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Photo courtesy of Yonhap News |
[Alpha Biz= Paul Lee] The Korea Corporate Governance Forum on March 3 welcomed KT&G’s decision to cancel all of its treasury shares, while calling on investors to exercise caution when voting on related agenda items at the upcoming annual general meeting (AGM).
On Feb. 25, KT&G announced it would cancel 10,866,189 treasury shares, equivalent to approximately 9.5% of its total outstanding shares.
The Forum positively assessed the move, stating that it proactively reflects the intent of the recently passed amendment to the Commercial Act and helps prevent potential abuse of treasury shares while normalizing uncertainty in shareholder value calculations.
However, the Forum raised concerns over the structure of certain AGM proposals, including a revision to Article 10 of the company’s articles of incorporation and the treasury share holding and disposal plan.
It argued that while treasury share cancellation can be resolved by a board decision, the company bundled the cancellation with a new acquisition plan into a single proposal requiring shareholder approval. The Forum described this as inappropriate, warning that shareholders could mistakenly believe that cancellation would not be possible without approving the treasury share plan.
The group urged CEO Bang Kyung-man and Board Chair Go Yoon-sung to clearly state that cancellation of existing treasury shares is independent of shareholder approval and to separate agenda items that require approval from those that do not.
The Forum also criticized the proposed amendment to Article 10, which would newly allow the company to acquire, hold, and dispose of treasury shares “when necessary to achieve managerial objectives such as the introduction of new technologies or improvement of financial structure.” It said the company has not sufficiently explained the specific need for including such broad managerial purposes.
According to the Forum, acquiring treasury shares for employee compensation is already permissible under existing law without explicit grounds in the articles of incorporation. It questioned why the company is seeking to add a managerial-purpose clause without providing concrete justification.
In addition, the treasury share holding and disposal plan specifies acquisition, holding, and disposal timing only as “based on the timing of employee compensation programs, including personnel evaluation results,” which the Forum said lacks predictability.
It emphasized that the amended Commercial Act requires disclosure of the planned holding period and disposal timing in order to provide shareholders with clear and accurate expectations when approving such plans.
Finally, the Forum noted that KT&G had previously faced criticism for contributing large amounts of treasury shares to a nonprofit foundation chaired by former and current executives, allegedly entrenching management. It urged the board to transparently explain overlapping agenda items and clearly justify the necessity of retaining treasury shares for managerial purposes.
Alphabiz Reporter Paul Lee(hoondork1977@alphabiz.co.kr)
