Advance vote leaks threaten South Korea's mandatory cumulative voting system

South Korea's upcoming mandatory cumulative voting system, designed to empower minority shareholders, faces a significant hurdle: the alleged leakage of advance voting results to controlling shareholders. This practice, if true, could render the system ineffective before it even fully takes hold.

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It is impossible unless Chairman Choi Yoon-beom's side knew the advance voting (written/electronic voting) results of domestic and foreign institutional investors in advance and allocated votes tailored to each candidate.

The controversy erupted during a recent shareholder meeting for Korea Zinc. A close election for board seats, with a mere 90-vote difference, fueled suspicions that the management side, led by Chairman Choi Yoon-beom, had access to advance voting data from institutional investors. This allowed them to strategically allocate their votes, potentially negating the intended effect of cumulative voting.

While Korea Zinc denies any wrongdoing, calling it a result of strategic voting, the incident highlights a long-standing concern. Institutional investors, who hold a significant portion of shares, often vote by mail or electronically in advance. Critics argue that controlling shareholders can exploit this by obtaining these results beforehand, allowing them to tailor their own votes to secure desired outcomes. This creates a "winner-take-all" scenario, undermining the principle of fair representation.

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It is completely groundless. It is the result of Chairman Choi's side strategically allocating votes well.

The mandatory cumulative voting system, set to take effect in September for companies with over 2 trillion won in assets, aims to give minority shareholders more leverage by allowing them to concentrate their votes on specific candidates. However, without addressing the advance voting data issue, its impact could be severely diminished. The Korea Corporate Governance Forum has proposed allowing other parties to request access to advance voting results, similar to Taiwan's practice of publicizing them a day before shareholder meetings.

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If the controlling shareholder knows the voting results in advance and allocates votes, it is difficult to expect fairness, like one person seeing the answers in an exam taken by many.

Regulators are now exploring options, including preventing companies from accessing this data or mandating its disclosure to all stakeholders. There's also talk of linking compliance with the stewardship code, which encourages institutional investors to actively participate in corporate governance, to penalties for those who alter their votes under pressure. The effectiveness of these measures will be crucial in ensuring a fairer corporate governance landscape in South Korea.

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It is a long-standing practice in the capital market for shareholder meeting companies to ask for votes to be changed to 'yes' after seeing the written/electronic voting results and casting dissenting votes.