Korea Revises Governance Disclosure Rules

Companies will be required to provide additional disclosures in relation to business split-offs and internal transactions with affiliated firms.

South Korea’s Financial Services Commission (FSC) has revised its guidelines for listed companies on corporate governance disclosure to strengthen protections for minority shareholders.

Corporate governance disclosures were first introduced in Korea in March 2017. They were made mandatory in 2019 for KOSPI-listed firms holding total assets over KRW 2 trillion. Starting this year, mandatory filings have been expanded to KOSPI-listed firms with total assets over KRW 1 trillion.

In a notice, the FSC said it is revising the guidelines on corporate governance disclosure to strengthen shareholder protections, in light of more entities coming under the mandatory filing requirement.

The first revision establishes a rule to protect shareholders in business split-offs. The rule requires companies to describe their internal shareholder protection policy when changes in their ownership structure occur following a split-off, merger or transfer.

Companies will also need to describe in their corporate governance disclosure reports the internal shareholder protection measures they have in place, such as their mechanisms for collecting opinions from minority shareholders and for protecting the rights of shareholders that are opposed to a change in ownership structure.

In addition, companies will need to disclose the details of their communications with minority shareholders, a rule aimed at encouraging them to actively provide critical information to smaller shareholders.

The second revision strengthens the duty for companies to explain to shareholders the details and reasons for internal transactions with affiliated firms, as well as self-dealings involving their management and controlling shareholders. This is intended to strengthen information disclosure and controls over such activities.

The third revision requires companies to disclose the details about their CEO succession policies, and describe their plans for setting up an audit committee.

The revised guidelines will begin to apply from this year’s 31 May filing deadline.

The FSC also said the Korea Exchange (KRX) and the Korea Listed Companies Association (KLCA) will provide tailored guidance and education to companies that are becoming subject to the mandatory filing requirement for the first time between March and April.

KRX and the Korea Corporate Governance Service (KCGS) will conduct compliance inspections between June and September.

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