their intention to exert influence over the management of the company) within five days from, to the extent applicable, the execution of the share purchase agreement and the acquisition, respectively. In addition, upon reaching such level of interest, subsequent disclosures must be made for any change of 1 per cent or more in the shareholding of such investor. In light of the foregoing, an investor’s stakebuilding and takeover strategy is significantly affected by such disclosure requirements.

May the board be permitted to issue new shares without shareholder approval? Do shareholders have pre-emptive rights to acquire newly issued shares?

Unless provided otherwise in the articles of incorporation, the board is permitted to issue new shares without shareholder approval. Although shareholders possess pre-emptive rights to acquire new shares in proportion to their respective shareholdings, new shares may be allocated to third parties (new shareholders) when deemed necessary by the board of directors to achieve certain business objectives of the company, including introduction of new technology and improvement of the financial structure of the company.

Are restrictions on the transfer of fully paid shares permitted and, if so, what restrictions are commonly adopted?

Restrictions such as the requirement of board approval for the transfer of fully paid shares may be permitted in the articles of incorporation, in which case a transfer without board approval will be invalid. In addition, restrictions on the transfer of fully paid shares are commonly adopted in shareholders’ agreements; provided, however, shares transferred in violation of such agreements alone will not cause the transfer to be invalid, but instead result in liability for the transferor in respect of damage caused by breach of the agreement.

Are compulsory share repurchases allowed? Can they be made mandatory in certain circumstances?

Compulsory share repurchases are not allowed under the KCC, nor are there any circumstances in which such repurchases would be allowed.

Do shareholders have appraisal rights?

Under the KCC, in the event there is a resolution of the board of directors in connection with a merger, spin-off followed by merger, business transfer, a comprehensive exchange or transfer of shares and such transaction meets certain materiality thresholds or requirements, a shareholder who opposes such resolution may request that the company purchase such shareholder’s shares. Further, under the Capital Markets Act, a lateral spin-off of a listed company may also trigger such appraisal rights of dissenting shareholders if shares in the company to be newly established as a result of the spin-off would not be listed.

Responsibilities of the board (supervisory)

Is the predominant board structure for listed companies best categorised as one-tier or two-tier?

Unlike in certain other jurisdictions where a two-tier board structure consisting of a supervisory board and a management board is permitted or mandated by law, a two-tier board structure is not recognised under Korean law. Thus the predominant board structure in Korea (including for listed companies) is best categorised as one-tier.

What are the board’s primary legal responsibilities?

The board’s primary legal responsibilities consist of making key decisions on issues of corporate governance and business of the company, including transactions involving any disposition or transfer of material assets of the company, borrowing of significant amounts of money, appointment or dismissal of managers, and the establishment, change or closure of branch offices. In addition, the KCC vests certain powers with the board of directors, including to call general meetings of shareholders, approve competitions with the company by directors, to deal with wrongful taking of corporate opportunities or self-dealing transactions, to approve transactions between listed companies and their largest shareholders, the issuance of bonds and payment of interim dividends.

Whom does the board represent and to whom does it owe legal duties?

Although members of the board are elected by the shareholders of the company, the board (and each of its members) only represents, and owes legal duties to, the company.

Can an enforcement action against directors be brought by, or on behalf of, those to whom duties are owed?

Directors who intentionally or negligently violate the articles of incorporation of the company or applicable laws, or omit to perform their duties, are jointly and severally liable for damages resulting from such acts or omissions. A shareholder who holds more than 1 per cent of the total outstanding shares of the company (0.01 per cent for listed companies, held for the preceding six-month period) may demand that the company file a lawsuit against the director in respect of the foregoing acts or omissions. In addition, shareholders who hold more than 1 per cent of the total outstanding shares of a company (0.05 per cent for listed companies, held for the preceding six-month period or, for a company with at least 100 billion won of capital, 0.025 per cent) may, on behalf of the company, file a claim with a court demanding the suspension of activities of a director who violates the articles of incorporation or applicable laws.

Do the board’s duties include a care or prudence element?

The board’s duties are subject to a standard of duty of care of a good manager in similar circumstances, which includes participation in meetings of the board of directors, supervision of other directors of the company, including representative directors, and observance of such duties as are prescribed under law or contemplated in the articles of incorporation.

