Understanding Korea’s Cumulative Voting System: Foreign Shareholder Rights in 2026

Korea’s introduction of mandatory cumulative voting for large companies in 2026 represents one of the most significant shifts in corporate governance and minority shareholder rights in decades. For foreign investors who have long struggled with the “Korea discount” and limited influence over portfolio companies, cumulative voting offers a powerful new mechanism to secure board representation and amplify their voice in corporate decision-making.

Table of Contents

What is Cumulative Voting?

Cumulative voting is an alternative director election system that allows shareholders to concentrate their voting power across multiple board positions. Unlike traditional “straight voting” where each director is elected separately, cumulative voting gives shareholders strategic flexibility in allocating their votes.

Traditional (Straight) Voting Example

Company XYZ is electing 3 directors. You own 100 shares.

Under straight voting:

• Director Position 1: You have 100 votes (one per share)
• Director Position 2: You have 100 votes (one per share)
• Director Position 3: You have 100 votes (one per share)

You must vote for each position separately. If the controlling shareholder owns 60% of shares (600 shares out of 1,000 total), they can elect all three directors by casting 600 votes for each position.

Result: The controlling shareholder elects all 3 directors. Your 10% stake gives you no board representation.

Cumulative Voting Example

Same scenario: Company XYZ electing 3 directors, you own 100 shares.

Under cumulative voting:

• Total votes: 100 shares × 3 positions = 300 total votes
• Allocation: You can distribute these 300 votes however you want

Strategic options:

1. Spread evenly: 100 votes to each of 3 candidates
2. Concentrate partially: 150 votes to one candidate, 75 to each of two others
3. Maximum concentration: All 300 votes to a single candidate

If you concentrate all 300 votes on one candidate, the controlling shareholder (with 1,800 total votes = 600 shares × 3 positions) cannot block your candidate from winning at least one seat.

Mathematical threshold:

• Total shares: 1,000
• Positions: 3
• Votes needed to guarantee one seat: (1,000 / (3 + 1)) + 1 = 251 votes
• Your votes: 300
• Result: You are guaranteed at least one director

This is the power of cumulative voting—minority shareholders can secure board representation.

Korea’s Cumulative Voting Requirements: 2026 Overview

Legislative Background

Korea’s Commercial Code has allowed cumulative voting as an option since 1984, but very few companies voluntarily adopted it. The 2026 reforms make cumulative voting mandatory for certain large companies.

Key legislation:

• Amended Commercial Code (effective January 1, 2026)
• Financial Investment Services and Capital Markets Act amendments
• Financial Services Commission implementing regulations

Which Companies Must Use Cumulative Voting?

Mandatory for:

• Listed companies (KOSPI and KOSDAQ)
• With total assets exceeding KRW 2 trillion (approximately USD 1.44 billion)

Scope:

• Applies to approximately 300-350 Korean listed companies
• Includes most major chaebols and large corporations
• Covers technology, manufacturing, financial services, and other sectors

When Does It Apply?

Director elections at Annual General Meetings (AGMs):

• Must be implemented at the first AGM after January 1, 2026
• Applies to all subsequent AGMs
• Cannot be waived or overridden by articles of incorporation

Does not apply to:

• Audit committee member elections (governed by separate rules)
• Other shareholder votes (mergers, amendments to articles, etc.)
• Mid-year director appointments outside of AGMs (though such appointments may trigger new election requirements)

How Cumulative Voting Works: Technical Details

Vote Calculation

Formula: Total votes per shareholder = Number of shares owned × Number of directors to be elected

Example:

• Shareholder owns: 1,000 shares
• Directors to be elected: 5
• Total votes: 1,000 × 5 = 5,000 votes

Vote Allocation

Shareholders can allocate their total votes in any combination:

Determining Winners

Directors are elected based on total votes received, in descending order:

Example election results:

1. Candidate A: 45,000 votes → Elected
2. Candidate B: 42,000 votes → Elected
3. Candidate C: 38,000 votes → Elected
4. Candidate D: 35,000 votes → Elected
5. Candidate E: 32,000 votes → Elected
6. Candidate F: 28,000 votes → Not elected
7. Candidate G: 15,000 votes → Not elected

If 5 positions are open, the top 5 vote-getters win.

Guaranteed Representation Formula

The minimum percentage ownership needed to guarantee at least one director seat:

Formula: Minimum % = (1 / (N + 1)) × 100

Where N = number of directors being elected

Examples:

Key insight: The more directors being elected at once, the lower the ownership threshold needed to secure representation.

