AGM Alert: We urge KT&G to earn shareholder trust regarding treasury shares
- KT&G’s decision to cancel all existing treasury shares is a welcome move; however, investors must remain vigilant and exercise their voting rights with caution regarding the linked AGM agenda items
- CEO BANG Kyung-man and Board Chair KOH Yun-sung should clarify that the current resolution is not linked to any amendments to the Articles of Incorporation that could serve as a basis for acquiring new treasury shares for “alternative purposes” or for the acquisition and disposal of treasury shares for “management-related objectives”
- The plan for the holding and disposal of treasury shares must be specific and transparent. KT&G must provide the most detailed supplement possible for its currently unpredictable holding periods and disposal timelines; otherwise, we recommend that shareholders vote against the company’s AGM proposal
On February 25th, KT&G drew significant market attention by announcing the cancellation of all 10,866,189 treasury shares (or approximately 9.5% of the total issued shares).
This decision is highly welcomed, as it reflects the spirit of the amendment to Article 341-4 of the Commercial Act (“3rd round of revision to Commercial Act”), which passed the National Assembly on the same day, even before its official enforcement. By doing so, KT&G has effectively blocked the potential for treasury share abuse and normalized the uncertainties surrounding shareholder value valuation.
However, a closer look at the AGM agenda items reveals that the concerns raised by the Forum back on December 1st, 2025, regarding the 3rd round of revision to Commercial Act amendment have immediately materialized. Therefore, investors must remain vigilant and exercise their voting rights with extreme caution at the upcoming March 26, 2026 AGM.
KT&G has decided to submit a proposal for the upcoming AGM to amend Article 10 of the Articles of Incorporation (AoI), providing a basis for the holding and disposal of treasury shares, along with a formal 'Treasury Share Holding and Disposal Plan.' However, these items mirror the structural loopholes previously identified by the Forum (see: Forum Commentary, Dec. 1st, 2025, 'Treasury Share Cancellation Bill: No Unlimited "Management Purpose" Exceptions').
The content may appear standard at a first glance, but a combined review of the AoI amendment (Item No. 2-7) and the Holding and Disposal Plan (Item No. 8) reveals a rather subtle and questionable structure, in our view. It raises significant concerns as to whether the Board of Directors conducted a sincere deliberation on these matters and fulfilled its fiduciary duty to the shareholders.
A critical review of the Treasury Share Holding and Disposal Plan reveals a fundamental procedural redundancy that brings up shareholder scrutiny. In the plan disclosed by KT&G, two distinct items are conflated: ① the cancellation of 10,866,189 existing treasury shares and ② purchase of up to 30,000 common shares for employee and executive equity compensation. Notably, the cancellation of treasury shares is not a matter that requires approval through a 'Holding and Disposal Plan' at a shareholder meeting; it falls squarely within the authority of a Board of Directors' resolution. In fact, the third amendment to the Commercial Act (passed on February 25th, 2026) specifically streamlined these procedures, empowering the board to resolve cancellations, even for shares acquired involuntarily through mergers or other specific corporate actions.
Regardless, the board has combined the cancellation of existing treasury shares with the new share buyback into a single agenda item for AGM approval, which is highly inappropriate in our view. This negative bundling risks misleading shareholders into believing that they must approve the cancellation themselves or worse, that the cancellation cannot proceed if this Treasury Share Holding and Disposal Plan is rejected. Such a structure places investors in a difficult position, where they may feel pressured to vote in favor of the entire plan to ensure the cancellation happens, even if they have serious reservations about the new share buyback plans.
KT&G must clarify that the cancellation of existing treasury shares is a matter of board resolution, independent of the AGM, and must seek separate approval for other agenda items that require shareholder consent. Furthermore, the proposed amendment to the Articles of Incorporation to establish a new basis for the Treasury Share Holding and Disposal Plan is highly suspicious.
Article 10 (Holding and Disposal of Treasury Shares)
The Company may hold or dispose of treasury shares only when necessary to achieve management objectives, such as the introduction of new technologies or the improvement of the financial structure, or in cases where the holding or disposal of treasury shares is permitted by law.
The proposed amendment to the Articles of Incorporation is functionally redundant for its stated purpose. While the board cites employee compensation as a justification, this activity is already 'permitted by law' under the revised Commercial Act, requiring no further constitutional basis. This suggests that the real intent behind the amendment is to carve out an expansive and unregulated 'management necessity' exception, effectively bypassing the 'Zero Treasury' spirit of the law.
Nonetheless, combining these two distinctly different matters into a single article creates a misleading appearance as if the Treasury Share Holding and Disposal Plan currently up for approval depends on the passage of this amendment to the AOI. This framing is highly inappropriate. Under the amended Commercial Act, the requirement for an AoI-based mandate only applies to holding treasury shares for 'management objectives,' which is the core issue here. Yet, in proposing this amendment, the company has failed to provide any specific explanation as to why such a change is necessary or what 'management objectives'—such as the introduction of new technologies or financial restructuring.