To what extent do the duties of individual members of the board differ?

The duties of individual members of the board do not differ, regardless of their respective qualifications or experience.

To what extent can the board delegate responsibilities to management, a board committee or board members, or other persons?

Subject to the articles of incorporation of the company, the board may delegate certain of its responsibilities to board committees and to the representative director.

Board committees can generally exercise the powers of the board of directors on a range of matters, except the following:

• proposal of any matter that requires approval from the general meeting of shareholders;
• appointment or dismissal of the representative director;
• establishment of a board committee, including the appointment or dismissal of its members; or
• any matters which are subject to the articles of incorporation.

In addition, provided that the scope of such activities are defined in advance, the board may delegate to the representative director the authority to implement the day-to-day activities of the company, except the following:

• disposal or transfer of material assets;
• borrowing of large-scale assets;
• appointment or dismissal of managers; and
• management of certain affairs, such as the establishment, transfer or closure of branch offices.

Is there a minimum number of ‘non-executive’ or ‘independent’ directors required by law, regulation or listing requirement? If so, what is the definition of ‘non-executive’ and ‘independent’ directors and how do their responsibilities differ from executive directors?

Under the KCC, the members of the board of directors may be divided into three main groups, comprising ‘inside directors’, ‘outside directors’ and ‘non-executive director (ie, other directors not directly engaged in the regular business of the company)’. Although each type of director assumes the duties of a standard director, outside directors are not directly engaged in the regular business of the company and are seen to be independent from the controlling shareholders and management of the company. Non-executive directors may be defined as directors who do not directly engaged in the regular business of the company, but are not considered outside directors.

For unlisted companies, it is not a requirement to appoint outside directors, but in the case of listed companies whose total assets are less than 2 trillion won as of the end of the immediately preceding fiscal year, at least a quarter of the members of the board of directors must be outside directors (for listed companies with total assets exceeding 2 trillion won as of the end of the immediately preceding fiscal year, at least three outside directors that comprise a majority of the members of the board are required).

There is no minimum number of non-executive directors required by law.

How is the size of the board determined? Are there minimum and maximum numbers of seats on the board? Who is authorised to make appointments to fill vacancies on the board or newly created directorships? Are there criteria that individual directors or the board as a whole must fulfil? Are there any disclosure requirements relating to board composition?

Under the KCC, a company with total capital of less than 1 billion won may have one or two directors, but otherwise the requirement is to appoint at least three directors. The size of the board can also be determined in the articles of incorporation, subject to the foregoing requirements under the KCC. Please refer to question 22 for additional requirements relating to outside directors for listed companies.

Although there is no maximum number of seats on the board, the size of the board can be fixed in the articles of incorporation. Directors are appointed at the general meeting of shareholders, during which vacancies or newly created seats on the board can be filled. In the event of a vacant seat on the board, the director who previously held such vacant seat shall continue to have the rights and obligations of a director until his or her replacement has been elected to the board.

Although there are no particular criteria for becoming a director, a statutory auditor of a company cannot also hold the office of director. Furthermore, a person who falls within any of the following cannot be an outside director of a company:

• directors and employees who are engaged in regular business of the company, or directors, auditors and employees who have been engaged in regular business of the company within the previous two years;
• for instances where the largest shareholder is a natural person, the largest shareholder, his or her spouse, lineal ascendants and lineal descendants;
• for instances where the largest shareholder is a company, directors, auditors and employees of the largest shareholder;
• spouses, lineal ascendants and lineal descendants of directors, auditors or executive officers of the company;
• directors, auditors, executive officers and employees of the parent or subsidiary of the company;
• directors, auditors, executive officers and employees of another company that has a significant interest in the company, such as business relations with the company; and
• directors, auditors, executive officers and employees of another company in which directors or employees of the relevant company work as directors, auditors, executive officers or employees.

