Top proxy advisors demand greater oversight of Korea Zinc's board

Korea Zinc's extraordinary shareholders’ meeting takes place at Grand Hyatt Seoul, Jan. 23. Joint Press Corps

Major domestic and international proxy advisory firms, as well as global sovereign wealth funds, called for stronger oversight of Korea Zinc’s current board ahead of Friday's regular shareholders’ meeting — widely seen as a pivotal moment in the prolonged management rights dispute, industry officials said Tuesday.

They recommended supporting some or all director nominees proposed by the alliance of MBK Partners and Young Poong, which has been seeking to oust company Chairman Choi Yun-beom, while opposing those put forward by Choi.

Norges Bank Investment Management, which oversees one of the world's largest sovereign wealth funds, Norway’s government pension fund, on Monday opposed all key proposals backed by Choi's side, including a proposal to cap the number of directors at 19. It also rejected all director nominees put forward by Choi.

In contrast, it supported the shareholder proposal by the MBK alliance to appoint 17 directors and approved all 17 of its nominees.

The two leading global proxy advisory firms — Institutional Shareholder Services (ISS) and Glass Lewis — both expressed concerns that the corporate governance of the world’s largest zinc smelter has been severely undermined by the current chairman’s unilateral control.

In its report sent to institutional investors on Thursday, Glass Lewis criticized Choi’s creation of a cross-shareholding structure just one day before the extraordinary shareholders’ meeting on Jan. 23. It argued that the move was a blatant attempt to prioritize control over governance and infringed on shareholder rights.

On the eve of that meeting, Choi swiftly established a new cross-shareholding structure within the company, effectively nullifying Young Poong’s 25.42 percent voting stake in Korea Zinc. By doing so, he reinforced his control and secured the passage of key resolutions, including the introduction of the cumulative voting system — a measure he pushed to block MBK alliance-backed candidates from joining the board.

Glass Lewis, which previously only supported Choi’s director nominees during the January meeting, has now changed its stance, endorsing the election of up to 11 director nominees from the MBK alliance.

A few days earlier, ISS criticized Choi’s formation of the cross-shareholding structure, stating that such actions contradicted proper corporate governance practices. It recommended opposing all seven of Choi’s director nominees while supporting the director nominees from the MBK alliance, including its partner Kim Kwang-il.

“The two major global proxy advisory firms have strongly criticized Choi’s illegal actions that restricted Young Poong’s voting rights,” an MBK official said. “We believe that many institutional investors will review the reports from these firms and support the director nominees from Young Poong and MBK Partners.”

Kim Kwang-il, a partner at MBK Partners overseeing the Korea Zinc deal, speaks during a press conference at Lotte Hotel Seoul, Sept. 19, 2024. Korea Times file

The Korea Corporate Governance Service, a domestic proxy advisory firm, also assessed Korea Zinc’s corporate governance as “highly negative” and opposed the reappointment of all current board members.

Another domestic proxy advisory firm, Sustinvest, determined that the zinc smelting firm has prioritized defending management control over shareholder interests under Choi’s leadership. It recommended opposing all seven of Choi’s director nominees while endorsing the seven director nominees proposed by the MBK alliance.

Meanwhile, Korea Zinc posted its first-ever quarterly net loss in its 50-year history, raising concerns that the consequences of questionable investments initiated under Choi’s leadership, along with the personal misuse of company assets to defend his management control, are now becoming evident.

According to the firm’s business report, its consolidated net income for 2024 is expected to be 195.1 billion won ($133 million), a mere 1.6 percent of its revenue of 12 trillion won. In particular, the fourth quarter showed a consolidated net loss of 245.7 billion won, marking the company’s first-ever quarterly loss since its establishment in 1974.

"It's time to reevaluate and restructure the investments and businesses pursued recklessly under Choi's leadership," the MBK official said.