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A Study on the Compulsory Enforcement of Cumulative Voting

  • Legal Theory & Practice Review
  • Abbr : LTPR
  • 2019, 7(4), pp.235-258
  • Publisher : The Korea Society for Legal Theory and Practice Inc.
  • Research Area : Social Science > Law
  • Published : November 30, 2019

Shin, Chan- ho 1

1국민대학교 정보와법연구소

Candidate

ABSTRACT

In case of Korea, Commercial Law was revised on December 28, 1998 to strengthen the protection of minority shareholders and responsibilities of corporate management, and raise the transparency of corporate management after the financial crisis, and under the revised Commercial Law, the opt-out, which is a means of cumulative voting for the appointment of a director, was introduced except as otherwise stipulated in the articles of corporation. Cumulative Voting is a voting system that allows a shareholder to cast votes that are equal to the no. of shares it holds multiplied by the no. of directors to be elected when a company intends to elect 2 or more directors in a single general shareholders’ meeting. In general, a shareholder is allowed to cast one vote per share that it has, so the largest shareholder may appoint all directors at its will. Cumulative voting is a voting system that allows a minority shareholder to have votes that are equal to the no. of shares it has multiplied by the no. of positions that he/she is voting for, in turn being able to appoint a director representing its interest. Cumulative voting can contribute to the transparency in corporate management through balancing among shareholders, by the means of appointment of directors representing the interests of minority shareholders and the prevention of pursuing private interests by the controlling shareholders. However, since the current Commercial Law stipulates that a company is allowed to exclude the cumulative voting system if stipulated in the articles of corporation, it has not been employed widely and even in the case it is allowed, there is a means of avoidance, raising the question regarding the effectiveness of the system. There are severe conflicting claims regarding the compulsory enforcement of cumulative voting and those who favor the compulsory enforcement suggests that it could raise the transparency in corporate management and restore the functions of the board of directors, and those raising objections claim that the directors appointed by minority shareholders would represent the interests of a specific group, and the damages would be caused by the leakage of corporate management information and violation of management rights. In the following, the background and current status of the cumulative voting and its legislation in overseas, and arguments regarding the compulsory enforcement of cumulative voting are discussed.

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