In addition, the KCC stipulates reasons for disqualification of an outside director of a listed company, including the following:

• a minor or a person of incompetence or of quasi-incompetence;
• a person for whom two years have not passed since being dismissed or removed from office after he or she violated acts relating to finance separately determined by presidential decree, including but not limited to the Capital Markets Act, Banking Act and the Insurance Business Act.;
• the largest shareholder and his or her specially related persons;
• a shareholder who owns more than 10 per cent of the total number of issued shares, other than non-voting shares, by his or her calculation regardless of the name of a shareholder, or exerts de facto influence on important matters related to the management of listed companies and his or her spouse, lineal ascendants and lineal descendants; and
• a person determined by presidential decree to have difficulty in faithfully performing his or her duty as an outside director, or who may have an influence on the management of listed companies.

Information on directors, including their names and dates of birth, and information on the representative director, including his or her name, date of birth and address, are disclosed to third parties in the commercial registry. In addition, with reference to listed companies and companies prescribed under the Capital Markets Act, information relating to each director’s duties, career experience and term of office, as well as information relating to the composition of committees are made available in the business report submitted to the Financial Services Commission and the Korea Exchange, which will then be disclosed to the public.

Is there any law, regulation, listing requirement or practice that requires the separation of the functions of board chair and CEO? If flexibility on board leadership is allowed, what is generally recognised as best practice and what is the common practice?

Although the office of CEO is not recognised in the KCC, the office of the representative director plays a similar role. There is no particular requirement that the roles of the representative director and board chair be joint or separate, and each company specifies its own approach to corporate governance in this regard in the articles of incorporation. Generally, the common practice is for the board chair to be appointed by the board of directors (and it is also common for the representative director to be appointed to this role) as contemplated in the articles of incorporation.

What board committees are mandatory? What board committees are allowed? Are there mandatory requirements for committee composition?

It is mandatory for listed companies whose total assets are more than 2 trillion won, as of the end of the immediately preceding fiscal year, to establish an audit committee led by outside directors accounting for at least two-thirds of the membership of such committee (Audit Committee), with at least one member who is an accountant or financial professional, and a committee for recommending candidates for outside directors (Outside Director Recommendation Committee) comprising outside directors representing a majority of the membership of such committee.

The Outside Director Recommendation Committee has the role of recommending candidates to be appointed as outside directors at the general meeting of shareholders and, at such meetings, only those candidates who have been so recommended must be appointed by the shareholders. As for the Audit Committee, the committee has a similar function to that of a statutory auditor (ie, supervision of other directors and the accounting of the company).

Apart from the committees discussed above, a company may (but is not obliged to) establish other board committees comprising at least two directors, varying in terms of their role, authority and function, as may be contemplated by the articles of incorporation or any resolution of the board of directors.

Is a minimum or set number of board meetings per year required by law, regulation or listing requirement?

Although there is no minimum or set number of board meetings per year required by law, regulation or listing requirements, the representative director must report the performance of the company to the board of directors once every quarter, which will require the board to convene at least four times a year.

Is disclosure of board practices required by law, regulation or listing requirement?

Under the Capital Markets Act, companies that are required to submit annual reports, such as listed companies, must submit quarterly, semi-annual and annual reports to the Financial Services Commission and to the Korea Exchange, which are then publicly disclosed. These reports contain information relating to the composition of the board, major items resolved by the board, including whether each outside director voted in favour of or against such items and, if applicable, the composition and activities of the subcommittees of the board.

How is remuneration of directors determined? Is there any law, regulation, listing requirement or practice that affects the remuneration of directors, the length of directors’ service contracts, loans to directors or other transactions or compensatory arrangements between the company and any director?

Unless provided otherwise in the articles of incorporation, the remuneration of directors is determined by shareholders at the general meeting of shareholders. In practice, shareholders typically set the aggregate amount of funds available for remunerating the board of directors, then authorise the board to determine among themselves the individual remuneration payable to each director. Companies that are required to submit annual reports must include in such reports the amount of remuneration approved at the general meeting of shareholders, and the amount of remuneration paid to all directors and statutory auditors.

Under the KCC, the term of office of a director may not exceed three years, with an exception that the term may be extended by the articles of incorporation until the closing of an ordinary general meeting of shareholders convened in respect of the last period for the settlement of accounts within the said term of office. In addition, a company may reappoint the director whose term of office has expired, extending the length of the director’s service beyond three years as a result.