Strategic Implications for Foreign Shareholders

Minority Shareholders Can Secure Board Seats

Even relatively small minority stakes can now secure direct board representation.

Real-world scenario:

Samsung Electronics (hypothetical):

• Total shares outstanding: 5.97 billion
• Foreign ownership: Approximately 58% (as of recent data)
• Board size: 11 directors
• Directors up for election in a given year: Typically 3-5

If a foreign institutional investor owns just 3% of shares (approximately 179 million shares), and 5 directors are being elected:

• Minimum to guarantee 1 seat: 16.7% (997 million shares)
• 3% stake is not enough alone to guarantee a seat

However, if multiple foreign institutional investors coordinate:

• Investor A: 3%
• Investor B: 4%
• Investor C: 5%
• Investor D: 6%
• Combined: 18%

By coordinating their votes on a single candidate, they exceed the 16.7% threshold and can guarantee board representation.

This is exactly what cumulative voting enables—coordination among dispersed minority shareholders.

Breaking the Controlling Shareholder Monopoly

Korean companies have traditionally been dominated by controlling shareholders (often founding families) who, despite owning minority stakes, control board composition through:

• Aligned “friendly” institutional shareholders
• Complex ownership structures (circular shareholding)
• Employee pension funds controlled by management

Cumulative voting disrupts this dynamic:

Example: Large Korean conglomerate

• Controlling family: 25% ownership
• Foreign institutional investors: 45% ownership (but dispersed among 50+ funds)
• Domestic institutional investors: 20% ownership
• Retail investors: 10% ownership

Before cumulative voting:

• Controlling family, despite 25% stake, could elect entire board through alliance with friendly domestic institutions
• 45% foreign ownership had zero board seats

After cumulative voting (2026):

• If 5 directors elected, minimum for 1 seat: 16.7%
• Foreign investors, if coordinated on just 2 candidates, could secure 2 out of 5 seats (40% of board)
• For the first time, board composition could reflect actual ownership proportions

Enhanced Negotiating Leverage

Even if foreign shareholders don’t immediately seek board seats, the threat of doing so provides negotiating leverage.

Practical uses:

1. M&A negotiations: “Support this transaction or we’ll use cumulative voting to elect opposing directors”
2. Governance reforms: “Implement better disclosure or we’ll elect independent directors who will”
3. Strategic decisions: “Reconsider this value-destructive expansion or face board opposition”
4. Executive compensation: “Align management pay with shareholder returns or we’ll replace compensation committee members”

Practical Steps for Foreign Investors

Step 1: Assess Your Portfolio Companies

Identify which holdings are subject to mandatory cumulative voting:

1. Review asset size of each Korean portfolio company
2. Check if assets exceed KRW 2 trillion threshold
3. Note the AGM schedule for each company
4. Determine board size and typical number of directors elected each year

Example assessment table:

Step 2: Calculate Your Voting Power

For each company subject to cumulative voting:

1. Determine total shares you own
2. Identify number of directors to be elected at next AGM
3. Calculate total votes: Shares × Directors
4. Calculate minimum % needed to guarantee one seat: (1 / (Directors + 1)) × 100
5. Assess if you can secure representation alone or need coordination

Example:

Company C Analysis:

• Your shares: 130 million
• Total outstanding shares: 2 billion
• Your ownership: 6.5%
• Directors to be elected: 5
• Your total votes: 130 million × 5 = 650 million votes
• Minimum votes for 1 guaranteed seat: 2 billion / 6 = 333.3 million votes
• Result: Your 650 million votes guarantee at least 1 seat, possibly 2 if other shareholders spread votes

Step 3: Identify Coordination Opportunities

If you cannot secure representation alone, identify potential allies:

1. Other foreign institutional investors: Often have aligned governance interests
2. Domestic pension funds: May support independent directors
3. Activist investors: Already pushing for governance improvements
4. Other minority shareholders: Retail investor groups increasingly active

Coordination methods:

• Public statements of intent to support certain candidates
• Proxy advisory firm recommendations (ISS, Glass Lewis)
• Pre-AGM investor meetings to discuss director candidates
• Formal shareholder alliances (must comply with disclosure requirements)

Legal considerations:

• Korean law prohibits “acting in concert” to acquire control without disclosure
• Coordinating votes for director elections is generally permissible
• If coordination involves 5%+ beneficial ownership combined, disclosure may be required
• Consult Korean legal counsel before formal coordination agreements

