The ban on mirror voting, or proportional voting through proxies by beneficial owners on behalf of the actual stock owners, in corporate elections from next year will deal a heavy blow to Korean listed companies if measures are not supplemented to ensure they meet the quorum of voters.
Under the local law, the mirror or shadow voting allows the state-run Korea Securities Depository (KSD) to cast vote on behalf of non-voting shareholders in the same proportion to reflect the way that previous voters split on a particular issue. For example, if all other shareholders vote 85 percent in favor of a measure and 15 percent against, the KSD vote would follow the same proportion in voting the proxies of the non-voting shareholders.
According to the KSD, it cast shadow-voting cards for 642, or 31.2 percent of 2,058 listed companies that ended their fiscal 2016 year in December. The practice has been common for companies with majority share of retail shareholders who do not usually attend the regular or special shareholders’ sessions.
The government had planned to end the system initially from January 2015 to encourage more active voting and engagement by shareholders but pushed back the action by another three years due to strong protests from listed companies fearing management disruptions from lack of shareholders’ votes. If they fail to earn shareholders’ approval for appointments, they could violate the disclosure regulations and be kicked out of the stock market.
For instance, without the mirror votes, many companies may not be able to pass appointments for auditors whose voting right by large shareholders is restricted to 3 percent.
Under the Business Act of 1995, a decision in a bill in general assembly of shareholders becomes valid upon votes of approval from one-fourth of outstanding shares or more than half of the counted votes.
By Kim Dae-gi
[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]