In order for any director to enter into a loan or other transaction with the company, they must first obtain the approval of a two-thirds majority of the board of directors in advance, and the terms of such transactions must be reasonable and fair. In the case of listed companies, no transactions involving the lease of property to or from directors are permitted, and such companies are prohibited from extending credit to, or guaranteeing the obligations of, its directors.

How is the remuneration of the most senior management determined? Is there any law, regulation, listing requirement or practice that affects the remuneration of senior managers, loans to senior managers or other transactions or compensatory arrangements between the company and senior managers?

The remuneration of the most senior management is determined through the procedure set out in question 28. Apart from the prohibited transactions contemplated in question 28, there is no particular law, regulation, listing requirement or practice that affects the remuneration of senior managers, loans to senior managers or other transactions or compensatory arrangements between the company and senior managers; provided, however, in the case of financial institutions, a remuneration committee must be established within the board in accordance with the ACGFC, and the remuneration of senior managers of such companies must be determined by such committee.

Is directors’ and officers’ liability insurance permitted or common practice? Can the company pay the premiums?

Directors’ and officers’ liability insurance is permitted under the KCC. Listed companies and large Korean companies are increasingly adopting such policies into their corporate governance framework. It is common practice for Korean companies to bear the cost of premiums of such policies.

Are there any constraints on the company indemnifying directors and officers in respect of liabilities incurred in their professional capacity? If not, are such indemnities common?

Under the KCC, a company may indemnify a director by unanimous approval of the shareholders, or in accordance with its articles of incorporation, indemnify such amount of liability incurred by a director which exceeds six times (in the case of outside directors, three times) his or her remuneration for the year; provided, however, this shall not apply in respect of loss or damage caused by the wilful misconduct or gross negligence of a director. Subject to the foregoing limits, it is common for companies to adopt an indemnity policy for their directors and officers in the articles of incorporation.

To what extent may companies or shareholders preclude or limit the liability of directors and officers?

As stated in question 31, a company may limit the liability of a director if contemplated in its articles of incorporation or exempt a director from liability by unanimous approval of shareholders.

What role do employees have in corporate governance?

Other than the exercise of shareholder rights underlying any securities they may hold in the company (eg, employee stock option plan), Korean laws do not contemplate any mechanisms through which employees may affect corporate governance.

Is there any law, regulation, listing requirement or practice that requires evaluation of the board, its committees or individual directors? How regularly are such evaluations conducted and by whom? What do companies disclose in relation to such evaluations?

There are no laws, regulations or listing requirements that require evaluation of the board, its committees or individual directors. However, it is common practice for the board to supervise the performance of committees and individual directors and for the statutory auditor to ensure that the board, its committees and individual directors comply with applicable laws and internal controls. Also, shareholders may evaluate the board, its committees and individual directors at the general meeting of shareholders by deciding to remove a director for, among other reasons, failure to perform his or her duties.

Disclosure and transparency

Are the corporate charter and by-laws of companies publicly available? If so, where?

For unlisted companies, the articles of incorporation must be kept at the head office and are not made publicly available, albeit certain portions of the articles (such as the business objectives of the company and the terms of the preferred shares and convertible or redeemable securities) may be gathered from the commercial registry maintained with the court registration office. Any shareholder or creditor of a company may, at any time during its business hours, inspect the articles of incorporation and request a copy thereof.

For listed companies, the articles of incorporation are attached to their annual report and are publicly available on the website of the Data Analysis, Retrieval and Transfer System (DART) maintained by the Financial Supervisory Service.

What information must companies publicly disclose? How often must disclosure be made?

For listed companies and companies that are obliged to submit an annual report, regular disclosures must be made on its business through quarterly, semi-annual and annual reports, which are made available to the public on DART. In addition, such companies must submit timely reports setting forth information on material events having an effect on the management or assets of the company (eg, merger, spin-off, comprehensive exchange of shares, transfer of a material business (assets), sale or transfer of treasury stocks and issuance of convertible bonds or bonds with warrants). Such reports are also made available to the public on DART.