Step 4: Select or Nominate Candidates

Options for securing preferred board representation:

1. Support existing independent directors: Vote for current board members who represent minority interests
2. Support shareholder-nominated candidates: Other shareholders may nominate qualified individuals
3. Nominate your own candidates: Actively propose director candidates

Requirements for nominating directors in Korea:

Ownership threshold:

• Generally, shareholders owning 1% or more of outstanding shares can nominate directors
• Some companies set higher thresholds in articles of incorporation (up to 3%)

Nomination process:

1. Prepare nomination materials (candidate CV, consent to serve, independence confirmation)
2. Submit nomination to company board (typically 4-6 weeks before AGM)
3. Company includes nominated candidate in AGM proxy materials
4. Campaign for votes if desired (subject to securities law restrictions)

Candidate qualifications:

• Must meet independence criteria if nominated as “independent director”
• Cannot have conflicts of interest (family relationships with controlling shareholders, recent employment, etc.)
• Should have relevant expertise (industry experience, financial expertise, governance knowledge)
• Ideally, familiarity with Korean business culture and language (or supported by translator)

Step 5: Develop Voting Strategy

Vote allocation tactics:

Scenario A: You can guarantee 1 seat alone

• Concentrate all votes on your preferred candidate
• Ensure that candidate receives more votes than the minimum threshold
• Potentially split votes between 2 candidates if you have surplus votes

Scenario B: Coordination needed

• Agree with other shareholders on a specific candidate
• All participating shareholders concentrate votes on that candidate
• Public or private coordination (be aware of disclosure requirements)

Scenario C: Multiple seats achievable

• If you have substantial ownership (e.g., 30% and 5 directors being elected), you might secure 2+ seats
• Distribute votes strategically across multiple preferred candidates
• Avoid wasting votes by exceeding what’s needed for certain wins

Vote timing:

• Most Korean AGMs use electronic voting in advance
• Voting period typically opens 2 weeks before AGM
• Can change votes up until end of voting period
• Monitor vote totals if disclosed and adjust strategy if possible

Step 6: Post-Election Engagement

If you successfully elect a director:

1. Onboarding support: Ensure your director has resources, information access, and support
2. Regular communication: Maintain dialogue with your director (while respecting independence requirements)
3. Coordinate with other minority-elected directors: Build alliances within the board
4. Monitor corporate actions: Use board presence to influence decisions

If you don’t secure a seat:

1. Analyze results: Understand voting patterns and why your candidate fell short
2. Build for next year: Identify what needs to change for success in next election
3. Alternative engagement: Use other shareholder rights (proposals, questions at AGM, etc.)
4. Consider activism: If governance concerns are serious, explore activist strategies

Case Study: Hypothetical Application

Foreign Investor: Global Asset Management (GAM), U.S.-based institutional investor Target Company: Korea Tech Corp (KTC), KOSPI-listed semiconductor company GAM Ownership: 8% of KTC shares KTC Assets: KRW 6 trillion (subject to cumulative voting) KTC Board: 9 directors, 3 elected annually

Situation Analysis

Current state:

• KTC controlled by founding Lee family (20% ownership)
• Lee family controls board through alliances with friendly domestic institutions
• Board has 0 foreign directors, minimal independent oversight
• Company has poor capital allocation (low dividends, excessive R&D spending on low-ROI projects)
• KTC stock trades at significant discount to global semiconductor peers

GAM’s objectives:

• Improve capital allocation
• Increase dividend payout ratio
• Enhance governance transparency
• Secure board representation

Cumulative Voting Strategy

Vote calculation:

• GAM shares: 160 million (8% of 2 billion outstanding)
• Directors to be elected: 3
• GAM total votes: 160 million × 3 = 480 million votes
• Minimum for 1 guaranteed seat: 2 billion / 4 = 500 million votes

Problem: GAM is just short of guaranteeing a seat (480 million vs. 500 million needed).

