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Introducing the Electronic System for Tender Offers and Shareholder Meetings for Investor Rights Protection
Publication date Nov. 21, 2023
Summary
The number of retail investors has more than doubled to 14.41 million at the end of 2022 from 6.14 million in 2019. Considering the rapid growth of retail investors in the Korean stock market, policy support is essential to allow them to conveniently exercise their rights. To fulfill this policy goal, this article proposes the introduction of an electronic system for tender offers and shareholder meetings.
A tender offer can be an opportunity for investors to sell their shares at a price higher than the market price. However, investors need to visit the main office or branch of the brokerage firm, which acts as a tender offer agent, during business hours to accept a tender offer. To resolve such inconveniences, it is necessary to establish an electronic system that enables investors to conveniently accept a tender offer. This is expected to be implemented without much difficulty as it only requires the establishment of the new system and changes in tender offer practices, rather than legal amendments.
In this respect, the convening process, the exercise of voting rights and the meeting itself should be conducted electronically to allow shareholders to conveniently exercise their voting rights without attending the meeting in person. As for the convening process, it is recommended to use diverse platforms such as Kakao Talk or Naver electronic document service to obtain consent from shareholders and issue notifications. Concerning resolutions on key matters of the company, it is worth considering adopting mandatory electronic voting and treating electronic voting as a minority shareholder right. In addition, more options should be added to the current voting system to enable shareholders to express their diverse opinions, rather than voting only for approval, opposition and abstention. Finally, it should be noted that fully online shareholder meetings without a physical presence may have adverse consequences for shareholders’ participation and expression of their opinions. Accordingly, shareholder protection measures should be implemented, such as holding on-site meetings concurrently if a shareholder owning a certain percentage of shares opposes the online-only format.
A tender offer can be an opportunity for investors to sell their shares at a price higher than the market price. However, investors need to visit the main office or branch of the brokerage firm, which acts as a tender offer agent, during business hours to accept a tender offer. To resolve such inconveniences, it is necessary to establish an electronic system that enables investors to conveniently accept a tender offer. This is expected to be implemented without much difficulty as it only requires the establishment of the new system and changes in tender offer practices, rather than legal amendments.
In this respect, the convening process, the exercise of voting rights and the meeting itself should be conducted electronically to allow shareholders to conveniently exercise their voting rights without attending the meeting in person. As for the convening process, it is recommended to use diverse platforms such as Kakao Talk or Naver electronic document service to obtain consent from shareholders and issue notifications. Concerning resolutions on key matters of the company, it is worth considering adopting mandatory electronic voting and treating electronic voting as a minority shareholder right. In addition, more options should be added to the current voting system to enable shareholders to express their diverse opinions, rather than voting only for approval, opposition and abstention. Finally, it should be noted that fully online shareholder meetings without a physical presence may have adverse consequences for shareholders’ participation and expression of their opinions. Accordingly, shareholder protection measures should be implemented, such as holding on-site meetings concurrently if a shareholder owning a certain percentage of shares opposes the online-only format.
Since the outbreak of the Covid-19 pandemic, the number of retail investors has soared in the Korean stock market, which has more than doubled to 14.41 million as of the end of 2022 from 6.14 million in 2019.1) This figure represents approximately 29% of the domestic population of 49.93 million and around 50% of the economically active population of 28.67 million as of the end of 2022.2)
Amid the growth of retail investors in the stock market, it is crucial to develop policy measures to protect investor rights. Among various issues, this article focuses on how to enable retail investors to conveniently exercise their rights by using an electronic system. In this regard, it examines how to accept a tender offer under the Financial Investment Services and Capital Markets Act (“FSCMA”) and virtual shareholder meetings under the Korean Commercial Act.
