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Proxy Preview: South KoreaSubmitted by: Daniel Oh, Korea Market Analyst

The 2008 Korean proxy season will be marked by the effects of a number of high-profile regulatory reforms, as well as a greater number of contested director elections.

The majority of South Korean annual meetings will take place on three consecutive Fridays this year: March 7, 14, and 21. Korean companies are required to publish official agendas only 14 days before the meeting date. Though some companies have begun to disclose agendas as much as 20 days beforehand, the short release window remains a significant obstacle for proxy voting by foreign investors in the Korean market.

Meeting agendas and proxy statements are released online via the Korean Financial Supervisory Commission?s (FSC) Data Analysis, Retrieval, and Transfer system (DART) Web site. Like the U.S. Securities and Exchange Commission?s EDGAR site, DART is a searchable repository for all Korean company filings. Most companies continue to file in Korean, though a small percentage of firms have co-released their proxy information in English. The agendas are often less detailed than U.S. proxy statements, containing the time and place of the meeting and brief biographical information on director and auditor nominees.

It is unlikely that the 14-day release requirement will be extended, according to market regulators, because the country?s Parliament believes that an extension would benefit foreign investors more than domestic investors. Such a measure would need the approval of two-thirds of the Parliament to pass into law, which is historically hard to achieve.

Last year, Korean regulators did make a number of legislative changes that will affect the way companies interact with their shareholders and do business in 2008. The first was a series of amendments to the Securities-related Class Action Act (SCA Act), which took effect Jan. 1, 2007. Prior to 2007, shareholders could only bring suits against companies holding assets of more than KRW 2 trillion ($2.1 billion), and a group of at least 50 investors owning at least 0.01 percent of the company was required for the suit to be valid.

The 2007 amendments allow investors as a class to sue smaller companies. However, no lawsuits have been filed under the new rule yet because the costs are high for individual shareholders. In August of last year, press reports indicated there may be a class-action suit filed against Youngjin Pharmaceutical, which had admitted earlier to the FSC that it falsified accounting records from 2004 through 2006, according to the Joongang Daily News.

In a 2007 paper, University of California at Berkeley Law School Professor Stephen J. Choi suggested that a functioning class-action system in Korea may still run into hurdles even after the new amendments because the country has comparatively very few attorneys--and those attorneys are relatively inexperienced in litigating class-action cases.

Full post as published by Institutional Shareholder Services -- Corporate Governance Blog on February 29, 2008 (boomark / email).