KT&G must clearly distinguish the amendment to Article 10 as a provision for holding and disposing of treasury shares for 'management objectives' and obtain approval only after providing a concrete explanation as to why such an amendment is necessary at this time. Furthermore, shareholders need to be clearly aware that even if the amendment to Article 10 is rejected, the current Treasury Share Holding and Disposal Plan—to the extent it covers legally permitted activities like employee compensation—is already supported by the Commercial Act itself. Shareholders should exercise their voting rights with this understanding. Lastly, the content of the Treasury Share Holding and Disposal Plan itself is inadequate.
The treasury share buyback, holding, and disposal timelines are all vaguely tied to 'payment dates based on the operation of the employee compensation system, such as performance evaluation results,' which lacks any specific detail. While the 30,000 shares currently slated for employee equity compensation are relatively few, if the amendment to Article 10 of the Articles of Incorporation passes and allows for the acquisition, holding, and disposal of treasury shares for 'management objectives,' it would set a dangerous precedent that such abstract disclosures may be acceptable.
The purpose of the Commercial Act amendment requiring the disclosure of 'scheduled holding periods' and 'scheduled disposal timelines' is to provide shareholders with accurate predictability. It was never intended to allow vague placeholders like 'according to internal regulations.' Even if the specific identity or quantity of shares granted to each employee in 2026 cannot be disclosed, the company must, at the very least, specify the exact criteria and final deadlines for their disposal. In light of the above, shareholders should carefully analyze the agenda items regarding treasury shares for this KT&G general meeting and demand active explanations from the company before exercising their voting rights.
The KT&G board, specifically CEO Bang and Board Chair Koh must fulfill their fiduciary duty of accountability by providing a clear and transparent explanation for these potentially misleading, overlapping agenda items.
The board must distinctly separate the items that require shareholder approval from those that do not. Furthermore, they must clearly and specifically disclose whether the existing treasury shares will be cancelled unconditionally, and provide a detailed justification for why a new basis for holding treasury shares for 'management objectives' must be established in the AoI. This is especially critical given that the company has previously faced intense criticism for 'entrenchment' in a company with dispersed ownership by contributing over 10% of its issued shares to non-profit foundations or employee welfare funds led by current and former executives. Furthermore, there is a precedent of the company newly establishing and passing an article to classify directors during their appointment, a move widely seen as an attempt to neutralize the cumulative voting system.
March 3rd, 2026
Korean Corporate Governance Forum
Chairman, Namuh Rhee
Vice Chairman, Joonbum Cheon
AGM Alert: We urge KT&G to earn shareholder trust regarding treasury shares
On February 25th, KT&G drew significant market attention by announcing the cancellation of all 10,866,189 treasury shares (or approximately 9.5% of the total issued shares).
This decision is highly welcomed, as it reflects the spirit of the amendment to Article 341-4 of the Commercial Act (“3rd round of revision to Commercial Act”), which passed the National Assembly on the same day, even before its official enforcement. By doing so, KT&G has effectively blocked the potential for treasury share abuse and normalized the uncertainties surrounding shareholder value valuation.
However, a closer look at the AGM agenda items reveals that the concerns raised by the Forum back on December 1st, 2025, regarding the 3rd round of revision to Commercial Act amendment have immediately materialized. Therefore, investors must remain vigilant and exercise their voting rights with extreme caution at the upcoming March 26, 2026 AGM.
KT&G has decided to submit a proposal for the upcoming AGM to amend Article 10 of the Articles of Incorporation (AoI), providing a basis for the holding and disposal of treasury shares, along with a formal 'Treasury Share Holding and Disposal Plan.' However, these items mirror the structural loopholes previously identified by the Forum (see: Forum Commentary, Dec. 1st, 2025, 'Treasury Share Cancellation Bill: No Unlimited "Management Purpose" Exceptions').
The content may appear standard at a first glance, but a combined review of the AoI amendment (Item No. 2-7) and the Holding and Disposal Plan (Item No. 8) reveals a rather subtle and questionable structure, in our view. It raises significant concerns as to whether the Board of Directors conducted a sincere deliberation on these matters and fulfilled its fiduciary duty to the shareholders.
A critical review of the Treasury Share Holding and Disposal Plan reveals a fundamental procedural redundancy that brings up shareholder scrutiny. In the plan disclosed by KT&G, two distinct items are conflated: ① the cancellation of 10,866,189 existing treasury shares and ② purchase of up to 30,000 common shares for employee and executive equity compensation. Notably, the cancellation of treasury shares is not a matter that requires approval through a 'Holding and Disposal Plan' at a shareholder meeting; it falls squarely within the authority of a Board of Directors' resolution. In fact, the third amendment to the Commercial Act (passed on February 25th, 2026) specifically streamlined these procedures, empowering the board to resolve cancellations, even for shares acquired involuntarily through mergers or other specific corporate actions.