How to accept tender offers electronically
A tender offer refers to a public bid to purchase a large number of shares off-market within a short window of time, aimed for acquiring or strengthening corporate control. The FSCMA stipulates that if a person or entity intends to purchase 5% or more of voting shares or related securities from ten or more persons within six months outside the securities market, he or she is required to make a tender offer (Article 133 of the FSCMA). The offeror is obligated to disclose the tender offer duration, quantity and purchase price and, under the uniform-price buying principle, provide sufficient information to the shareholders of the target company. Tender offers can be utilized for hostile corporate takeovers, conversion to holding companies, delisting, and struggles for corporate control by major shareholders. If a tender offer is made for a company engaging in power struggles, it can serve as an opportunity for investors to sell their shares at a price above the market price.3)
One of the issues regarding tender offers is that investors who want to accept a tender offer must visit the main office or branch of the brokerage firm, which acts as a tender offer agent. This is required not by a regulation but by business practices. The FSCMA does not specify the method of accepting a tender offer. It only requires a tender offeror to prepare a tender offer statement and to make it available at the main office, a branch, or any other place of business of the tender offer agent, and to provide the tender offer statement to sellers (Article 137 of the FSCMA and Article 16 of the FSCMA Enforcement Rule). If certain requirements are met,4) the statement may be provided in electronic form. But for in-person tender offer acceptance, it is provided in written form rather than in electronic form. Although the electronic issuance of the tender offer statement is legally allowed, most tender offers permit in-person acceptance only.
Over the past four years, the number of tender offers was five in 2019, seven in 2020, 13 in 2021, five in 2022 and 17 in 2023. Among them, only one case5) allowed the acceptance of tender offers in electronic form. The other tender offers placed a constraint that sellers should visit the main office or branch during business hours. In particular, if a tender offer is made at a price higher than the market price and a shareholder cannot visit a branch during business hours,6) the shareholder may miss an opportunity to sell at a premium price. This has rarely posed any problem as the annual number of tender offers made was relatively low, around 10 cases. However, it may serve as an obstacle soon as the introduction of the mandatory tender offer system7) is under discussion.8) It is necessary to establish an electronic system enabling investors to conveniently accept tender offers to ensure that the mandatory tender offer system functions as a means to protect investor rights as initially intended. It is notable that this issue can be resolved by tender offer agents’ new system and changes in practices, rather than legal amendments. Accordingly, the electronic tender offer system is expected to be easily implemented if financial authorities present the policy direction and tender offer agents establish the relevant system.
Virtual shareholder meetings
With the advancement of IT, the adoption of virtual shareholder meetings has been actively discussed as a means to enhance the efficiency of meeting arrangements and the convenience of exercising shareholder rights. In particular, the Covid-19 pandemic has prompted the spread of non-face-to-face culture and digital transition, generating demand for virtual shareholder meetings.9) The G20/OECD Principles of Corporate Governance also recommends the introduction of virtual shareholder meetings as part of guaranteeing shareholder rights. Recently, the Ministry of Justice has presented a legislative plan to introduce an electronic system for meeting convocation notices, shareholder voting and overall meeting procedures.10)
As the exercise of voting rights at shareholder meetings is shareholders’ fundamental right, they should be allowed to conveniently exercise voting rights without physically attending the meetings. In Korea, shareholder meetings held by over 75% of companies are concentrated on about five business days around the end of March each year.11) Considering the current situation, virtual shareholder meetings are needed to protect the rights of investors who have difficulties attending meetings in person. Discussions on virtual shareholder meetings can be broadly divided into three issues: convening procedures, the exercise of voting rights, and the meeting itself.
First, electronic convening procedures involve issuing the notice and announcement of shareholder meetings in electronic form. As for shareholders owning 1% or less of total shares, listed companies in Korea have conducted the convening process of shareholder meetings by disclosing electronic notices since 2021.12) It means that those with less than 1% of total shares may not receive a shareholder meeting notice unless they personally check the electronic disclosure system.13) Under the existing Commercial Act, the consent of shareholders should be obtained to issue electronic notices to shareholders, which, however, is practically impossible due to difficulties in obtaining such consent.14) Considering these aspects, the amendment to the Commercial Act announced by the Ministry of Justice requires the consent of each shareholder to be obtained as prescribed by the Presidential Decree in an effort to improve the process of obtaining consent. After the amendment is approved, specific regulations will be outlined in the enforcement decree of the Commercial Act. Given that material documents such as tax notices are electronically sent via platforms like Naver’s electronic document service or Kakao Talk, it is necessary to use diverse methods to obtain shareholder consent and issue convocation notices.
