Youngpoong: KCGS Recommends Support for Park Yu-kyung, Opposition to Baek In-kyu for Korea Zinc Audit Committee

Youngpoong said that the Korea Corporate Governance Service (KCGS) had recommended voting in favor of Park Yu-kyung, a candidate nominated by Youngpoong, and against Baek In-kyu, a candidate nominated by Korea Zinc's board, in connection with the election of independent directors who would serve as audit committee members at Korea Zinc's extraordinary general meeting of shareholders on September 9. KCGS disclosed a proxy analysis report containing that recommendation on the 28th.

KCGS said it did not view the key issue in this audit committee election proposal as a simple comparison of accounting and auditing expertise. It said it was necessary to monitor whether the use of company funds was in line with the interests of all shareholders, and to examine whether management had conflicts of interest in the process of using those funds.

KCGS also viewed the proposal as a matter of restoring the audit committee's substantive function. It added that the major issues related to inside director Yoon Bum-Chul were not limited to accounting treatment.

KCGS cited the investment related to One Asia Fund, the acquisition of Igneo Holdings, and a large-scale rights offering as major governance issues. It said these matters required review of whether the company's investment and use of funds were aligned with the interests of all shareholders, and whether management had conflicts of interest.

Based on the current audit committee's existing decision-making and its stance on requests for independent investigations, KCGS concluded that the audit committee had not sufficiently checked management. As grounds for its view that the current audit committee would have difficulty exercising its oversight function, it pointed to the fact that current audit committee members supported the large-scale rights offering, despite concerns that it could infringe shareholder rights. It also cited the fact that current audit committee members, in response to requests for independent investigations into One Asia Partners, Igneo Holdings and the rights offering, said they would wait for the results of external procedures.

KCGS said the purpose of an audit committee investigation is to protect shareholder value, prevent recurrence, and improve internal controls. It then noted that Baek had previously served as chair of the board and head of the ESG Center at Korea Deloitte Group.

It also mentioned that Korea Deloitte Group had participated in financial due diligence for major strategic businesses of Korea Zinc. On that basis, KCGS determined that Baek fell under the category of a related party of an entity that had important business dealings with Korea Zinc. Accordingly, it said it was difficult to expect Baek to maintain independence in checking and monitoring management as well.

Youngpoong said KCGS's judgment differed from the recommendations of some domestic and overseas proxy advisory firms, but added that the significance of the ruling was substantial because it reflected the purpose of Korea's Commercial Act system for separately electing audit committee members and took into account Korea Zinc's specific transaction relationships. Youngpoong explained that the purpose of the separate-election audit committee system and the 3% rule is to appoint independent monitors free from the influence of the incumbent management, and said KCGS had strictly assessed the independence concerns surrounding Baek, who came from Korea Deloitte Group and had participated in financial due diligence related to Korea Zinc's major strategic businesses.

Youngpoong also said KCGS had assessed Park as a candidate capable of monitoring management decisions based on independence standards and expertise. Adding that the matters to be monitored were the use of company funds and major investments, it said KCGS evaluated Park's long career at global asset managers and found that, based on her experience analyzing portfolio companies' financial performance, analyzing investment execution, overseeing responsible investment work, and overseeing corporate governance work, she possessed the capabilities suited to determining whether management's key decisions aligned with corporate and shareholder value.

Youngpoong said KCGS's recommendation correctly identified the core of Korea Zinc's extraordinary general meeting as strengthening the audit committee's independence and substantive oversight function. It added that Korea Zinc shareholders argued the need to appoint an audit committee member independent from management at this extraordinary meeting, saying the purpose was to secure the possibility of an independent and substantive investigation into major governance issues involving One Asia Fund, Igneo Holdings, the large-scale rights offering, and Director Yoon Bum-Chul.

Source: TECHWORLD · Lee Gwang-jae
Original: https://www.epnc.co.kr/news/articleView.html?idxno=406238

References

• https://www.epnc.co.kr/news/articleView.html?idxno=406238