The KOSDAQ-listed company A appointed a person suggested by the small shareholders' alliance as an internal auditor at its regular shareholders' meeting held last March. The appointed auditor expressed aspirations to fulfill the role of oversight. The company's board of directors consists of four members, three of whom are related to the CEO, excluding one outside director.
However, when the new auditor actually started work, there were not many tasks he could perform. This was because the company did not grant him access to the internal management system, and he was not even allowed to view accounting materials.
Recently, with the spread of shareholder activism, there has been an increase in cases where individuals appointed through shareholder proposals enter the boards of listed corporations. However, it has been shown that when appointed directors or auditors request corporate materials, companies often refuse or do not share important decisions, which significantly restricts their practical participation in management. This structure makes it difficult for outside individuals to exert a significant voice in corporate management through the board.
From the perspective of companies accepting outside individuals, it is equally awkward. It is not easy to judge how far to share management secrets, and there is no guarantee that the individuals will make decisions aimed at long-term growth rather than short-term shareholder profit expansion.
The activist fund Stride Partners is experiencing a similar situation. Stride Partners passed a proposal to appoint auditor Nam Jung-gu at the regular shareholders' meeting of health supplement company H.PIO held in March. They held a formal meeting last month, and while there have been no particular issues so far, they are closely monitoring how the company will respond to the new auditor.
A representative from Stride Partners noted, "We are concerned about the many uncooperative cases where the newly appointed auditor is excluded by various means from the company," adding, "Although the auditor is supposed to be independent, and thus has no obligation to report to us, we have prepared measures to respond in situations where the company excludes auditors from major decision-making."
Auditors have the authority to investigate a company's accounting and operations, and if the company unjustifiably refuses this, it could lead to legal issues. In-house directors also have joint responsibility for the company's operations and the right to participate in decision-making, so exclusion could lead to legal disputes. If a company unjustly refuses their requests for materials and restricts their management participation, solutions may be sought through lawsuits such as injunctions or by submitting complaints or requests for investigation to relevant organizations like the Financial Supervisory Service.
However, some express concerns that the scope and manner of materials requested by directors and auditors appointed through shareholder proposals may be excessive and obstruct normal corporate operations. While companies are responsible for providing materials within a legitimate scope to appointed directors or auditors, excessive or ambiguous requests may lead to disputes within the company rather than responsible oversight. There is also a risk of leaking management secrets.
B, a KOSDAQ-listed company in the distribution and construction industry, revealed that the material requests from the internal auditor appointed through a shareholder proposal last year were excessive and hindered operations. Although they provide all possible materials, requests for specific business data for three years to be submitted by the next day are difficult to accommodate. A representative from B stated, "Recently, there was a request to conduct a digital forensic investigation on relevant materials because the external audit results were deemed unreliable, suggesting possible embezzlement or breach of trust, which is difficult to accept given that the business reports have been properly disclosed."
According to the Korea ESG Research Institute, analysis of the agenda of 685 listed companies during this year’s regular shareholders' meeting season revealed that there were a total of 117 shareholder proposal agendas, more than doubling from last year’s 52. Among these, proposals related to executive appointments accounted for 61, more than half of the total. Many were aimed at overseeing management by proposing the appointment of outside directors.
As the appointment of directors and auditors through shareholder proposals increases, there are calls for processes to discuss schedules, scopes, and purposes within the board when large amounts of data are requested, or to clearly define the role of auditors in internal regulations as alternatives.
A representative from the KOSDAQ Association stated, "It is difficult for companies to avoid providing information requested by in-house directors or auditors. However, when the materials cannot be provided by the company, shareholders may feel that the company is uncooperative or perceive refusal, creating misunderstandings, so discussions on these matters are necessary."