Second, the electronic exercise of voting rights involves enabling shareholders to exercise their rights through electronic voting. The electronic voting system was introduced through the revision to the Commercial Act in May 2009, and has come into effect since May 2010. In the early stages of the system, it was used by a limited number of companies.15) But it has gained popularity as 1,669 companies or 66% of all listed companies in Korea adopted electronic voting by 2022.16) Still, some companies have yet to adopt the system, which impedes their shareholders from exercising voting rights electronically. Therefore, it is worth considering obligating companies to use electronic voting at shareholder meetings where major agenda items are discussed.17) For example, agenda items requiring a special resolution under Article 434 of the Commercial Act—such as mergers, divisions, or changes to articles of incorporation—should be subject to mandatory electronic voting. It is also possible to treat electronic voting as part of minority shareholder rights. This means that companies should adopt electronic voting if shareholders with a certain proportion of shares or more request it. As these shareholders can demand the convening of a shareholder meeting and propose specific agenda items, electronic voting can be seen as a minority shareholder right, as is the case with the shareholder proposal right. Another consideration is the reform of the electronic voting system. Given that the simple structure of the current system only allows shareholders to vote for approval, opposition, or abstention, the system needs to be refined to reflect shareholder opinions more accurately. For example, when an amendment is proposed at a shareholder meeting regarding the agenda item that is already put to a vote electronically, the proposal is, in practice, treated as abstention. To accurately reflect shareholder opinions, more specific options should be added to the electronic voting system. As for the agenda item related to dividends, the electronic voting system should include options, such as voting in favor of a higher dividend or voting against a lower dividend compared to the proposed dividend level.
The third issue involves holding a shareholder meeting in the virtual space. Virtual shareholder meetings can be categorized into on-site shareholder meetings with a live broadcast, parallel virtual shareholder meetings and fully virtual shareholder meetings.18) In on-site shareholder meetings with a live broadcast, the meeting being held at a physical location is broadcast in real-time via video so that shareholders can participate online but are not allowed to exercise voting rights. Parallel virtual shareholder meetings are convened both at the physical location and in the virtual space, allowing shareholders to exercise their voting rights. Fully virtual shareholder meetings are conducted only in the virtual space without any on-site meeting.
In Korea, only on-site shareholder meetings with a live broadcast are possible due to current legal limitations.19) Since SK Telecom held an on-site shareholder meeting through a live broadcast in 2020, 24 companies20) in 2021 and 2521) in 2022 have broadcast their shareholder meetings online. If the amendment to the Commercial Act announced by the Ministry of Justice is approved, not only parallel virtual shareholder meetings but also fully virtual shareholder meetings will be introduced, enabling shareholders to watch shareholder meetings and exercise voting rights without physically attending the meetings. However, it should be noted that fully virtual shareholder meetings may have negative consequences for shareholder participation and reflection of shareholder opinions.22) Those with limited access to electronic media such as the Internet may be excluded from shareholder meetings. In addition, fully virtual shareholder meetings hinder face-to-face contact or communication between management and shareholders or among shareholders. For this reason, it is necessary to step up requirements for the introduction and administration of fully virtual shareholder meetings held exclusively online without on-site meetings. The government needs to take measures for shareholder protection, which, for example, requires shareholder meetings to be concurrently held at the physical location as well as in the virtual space upon the opposition of a shareholder with a certain proportion of total shares.
Considering the rapid growth of retail investors in the Korean stock market, it is essential to provide policy support for investors to conveniently exercise their rights. In Korea, recognized as a global IT powerhouse, investors still face inconveniences in accepting tender offers, such as visiting the main office or branch of the tender offer agent, which needs to be promptly addressed. Currently, the legislative proposal for the amendment to the Commercial Act, aimed at introducing virtual shareholder meetings including electronic notifications, the electronic exercise of voting rights and the operation of virtual meetings, has been announced and relevant legislative discussions are expected to follow. In the legislative process, policy measures geared toward enhancing the rights and interests of investors should be adopted.
1) Korea Securities Depository, March 13, 2023, Shareholders of listed corporations with settlement accounting ending in December 2022, press release.
2) Korean Statistical Information Service of Statistics Korea
3) In the management dispute of SM, HYBE conducted a public tender offer from February 10 to March 1, 2023 at a price of KRW 120,000 per share. On February 9, the closing price was KRW 98,500. On the other hand, Kakao made a public tender offer from March 7 to 26, 2023 at a price of KRW 150,000 per share. On March 6, the closing price was KRW 130,100.