Solution—Coordination:

1. GAM identifies 5 other foreign institutional investors collectively owning 15% (300 million shares)
2. Combined ownership: 23% (460 million shares)
3. Combined votes: 460 million × 3 = 1.38 billion votes
4. Votes needed for 2 guaranteed seats: 1 billion votes
5. Result: Coalition can guarantee 2 of 3 seats if votes are concentrated

Execution

Candidate nomination:

• Coalition nominates two independent directors:
  • Candidate A: Former semiconductor industry CEO with governance expertise
  • Candidate B: Finance professor specializing in corporate governance and capital allocation

Vote coordination:

• GAM and 3 allied investors concentrate all votes on Candidate A (approximately 900 million votes)
• 2 other allied investors concentrate votes on Candidate B (approximately 480 million votes)

Outcome:

• Lee family and allied institutions split 1.54 billion votes among their 3 preferred candidates (approximately 510 million each)
• Candidate A: 900 million votes → Elected (1st place)
• Lee family candidate 1: 510 million votes → Elected (2nd place)
• Lee family candidate 2: 510 million votes → Elected (3rd place)
• Lee family candidate 3: 520 million votes → Not elected (4th place)
• Candidate B: 480 million votes → Not elected (5th place)

Result: Foreign investors secure 1 of 3 director seats (33% of elected directors).

Post-Election Impact

Short-term:

• Candidate A joins KTC board as first foreign-nominated director
• Brings independent voice to board discussions
• Challenges excessive R&D spending proposals

Medium-term (over following 2 years):

• As more directors come up for election, coalition secures 3 of 9 total board seats (33%)
• Independent directors form audit and compensation committee bloc
• Push for governance reforms:
  • Quarterly earnings calls in English
  • Enhanced disclosure of R&D project ROI
  • Dividend policy review

Long-term impact:

• KTC announces 50% increase in dividend payout ratio
• Cuts low-ROI R&D projects, reallocates to higher-return initiatives
• Stock price increases 35% over 2 years
• Korea discount narrows from 40% to 25% vs. peers
• GAM’s 8% stake increases significantly in value

This hypothetical case demonstrates the transformative power of cumulative voting when foreign shareholders act strategically.

Challenges and Limitations

While cumulative voting is a powerful tool, foreign shareholders should be aware of limitations:

The 3% Voting Cap

Korean law imposes a 3% voting cap on controlling shareholders for certain votes:

What it means:

• Shareholders owning more than 3% can only exercise 3% of their voting power for:
  • Election of audit committee members
  • Removal of audit committee members

Impact:

• Reduces controlling shareholder dominance in audit committee composition
• Makes it easier for minority shareholders to influence audit committee elections

Does not apply to:

• Regular director elections (cumulative voting not subject to 3% cap)
• Other shareholder votes

Coordination Disclosure Requirements

Korean securities law requires disclosure when:

• Multiple shareholders act together to acquire 5% or more ownership
• Coordination to exercise control over a company

Gray areas:

• Is coordinating votes for director elections “acting in concert”?
• Current regulatory guidance suggests coordination solely for director elections is permissible without disclosure
• However, if coordination extends to other corporate control actions, disclosure required

Recommendation: Consult Korean securities lawyers before formalizing coordination agreements.

Controlling Shareholder Counter-Strategies

Sophisticated controlling shareholders may employ defensive tactics:

1. Staggered boards: Elect only 1-2 directors per year instead of all at once (reduces minority power to secure seats)
2. Board size manipulation: Increase board size so more shares needed for guaranteed representation
3. Proxy contests: Actively campaign against minority-nominated candidates
4. Friendly investor recruitment: Bring in aligned shareholders to dilute minority voting power
5. Director qualification barriers: Set stringent qualification requirements in articles of incorporation

Foreign shareholder responses:

• Shareholder proposals to eliminate staggered board provisions
• Challenge unqualified directors through legal channels
• Public campaigns highlighting governance deficiencies
• Escalation to regulatory authorities if rules are violated

Cultural and Language Barriers

Practical challenges:

• AGM materials primarily in Korean (English translations may be limited or unofficial)
• Directors are expected to communicate in Korean (non-Korean speakers face challenges)
• Korean business culture emphasizes consensus and relationship-building (confrontational approaches may backfire)

Solutions:

• Hire bilingual advisors and legal counsel
• Nominate Korean-speaking directors or provide translator support
• Engage respectfully with management and other shareholders
• Frame proposals in terms of shared value creation, not adversarial opposition

Regulatory Framework and Compliance

Legal Basis

Commercial Code (상법):

• Article 382-2: Cumulative voting provisions
• Mandatory for companies meeting asset and listing criteria

Financial Investment Services and Capital Markets Act:

• Securities disclosure requirements
• Proxy solicitation rules
• Acting-in-concert provisions

Financial Services Commission Regulations:

• Implementation guidelines
• Reporting requirements
• Enforcement procedures

Disclosure Obligations

For foreign investors holding 5% or more:

• 5% Report: Must file within 5 days of crossing 5% threshold
• Change reports: File when ownership increases/decreases by 1% or more
• Purpose disclosure: State purpose of investment (passive investment vs. active influence)

For coordinated voting:

• If coordination constitutes “acting in concert” for control purposes, disclosure required
• Consult legal counsel to assess specific situations

Penalties for Violations

Voting irregularities:

• Court can invalidate director elections if procedural violations occurred
• Controlling shareholders may face penalties for improper vote manipulation

Disclosure violations:

• Fines up to KRW 100 million
• Potential criminal liability for serious violations
• Trading restrictions

How SMA Lawfirm Can Support Foreign Shareholders

Effectively leveraging cumulative voting requires deep understanding of Korean corporate law, securities regulations, and practical AGM procedures. SMA Lawfirm offers comprehensive support:

Pre-AGM Strategy

• Portfolio analysis: Assess which holdings are subject to cumulative voting
• Vote calculation: Calculate voting power and representation potential
• Coordination facilitation: Advise on permissible coordination with other shareholders
• Candidate identification: Help identify and vet qualified director candidates

Director Nomination

• Nomination procedure: Prepare and file director nomination materials
• Qualification verification: Ensure candidates meet independence and competency requirements
• Documentation: Draft required disclosures and supporting materials
• Regulatory compliance: Navigate securities law requirements

AGM Execution

• Proxy voting: Ensure votes are properly cast and counted
• Vote monitoring: Track voting progress and adjust strategy if possible
• Dispute resolution: Challenge irregularities or procedural violations
• Interpretation services: Provide Korean-English translation of AGM materials and proceedings

Post-Election Support

• Director onboarding: Help elected directors integrate into Korean corporate boards
• Ongoing compliance: Ensure directors meet continuing obligations
• Board engagement strategy: Advise on how to maximize influence through board participation
• Performance monitoring: Track whether governance improvements are achieved

Litigation and Enforcement

• Election challenges: File lawsuits to invalidate improper elections
• Shareholder derivative actions: Bring claims against directors for breach of duty
• Regulatory complaints: File complaints with Financial Services Commission
• Dispute mediation: Resolve conflicts through negotiation and alternative dispute resolution

Conclusion

The introduction of mandatory cumulative voting in Korea represents a historic opportunity for foreign minority shareholders to secure board representation and fundamentally improve corporate governance. After decades of limited influence despite significant ownership stakes, foreign investors now have a concrete mechanism to amplify their voice and protect their interests.

Key takeaways:

1. Cumulative voting is now mandatory for listed companies with assets exceeding KRW 2 trillion
2. Minority shareholders can secure board seats with ownership as low as 10-20%, depending on board size
3. Coordination is key: Foreign investors should identify allies and coordinate voting strategies
4. Strategic execution matters: Proper vote allocation and candidate selection are critical to success
5. Legal compliance is essential: Navigation of securities disclosure and coordination rules requires expert guidance

The broader implications extend beyond individual board elections. As foreign shareholders gain board representation, we can expect:

• Improved capital allocation: More shareholder-friendly dividend policies and investment decisions
• Enhanced transparency: Better disclosure and communication with investors
• Governance reforms: Stronger independent oversight and reduced controlling shareholder dominance
• Narrowing Korea discount: As governance improves, Korean stocks should trade at valuations closer to global peers

For foreign investors who have been frustrated by limited influence over Korean portfolio companies, 2026 marks a turning point. Those who understand cumulative voting mechanics, develop strategic plans, and execute effectively will be rewarded with enhanced governance, better corporate performance, and superior investment returns.

The Korean government’s commitment to this reform demonstrates recognition that global competitiveness requires alignment with international governance standards. Foreign investors should seize this opportunity to become active participants in shaping Korean corporate governance for the better.

Take Action

Are you a foreign institutional investor with holdings in Korean companies subject to cumulative voting? Now is the time to develop your strategy for upcoming AGMs.

📩 Contact SMA Lawfirm at sma@saemunan.com for expert guidance on:

• Assessing your cumulative voting opportunities
• Coordinating with other shareholders
• Nominating director candidates
• Executing voting strategies
• Ensuring compliance with Korean securities law

Our team combines deep expertise in Korean corporate and securities law with practical experience supporting foreign investors in shareholder engagement and activism. Let us help you maximize your influence and protect your investment in Korea’s evolving corporate governance landscape.