Jun Ji-hye, a reporter at the finance desk of The Korea Times, focuses primarily on economic policy and government agencies, mainly covering the Ministry of Finance and Economy, the Ministry of Budget and Planning, the National Tax Service and the Korea Customs Service. She previously covered financial authorities, including the Financial Services Commission and the Financial Supervisory Service, and earlier worked on the political, city and business desks, reporting on a wide range of issues.
Global investors, proxy advisers split on Korea Zinc's voting proposal
Korea Zinc Chairman Choi Yun-beom speaks during a press conference at the Korea Chamber of Commerce and Industry in central Seoul, Nov. 13. Yonhap
By Jun Ji-hye
MBK warns cumulative system will be exploited to extend chairman’s tenure
Norges Bank Investment Management (NBIM), one of the world’s largest sovereign wealth funds, has voiced its opposition to a cumulative voting system proposed by Korea Zinc Chairman Choi Yun-beom. The proposed system has also sparked concerns among major institutional investors, including the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS), the largest public pension funds in the United States.
These investors argue that the cumulative voting system, in general, is considered to benefit minority shareholders, but in this case, it could produce unintended consequences that dilute the reform efforts pursued by MBK Partners and Young Poong.
The opposition came after the board of directors at Korea Zinc, in December, resolved to introduce the cumulative voting system and impose a cap on the total number of directors at 19. These measures were part of efforts to defend the chairman amid a months-long management rights dispute with an alliance composed of the private equity firm and Young Poong.
The two proposals have been added to the agenda for an extraordinary shareholders' meeting scheduled for Thursday.
The Korea Institute of Corporate Governance and Sustainability, a domestic proxy advisory firm, also recommended against the introduction of the cumulative voting system.
In contrast, the National Pension Service (NPS), which holds a 4.51 percent stake in Korea Zinc, has decided to support both the introduction of the cumulative voting system and the cap on the number of directors on the board by voting in favor of the proposals.
Several domestic and international proxy advisory firms, including Glass Lewis, have also recommended approving the proposals.
With domestic and international funds and proxy advisory firms divided on the cumulative voting system, all eyes are on how other institutional investors, general shareholders and the broader business community — who have traditionally opposed the system — will vote during the shareholders' meeting.
The cumulative voting system allows shareholders to allocate their voting rights, which are equal to the number of director candidates, to a single candidate. This system can potentially consolidate votes in favor of a preferred candidate, giving them greater influence in the election of board members.
Although Choi holds a smaller stake compared to the MBK alliance, the passage of both the cumulative voting system and the cap on the number of directors at the upcoming meeting will significantly increase his chances of successfully defending his management rights.
Currently, the MBK alliance is the largest shareholder of Korea Zinc with about a 47 percent voting share, while Choi and his allies are estimated to hold a 33 to 34 percent stake.
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On Saturday, NBIM disclosed its voting decisions on the agenda for Korea Zinc’s extraordinary shareholders meeting, expressing opposition not only to the cumulative voting system but also to the proposal to limit the number of directors.
Furthermore, it cast votes in favor of all 14 board candidates recommended by the MBK alliance, while opposing all candidates recommended by Korea Zinc.
“The company should have a robust nomination and election process to ensure an effective board that is accountable to shareholders,” the NBIM said on its website.
On Thursday, CalPERS and CalSTRS also voted against the proposed cumulative voting system.
Given that North American pension funds are highly sensitive to environmental, social and governance practices and corporate governance issues, their opposition to the cumulative voting system is expected to significantly influence the voting decisions of other pension funds and institutional investors.
On Jan. 9, global proxy adviser Institutional Shareholder Services released a report recommending institutional investors oppose the introduction of the cumulative voting system.
Meanwhile, the NPS decided to support both the introduction of the cumulative voting system and the establishment of the cap on the number of directors during its committee meeting on Saturday.
The decision by the NPS carries significant influence over other institutional investors.
Kim Kwang-il, a partner at MBK Partners, speaks during a press conference at Lotte Hotel Seoul, Dec. 10. Courtesy of MBK Partners
MBK noted that if the cumulative voting system is introduced, the original purpose of the system — protecting minority shareholders — will be undermined and instead exploited as a tool to extend Choi’s tenure.
“The adoption of the system is likely to prolong the power struggle between the largest and second-largest shareholders, which would have negative consequences not only for the company but also for its shareholders,” an MBK official said.
“MBK Partners and Young Poong remain committed to persuading domestic and international institutional investors, as well as general shareholders, to ensure that the proposed amendment to introduce the system is not passed.”