4) The requirements are as follows: 1) the recipient of an electronic document should give consent to receiving a tender offer statement in electronic form; 2) the recipient of the electronic document should specify the type and location of the electronic transmission medium through which he or she will receive the electronic document; 3) the receipt of the electronic document should be confirmed; and 4) the content of the electronic document should be identical to that of the tender offer statement in written form (Article 137 Paragraph 3 of the FSCMA).
5) Wonik Holdings conducted a public tender offer for the shares of TLi from September 21 to October 17, 2023, through NH Investment & Securities acting as the tender offer agent. NH Investment & Securities announced the introduction of the online system for tender offers starting from September 2023. It guided TLi shareholders to sell their shares through online channels including the website, HTS (Home Trading System) and MTS (Mobile Trading System), in addition to offline acceptance through branch visits.
6) In Seoul, multiple branches of tender offer agents are located, making it relatively convenient for shareholders to pay a visit. But in regions outside metropolitan or capital areas, most tender offer agents have only one branch in the entire province, and some have announced that tender offer services are available until 4 PM.
7) The mandatory tender offer system refers to a regulatory framework that requires a person or entity, who intends to acquire shares sufficient to secure corporate control over a listed company, to acquire a certain proportion of those shares by making a tender offer.
8) In its press release dated December 21, 2022, the Financial Services Commission announced its plan to introduce the mandatory tender offer system. A legislative proposal for such introduction was proposed as a bill by Lawmaker Yun Chang-hyun on May 30, 2023 (bill number 2122370).
9) Herald Business, May 27, 2022, 63% of listed companies conduct electronic voting for shareholder meetings this year… “there is a need for non-face-to-face shareholder meetings”.
10) The legislative notice was issued on August 24m 2023, which is currently under review by the Korea Ministry of Government Legislation. The Ministry of Justice stated in a press release that it would make efforts for the passage of the relevant legal amendment in the regular session of the National Assembly this year, aiming for the enforcement of the amendment in 2024 (Ministry of Justice, August 24, 2023, Legislative Notice for Amendment to the Commercial Act for Corporate Environment Improvement and Shareholder Protection, press release).
11) This article analyzes press releases regarding shareholder meetings announced by the Korea Securities Depository from 2020 to 2022. The analysis reveals that among companies with fiscal years ending in December, 28.88% (670 companies) in 2020, 20.97% (495 companies) in 2021 and 23.74% (576 companies) in 2022 held their shareholder meetings on the same business day. Furthermore, 75.41% (1,747 companies) in 2020, 80.5% (1,899 companies) in 2021 and 78.65% (1,908 companies) in 2022 chose one day among five business days of the respective year to hold their shareholder meetings.
12) Article 542-4, Paragraph 1 of the Commercial Act, and Article 31, Paragraph 1 of the Enforcement Decree of the said Act.
13) There are listed companies that provide written notifications to shareholders owning 1% or less of the company’s total shares to protect shareholder rights. According to a survey conducted by the Korea Listed Companies Association in 2022, 36.7% or 129 companies out of 351 listed companies replied that they provide written notifications to all shareholders (Korea Listed Companies Association, 2022 white paper for shareholder meetings of listed companies, Korea Listed Companies Association data 2022-19).
14) Shareholders of a listed company usually open an account with a brokerage firm and then buy the company’s shares through the brokerage firm. Accordingly, it is impossible for the company to obtain consent at the time when shareholders open their accounts. In addition, the current shareholder registry contains only shareholders’ addresses as a means of contacting them, which makes it practically impossible for the company to visit each shareholder to obtain consent.
15) The electronic voting system was utilized by 36 companies in 2012, 18 in 2013 and 8 in 2014.
16) The result is derived from the data obtained from the Korea Securities Depository acting as the electronic voting management agency, combined with the data provided by Samsung Securities.
17) As of 2022, in the case of Hancom With’s split-off, UNID BT Plus’ spin-off, Dongwon Industries’ merger, and Aprogen Biologies’ merger, these companies did not adopt electronic voting, preventing shareholders from exercising their voting rights by electronic means.
18) Various terms are used to refer to virtual shareholder meetings. This article uses the terms included in the Ministry of Justice’s legislative proposal (parallel virtual shareholder meetings, fully virtual shareholder meetings).