Hot topics

Do shareholders have an advisory or other vote regarding remuneration of directors and senior management? How frequently may they vote?

As noted in question 28, shareholders can set the aggregate amount of funds available for remunerating the board of directors, but in practice, decisions relating to remuneration of individual directors and senior management are often delegated to the board. Shareholders may vote on the remuneration of directors and senior management at any gene­ral meeting of shareholders.

Do shareholders have the ability to nominate directors and have them included in shareholder meeting materials that are prepared and distributed at the company’s expense?

As noted in question 7, a shareholder or group of shareholders holding more than 3 per cent of the total outstanding shares of the company, excluding non-voting shares (more than 0.5 per cent for listed companies and more than 0.25 per cent for listed companies with capital in excess of 100 billion won, held for the preceding six-month period) may make a shareholder proposal to the board specifying their candidates to be nominated for election to the board at the general meeting of shareholders, by no later than six weeks prior to the general meeting. Shareholders would not bear the costs of such notice.

With reference to listed companies with total assets of more than 2 trillion won, only candidates nominated by the Outside Director Recommendation Committee can be elected as an outside director at the general meeting of shareholders; provided that such candidates must include candidates recommended through the shareholder proposal, submitted at least six weeks prior to the general meeting.

Do companies engage with shareholders? If so, who typically participates in the company’s engagement efforts and when does engagement typically occur?

Companies have limited engagement with shareholders; however, listed companies often have investor relations departments that are in charge of responding to inquiries and requests of shareholders.

Are companies required to provide disclosure with respect to corporate social responsibility matters?

Although reform on laws relating to mandatory disclosure of corporate social responsibility matters has been advocated in recent years, amendments to such laws have yet to be approved. Therefore, under current law, a company has no obligation to disclose corporate social responsibility matters.

Are companies required to disclose the ‘pay ratio’ between the CEO’s annual total compensation and the annual total compensation of other workers?

Apart from the requirement for listed companies to disclose the remuneration of executive officers exceeding 500 million won and the average remuneration of the directors and statutory auditors, there is no requirement to disclose any such pay ratio.

Are companies required to disclose ‘gender pay gap’ information? If so, how is the gender pay gap measured?

Gender pay gap information is not subject to disclosure.

Update and trends

Please identify any new developments in corporate governance over the past year (including any significant proposals for new legislation or regulation, even if not yet adopted). Please identify any significant trends in the issues that have been the focus of shareholder interest or activism over the past year (without reference to specific initiatives aimed at specific companies).

The ‘shadow voting system’ for companies in Korea, a system that allowed the Korea Securities Depository to exercise a proxy voting procedure where the result of a vote at the shareholders’ meeting is extrapolated across all shareholders in order to meet quorum requirements, was abolished in 2018. As a result, companies are having trouble establishing quorum for general meetings of shareholders, among other issues. To address this, alternative measures such as electronic and written voting methods have been proposed, but it is anticipated that such measures will not be sufficient to adequately address the issue of establishing quorum.

Starting on 16 September 2019, an electronic securities system will be implemented to electronically register securities including shares and bonds of companies, thereby eliminating the need to issue physical securities certificates. This will allow holders of uncertificated shares that are registered on the system to issue, trade and exercise the rights attached to such shares through the system. Listed companies are mandated to electronically register their shares and will no longer be able to issue physical securities certificates, while unlisted companies may elect to implement the system at their discretion.

We have seen a trend of activist funds with stakes in Korean companies voice their concerns over management and corporate governance. As noted in question 2, in light of the Korea Stewardship Code released by the Korea Corporate Governance Service, we anticipate that large institutional investors, such as the National Pension Service, which maintains significant interests in Korean listed companies, will increasingly become more active in exercising their voting rights to influence corporate governance.

Last, there are a number of amendments to the KCC currently under discussion, including with regard to mandatory electronic voting, extension of notice periods for meetings of shareholders, and permitting shareholders’ meetings to be conducted by live audio communications, all in an effort to increase participation of minority shareholders. In addition, an amendment to the ACGFC is also under discussion whereby conditions to be met for proposals of minority shareholders will be relaxed by lowering the requisite shareholding threshold for shareholder proposals.