SEOUL, Nov. 15 (Korea Bizwire) — Outside directors at South Korea’s major listed companies are suspected of serving as mere rubber stamps, as their agenda disapproval rate is extremely low, a proxy advisory firm report said Wednesday.
Sustinvest Inc. said independent directors at only 25 of the 882 firms listed on the country’s main and secondary bourses, or 2.8 percent of the total, ever voted against agenda items for board meetings last year.
In addition, outside directors at a mere 39 companies, or 4.4 percent, expressed opinions other than approval at board meetings, such as disapproval, reservation, abstention, revision and conditional approval.
Sustinvest pointed out that outside directors at the remaining companies just rubber-stamped key agenda items to serve the interests of the largest shareholders or management rather than small investors.
In addition, the board chairmen of the surveyed companies enjoyed a very low level of independence, the proxy advisory firm said. Last year, outside directors at 51 firms, or 5.8 percent of the total, served as board chairmen.
“It remains questionable whether outside directors can independently express their opinions during the corporate decision-making process, although the formal requirements for internal control of listed companies have been strengthened,” said Ryu Young-jae, chief of Sustinvest.
South Korea adopted the outside director system in 1992 to keep chief executives or large shareholders from making unilateral decisions that run against a company’s interests. But outside directors have been under flak for inaction.
Sustinvest also said 23.1 percent of the listed firms adopted electronic voting as of last year, with 4.6 percent introducing the so-called cumulative voting system.
Electronic voting allows minor investors who are not able to attend shareholder meetings to exercise their voting rights via the Internet, while the cumulative voting system permits small shareholders to transfer rights to a member of the board of directors. The systems are intended to rein in power abuse by controlling stockholders and top managers.
In terms of corporate governance, three large-cap companies — including Korea District Heating Corp., Shinhan Financial Group Co. and top steelmaker POSCO — received the best ratings, Sustinvest added.