19) Article 13, Paragraph 2, Subparagraph 2 of the Enforcement Decree of the Commercial Act specifies the period for electronic voting (the closing date of electronic voting shall be no later than the day before the shareholder meeting is held). If electronic voting is used for a virtual shareholder meeting, shareholders cannot exercise voting rights on the same day as the meeting.
20) SK Telecom, SK Hynix, KB Financial Group, Kumho Petrochemical, Naver, Daewon Cable, Mico, Samsung SDI, Samsung C&T Corporation, Samsung Biologics, Samsung SDS, Samsung Electro-Mechanics, Samsung Electronics, Shinhan Financial Group, Celltrion, Celltrion Healthcare, Celltrion Pharm, RSupport, EssenTech, Chinyang Holdings, POSCO Holdings, Pulmuone, Hyundai Mobis, Hyundai Motor Company
21) SK, SK Square, SK Telecom, SK Hynix, Daewon Cable, Samsung SDI, Samsung C&T Corporation, Samsung Biologics, Samsung Life Insurance, Samsung SDS, Samsung Engineering, Samsung Electro-Mechanics, Samsung Electronics, Samsung Card, Samsung Securities, Samsung Fire & Marine Insurance, Shinhan Financial Group, Celltrion, Amorepacific Group, S1 Corporation, Cheil Worldwide, POSCO Holdings, Pulmuone, Hyundai Mobis, Hyundai Motor Company
22) Yun, Y.S., 2016, Study on foreign legislative trend regarding virtual shareholder meetings and regulatory reform for the introduction of virtual shareholder meetings, Korean Commercial Law Association 35(1), 81-82.
Amid the growth of retail investors in the stock market, it is crucial to develop policy measures to protect investor rights. Among various issues, this article focuses on how to enable retail investors to conveniently exercise their rights by using an electronic system. In this regard, it examines how to accept a tender offer under the Financial Investment Services and Capital Markets Act (“FSCMA”) and virtual shareholder meetings under the Korean Commercial Act.
How to accept tender offers electronically
A tender offer refers to a public bid to purchase a large number of shares off-market within a short window of time, aimed for acquiring or strengthening corporate control. The FSCMA stipulates that if a person or entity intends to purchase 5% or more of voting shares or related securities from ten or more persons within six months outside the securities market, he or she is required to make a tender offer (Article 133 of the FSCMA). The offeror is obligated to disclose the tender offer duration, quantity and purchase price and, under the uniform-price buying principle, provide sufficient information to the shareholders of the target company. Tender offers can be utilized for hostile corporate takeovers, conversion to holding companies, delisting, and struggles for corporate control by major shareholders. If a tender offer is made for a company engaging in power struggles, it can serve as an opportunity for investors to sell their shares at a price above the market price.3)
One of the issues regarding tender offers is that investors who want to accept a tender offer must visit the main office or branch of the brokerage firm, which acts as a tender offer agent. This is required not by a regulation but by business practices. The FSCMA does not specify the method of accepting a tender offer. It only requires a tender offeror to prepare a tender offer statement and to make it available at the main office, a branch, or any other place of business of the tender offer agent, and to provide the tender offer statement to sellers (Article 137 of the FSCMA and Article 16 of the FSCMA Enforcement Rule). If certain requirements are met,4) the statement may be provided in electronic form. But for in-person tender offer acceptance, it is provided in written form rather than in electronic form. Although the electronic issuance of the tender offer statement is legally allowed, most tender offers permit in-person acceptance only.
Over the past four years, the number of tender offers was five in 2019, seven in 2020, 13 in 2021, five in 2022 and 17 in 2023. Among them, only one case5) allowed the acceptance of tender offers in electronic form. The other tender offers placed a constraint that sellers should visit the main office or branch during business hours. In particular, if a tender offer is made at a price higher than the market price and a shareholder cannot visit a branch during business hours,6) the shareholder may miss an opportunity to sell at a premium price. This has rarely posed any problem as the annual number of tender offers made was relatively low, around 10 cases. However, it may serve as an obstacle soon as the introduction of the mandatory tender offer system7) is under discussion.8) It is necessary to establish an electronic system enabling investors to conveniently accept tender offers to ensure that the mandatory tender offer system functions as a means to protect investor rights as initially intended. It is notable that this issue can be resolved by tender offer agents’ new system and changes in practices, rather than legal amendments. Accordingly, the electronic tender offer system is expected to be easily implemented if financial authorities present the policy direction and tender offer agents establish the relevant system.