Regardless, the board has combined the cancellation of existing treasury shares with the new share buyback into a single agenda item for AGM approval, which is highly inappropriate in our view. This negative bundling risks misleading shareholders into believing that they must approve the cancellation themselves or worse, that the cancellation cannot proceed if this Treasury Share Holding and Disposal Plan is rejected. Such a structure places investors in a difficult position, where they may feel pressured to vote in favor of the entire plan to ensure the cancellation happens, even if they have serious reservations about the new share buyback plans.
KT&G must clarify that the cancellation of existing treasury shares is a matter of board resolution, independent of the AGM, and must seek separate approval for other agenda items that require shareholder consent. Furthermore, the proposed amendment to the Articles of Incorporation to establish a new basis for the Treasury Share Holding and Disposal Plan is highly suspicious.
Article 10 (Holding and Disposal of Treasury Shares)
The Company may hold or dispose of treasury shares only when necessary to achieve management objectives, such as the introduction of new technologies or the improvement of the financial structure, or in cases where the holding or disposal of treasury shares is permitted by law.
The proposed amendment to the Articles of Incorporation is functionally redundant for its stated purpose. While the board cites employee compensation as a justification, this activity is already 'permitted by law' under the revised Commercial Act, requiring no further constitutional basis. This suggests that the real intent behind the amendment is to carve out an expansive and unregulated 'management necessity' exception, effectively bypassing the 'Zero Treasury' spirit of the law.
Nonetheless, combining these two distinctly different matters into a single article creates a misleading appearance as if the Treasury Share Holding and Disposal Plan currently up for approval depends on the passage of this amendment to the AOI. This framing is highly inappropriate. Under the amended Commercial Act, the requirement for an AoI-based mandate only applies to holding treasury shares for 'management objectives,' which is the core issue here. Yet, in proposing this amendment, the company has failed to provide any specific explanation as to why such a change is necessary or what 'management objectives'—such as the introduction of new technologies or financial restructuring.
KT&G must clearly distinguish the amendment to Article 10 as a provision for holding and disposing of treasury shares for 'management objectives' and obtain approval only after providing a concrete explanation as to why such an amendment is necessary at this time. Furthermore, shareholders need to be clearly aware that even if the amendment to Article 10 is rejected, the current Treasury Share Holding and Disposal Plan—to the extent it covers legally permitted activities like employee compensation—is already supported by the Commercial Act itself. Shareholders should exercise their voting rights with this understanding. Lastly, the content of the Treasury Share Holding and Disposal Plan itself is inadequate.
The treasury share buyback, holding, and disposal timelines are all vaguely tied to 'payment dates based on the operation of the employee compensation system, such as performance evaluation results,' which lacks any specific detail. While the 30,000 shares currently slated for employee equity compensation are relatively few, if the amendment to Article 10 of the Articles of Incorporation passes and allows for the acquisition, holding, and disposal of treasury shares for 'management objectives,' it would set a dangerous precedent that such abstract disclosures may be acceptable.
The purpose of the Commercial Act amendment requiring the disclosure of 'scheduled holding periods' and 'scheduled disposal timelines' is to provide shareholders with accurate predictability. It was never intended to allow vague placeholders like 'according to internal regulations.' Even if the specific identity or quantity of shares granted to each employee in 2026 cannot be disclosed, the company must, at the very least, specify the exact criteria and final deadlines for their disposal. In light of the above, shareholders should carefully analyze the agenda items regarding treasury shares for this KT&G general meeting and demand active explanations from the company before exercising their voting rights.
The KT&G board, specifically CEO Bang and Board Chair Koh must fulfill their fiduciary duty of accountability by providing a clear and transparent explanation for these potentially misleading, overlapping agenda items.
The board must distinctly separate the items that require shareholder approval from those that do not. Furthermore, they must clearly and specifically disclose whether the existing treasury shares will be cancelled unconditionally, and provide a detailed justification for why a new basis for holding treasury shares for 'management objectives' must be established in the AoI. This is especially critical given that the company has previously faced intense criticism for 'entrenchment' in a company with dispersed ownership by contributing over 10% of its issued shares to non-profit foundations or employee welfare funds led by current and former executives. Furthermore, there is a precedent of the company newly establishing and passing an article to classify directors during their appointment, a move widely seen as an attempt to neutralize the cumulative voting system.
March 3rd, 2026
Korean Corporate Governance Forum
Chairman, Namuh Rhee
Vice Chairman, Joonbum Cheon