Virtual shareholder meetings
With the advancement of IT, the adoption of virtual shareholder meetings has been actively discussed as a means to enhance the efficiency of meeting arrangements and the convenience of exercising shareholder rights. In particular, the Covid-19 pandemic has prompted the spread of non-face-to-face culture and digital transition, generating demand for virtual shareholder meetings.9) The G20/OECD Principles of Corporate Governance also recommends the introduction of virtual shareholder meetings as part of guaranteeing shareholder rights. Recently, the Ministry of Justice has presented a legislative plan to introduce an electronic system for meeting convocation notices, shareholder voting and overall meeting procedures.10)
As the exercise of voting rights at shareholder meetings is shareholders’ fundamental right, they should be allowed to conveniently exercise voting rights without physically attending the meetings. In Korea, shareholder meetings held by over 75% of companies are concentrated on about five business days around the end of March each year.11) Considering the current situation, virtual shareholder meetings are needed to protect the rights of investors who have difficulties attending meetings in person. Discussions on virtual shareholder meetings can be broadly divided into three issues: convening procedures, the exercise of voting rights, and the meeting itself.
First, electronic convening procedures involve issuing the notice and announcement of shareholder meetings in electronic form. As for shareholders owning 1% or less of total shares, listed companies in Korea have conducted the convening process of shareholder meetings by disclosing electronic notices since 2021.12) It means that those with less than 1% of total shares may not receive a shareholder meeting notice unless they personally check the electronic disclosure system.13) Under the existing Commercial Act, the consent of shareholders should be obtained to issue electronic notices to shareholders, which, however, is practically impossible due to difficulties in obtaining such consent.14) Considering these aspects, the amendment to the Commercial Act announced by the Ministry of Justice requires the consent of each shareholder to be obtained as prescribed by the Presidential Decree in an effort to improve the process of obtaining consent. After the amendment is approved, specific regulations will be outlined in the enforcement decree of the Commercial Act. Given that material documents such as tax notices are electronically sent via platforms like Naver’s electronic document service or Kakao Talk, it is necessary to use diverse methods to obtain shareholder consent and issue convocation notices.
Second, the electronic exercise of voting rights involves enabling shareholders to exercise their rights through electronic voting. The electronic voting system was introduced through the revision to the Commercial Act in May 2009, and has come into effect since May 2010. In the early stages of the system, it was used by a limited number of companies.15) But it has gained popularity as 1,669 companies or 66% of all listed companies in Korea adopted electronic voting by 2022.16) Still, some companies have yet to adopt the system, which impedes their shareholders from exercising voting rights electronically. Therefore, it is worth considering obligating companies to use electronic voting at shareholder meetings where major agenda items are discussed.17) For example, agenda items requiring a special resolution under Article 434 of the Commercial Act—such as mergers, divisions, or changes to articles of incorporation—should be subject to mandatory electronic voting. It is also possible to treat electronic voting as part of minority shareholder rights. This means that companies should adopt electronic voting if shareholders with a certain proportion of shares or more request it. As these shareholders can demand the convening of a shareholder meeting and propose specific agenda items, electronic voting can be seen as a minority shareholder right, as is the case with the shareholder proposal right. Another consideration is the reform of the electronic voting system. Given that the simple structure of the current system only allows shareholders to vote for approval, opposition, or abstention, the system needs to be refined to reflect shareholder opinions more accurately. For example, when an amendment is proposed at a shareholder meeting regarding the agenda item that is already put to a vote electronically, the proposal is, in practice, treated as abstention. To accurately reflect shareholder opinions, more specific options should be added to the electronic voting system. As for the agenda item related to dividends, the electronic voting system should include options, such as voting in favor of a higher dividend or voting against a lower dividend compared to the proposed dividend level.
The third issue involves holding a shareholder meeting in the virtual space. Virtual shareholder meetings can be categorized into on-site shareholder meetings with a live broadcast, parallel virtual shareholder meetings and fully virtual shareholder meetings.18) In on-site shareholder meetings with a live broadcast, the meeting being held at a physical location is broadcast in real-time via video so that shareholders can participate online but are not allowed to exercise voting rights. Parallel virtual shareholder meetings are convened both at the physical location and in the virtual space, allowing shareholders to exercise their voting rights. Fully virtual shareholder meetings are conducted only in the virtual space without any on-site meeting.
In Korea, only on-site shareholder meetings with a live broadcast are possible due to current legal limitations.19) Since SK Telecom held an on-site shareholder meeting through a live broadcast in 2020, 24 companies20) in 2021 and 2521) in 2022 have broadcast their shareholder meetings online. If the amendment to the Commercial Act announced by the Ministry of Justice is approved, not only parallel virtual shareholder meetings but also fully virtual shareholder meetings will be introduced, enabling shareholders to watch shareholder meetings and exercise voting rights without physically attending the meetings. However, it should be noted that fully virtual shareholder meetings may have negative consequences for shareholder participation and reflection of shareholder opinions.22) Those with limited access to electronic media such as the Internet may be excluded from shareholder meetings. In addition, fully virtual shareholder meetings hinder face-to-face contact or communication between management and shareholders or among shareholders. For this reason, it is necessary to step up requirements for the introduction and administration of fully virtual shareholder meetings held exclusively online without on-site meetings. The government needs to take measures for shareholder protection, which, for example, requires shareholder meetings to be concurrently held at the physical location as well as in the virtual space upon the opposition of a shareholder with a certain proportion of total shares.
Considering the rapid growth of retail investors in the Korean stock market, it is essential to provide policy support for investors to conveniently exercise their rights. In Korea, recognized as a global IT powerhouse, investors still face inconveniences in accepting tender offers, such as visiting the main office or branch of the tender offer agent, which needs to be promptly addressed. Currently, the legislative proposal for the amendment to the Commercial Act, aimed at introducing virtual shareholder meetings including electronic notifications, the electronic exercise of voting rights and the operation of virtual meetings, has been announced and relevant legislative discussions are expected to follow. In the legislative process, policy measures geared toward enhancing the rights and interests of investors should be adopted.
1) Korea Securities Depository, March 13, 2023, Shareholders of listed corporations with settlement accounting ending in December 2022, press release.
2) Korean Statistical Information Service of Statistics Korea
3) In the management dispute of SM, HYBE conducted a public tender offer from February 10 to March 1, 2023 at a price of KRW 120,000 per share. On February 9, the closing price was KRW 98,500. On the other hand, Kakao made a public tender offer from March 7 to 26, 2023 at a price of KRW 150,000 per share. On March 6, the closing price was KRW 130,100.
4) The requirements are as follows: 1) the recipient of an electronic document should give consent to receiving a tender offer statement in electronic form; 2) the recipient of the electronic document should specify the type and location of the electronic transmission medium through which he or she will receive the electronic document; 3) the receipt of the electronic document should be confirmed; and 4) the content of the electronic document should be identical to that of the tender offer statement in written form (Article 137 Paragraph 3 of the FSCMA).
5) Wonik Holdings conducted a public tender offer for the shares of TLi from September 21 to October 17, 2023, through NH Investment & Securities acting as the tender offer agent. NH Investment & Securities announced the introduction of the online system for tender offers starting from September 2023. It guided TLi shareholders to sell their shares through online channels including the website, HTS (Home Trading System) and MTS (Mobile Trading System), in addition to offline acceptance through branch visits.
6) In Seoul, multiple branches of tender offer agents are located, making it relatively convenient for shareholders to pay a visit. But in regions outside metropolitan or capital areas, most tender offer agents have only one branch in the entire province, and some have announced that tender offer services are available until 4 PM.
7) The mandatory tender offer system refers to a regulatory framework that requires a person or entity, who intends to acquire shares sufficient to secure corporate control over a listed company, to acquire a certain proportion of those shares by making a tender offer.
8) In its press release dated December 21, 2022, the Financial Services Commission announced its plan to introduce the mandatory tender offer system. A legislative proposal for such introduction was proposed as a bill by Lawmaker Yun Chang-hyun on May 30, 2023 (bill number 2122370).
9) Herald Business, May 27, 2022, 63% of listed companies conduct electronic voting for shareholder meetings this year… “there is a need for non-face-to-face shareholder meetings”.
10) The legislative notice was issued on August 24m 2023, which is currently under review by the Korea Ministry of Government Legislation. The Ministry of Justice stated in a press release that it would make efforts for the passage of the relevant legal amendment in the regular session of the National Assembly this year, aiming for the enforcement of the amendment in 2024 (Ministry of Justice, August 24, 2023, Legislative Notice for Amendment to the Commercial Act for Corporate Environment Improvement and Shareholder Protection, press release).
11) This article analyzes press releases regarding shareholder meetings announced by the Korea Securities Depository from 2020 to 2022. The analysis reveals that among companies with fiscal years ending in December, 28.88% (670 companies) in 2020, 20.97% (495 companies) in 2021 and 23.74% (576 companies) in 2022 held their shareholder meetings on the same business day. Furthermore, 75.41% (1,747 companies) in 2020, 80.5% (1,899 companies) in 2021 and 78.65% (1,908 companies) in 2022 chose one day among five business days of the respective year to hold their shareholder meetings.
12) Article 542-4, Paragraph 1 of the Commercial Act, and Article 31, Paragraph 1 of the Enforcement Decree of the said Act.
13) There are listed companies that provide written notifications to shareholders owning 1% or less of the company’s total shares to protect shareholder rights. According to a survey conducted by the Korea Listed Companies Association in 2022, 36.7% or 129 companies out of 351 listed companies replied that they provide written notifications to all shareholders (Korea Listed Companies Association, 2022 white paper for shareholder meetings of listed companies, Korea Listed Companies Association data 2022-19).
14) Shareholders of a listed company usually open an account with a brokerage firm and then buy the company’s shares through the brokerage firm. Accordingly, it is impossible for the company to obtain consent at the time when shareholders open their accounts. In addition, the current shareholder registry contains only shareholders’ addresses as a means of contacting them, which makes it practically impossible for the company to visit each shareholder to obtain consent.
15) The electronic voting system was utilized by 36 companies in 2012, 18 in 2013 and 8 in 2014.
16) The result is derived from the data obtained from the Korea Securities Depository acting as the electronic voting management agency, combined with the data provided by Samsung Securities.
17) As of 2022, in the case of Hancom With’s split-off, UNID BT Plus’ spin-off, Dongwon Industries’ merger, and Aprogen Biologies’ merger, these companies did not adopt electronic voting, preventing shareholders from exercising their voting rights by electronic means.
18) Various terms are used to refer to virtual shareholder meetings. This article uses the terms included in the Ministry of Justice’s legislative proposal (parallel virtual shareholder meetings, fully virtual shareholder meetings).
19) Article 13, Paragraph 2, Subparagraph 2 of the Enforcement Decree of the Commercial Act specifies the period for electronic voting (the closing date of electronic voting shall be no later than the day before the shareholder meeting is held). If electronic voting is used for a virtual shareholder meeting, shareholders cannot exercise voting rights on the same day as the meeting.
20) SK Telecom, SK Hynix, KB Financial Group, Kumho Petrochemical, Naver, Daewon Cable, Mico, Samsung SDI, Samsung C&T Corporation, Samsung Biologics, Samsung SDS, Samsung Electro-Mechanics, Samsung Electronics, Shinhan Financial Group, Celltrion, Celltrion Healthcare, Celltrion Pharm, RSupport, EssenTech, Chinyang Holdings, POSCO Holdings, Pulmuone, Hyundai Mobis, Hyundai Motor Company
21) SK, SK Square, SK Telecom, SK Hynix, Daewon Cable, Samsung SDI, Samsung C&T Corporation, Samsung Biologics, Samsung Life Insurance, Samsung SDS, Samsung Engineering, Samsung Electro-Mechanics, Samsung Electronics, Samsung Card, Samsung Securities, Samsung Fire & Marine Insurance, Shinhan Financial Group, Celltrion, Amorepacific Group, S1 Corporation, Cheil Worldwide, POSCO Holdings, Pulmuone, Hyundai Mobis, Hyundai Motor Company
22) Yun, Y.S., 2016, Study on foreign legislative trend regarding virtual shareholder meetings and regulatory reform for the introduction of virtual shareholder meetings, Korean Commercial Law Association 35(1), 81-82.