Term of directors should be one year with reappointment every year
- It is regrettable that Samsung Electronics is adjusting director term to avoid applying cumulative voting and attempting to implement a staggered term system through amendments to the AoI
- At least for listed companies, let’s follow the practice of the US and Japan by reappointing all directors annually. If directors are reappointed every year, the six-year term limit for independent directors will also become unnecessary
- Until improvements are made to the system, shareholders should demand thorough explanations regarding AGM proposals to reduce the number of directors and shorten their terms, and to reject them if satisfactory explanations are not provided
March is upon us, and AGMs are being scheduled. This regular AGM will see many amendments to the AoI in accordance with recently revised commercial code, among which the most notable is the proposal to adjust the number and term of directors.
Even Samsung Electronics has submitted an amendment (Proposal 1-3) to change the director term from three years to "not exceeding three years." The explanation for this proposal is merely "revising the term provisions for directors." The term "revision" implies organizing and properly setting up a disordered system. Does Samsung Electronics believe that Article 25 of its AoI, which currently sets the director term at "three years," is somehow disordered?
The local media reports that this is preparation for using the "staggered term system" (Yonhap Infomax, March 10, 2026). We agree. If terms are the same, multiple directors' terms will expire simultaneously, necessitating the implementation of cumulative voting. Thus, Samsung Electronics may be preparing to mix directors with terms of two years, three years etc so that not all directors’ terms expire at once. We are perplexed that, while attempting to change such an important AoI provision regarding directors' terms, there is no proper explanation for shareholders by the company, leaving the market to interpret the intentions behind it.
If Samsung Electronics behaves this way, it is hard to expect other companies to act differently. In fact, among the companies included in the KOSPI 200 index, 15 companies, including HD Korea Shipbuilding, Samsung SDS, Hanwha Solutions, and Ottogi, have also proposed AOI amendments to change the term from three years to "not exceeding three years," just like Samsung Electronics (for a detailed list of other companies that have proposed AOI amendments to reduce the number of directors or shorten their terms, please refer to the attached). If this continues, let’s quickly follow the lead of other advanced countries like the US and Japan.
In the US, most companies have a one-year term for directors. They reappoint all directors annually, and there are generally no limits on reappointment. While there may be concerns about focusing on short-term profits, the reality is that most shareholders do not reappoint directors who do not perform well, so there is no issue.
Japan is similar. The basic term under the company law is two years, but for large companies or listed companies that adopt the committee structure, the term for directors is one year. Most companies listed on the Tokyo Stock Exchange's Prime Market, such as Sony, Toyota, and Hitachi, fall under this category.
Given that this is the global standard, it is clear that Samsung Electronics and representative companies of the KOSPI are submitting amendments to their AOI with the obvious intent to avoid cumulative voting through the staggered term system. It is a shameful and regrettable situation.
After three revisions to the commercial code since last July, it is clear that there is still much work to be done.
At least for listed companies in Korea, it is advisable to set the term of directors to one year as a standard, requiring annual reappointment by shareholders, and accurately reflecting the purpose of introducing cumulative voting. There is no need for amendments to the commercial act or the capital markets act; the exchange can decide.
If directors are reappointed annually based on their performance, there will be no need for term limits. There is also no need to impose a six-year limit on independent directors.
Indeed before this system is "revised," the role of shareholders in the forthcoming AGMs is extremely important. Shareholders, including foreign and local institutional investors, should demand thorough explanations from the company regarding amendments to the AoI that could be misused to implement a staggered term system and avoid cumulative voting. If there are no satisfactory explanations despite these demands, I hope they actively oppose and reject the proposals.
Appendix 1:
Appendix 2:
March 13th, 2026
Korean Corporate Governance Forum
Chairman, Namuh Rhee
Term of directors should be one year with reappointment every year
March is upon us, and AGMs are being scheduled. This regular AGM will see many amendments to the AoI in accordance with recently revised commercial code, among which the most notable is the proposal to adjust the number and term of directors.
Even Samsung Electronics has submitted an amendment (Proposal 1-3) to change the director term from three years to "not exceeding three years." The explanation for this proposal is merely "revising the term provisions for directors." The term "revision" implies organizing and properly setting up a disordered system. Does Samsung Electronics believe that Article 25 of its AoI, which currently sets the director term at "three years," is somehow disordered?
The local media reports that this is preparation for using the "staggered term system" (Yonhap Infomax, March 10, 2026). We agree. If terms are the same, multiple directors' terms will expire simultaneously, necessitating the implementation of cumulative voting. Thus, Samsung Electronics may be preparing to mix directors with terms of two years, three years etc so that not all directors’ terms expire at once. We are perplexed that, while attempting to change such an important AoI provision regarding directors' terms, there is no proper explanation for shareholders by the company, leaving the market to interpret the intentions behind it.
If Samsung Electronics behaves this way, it is hard to expect other companies to act differently. In fact, among the companies included in the KOSPI 200 index, 15 companies, including HD Korea Shipbuilding, Samsung SDS, Hanwha Solutions, and Ottogi, have also proposed AOI amendments to change the term from three years to "not exceeding three years," just like Samsung Electronics (for a detailed list of other companies that have proposed AOI amendments to reduce the number of directors or shorten their terms, please refer to the attached). If this continues, let’s quickly follow the lead of other advanced countries like the US and Japan.
In the US, most companies have a one-year term for directors. They reappoint all directors annually, and there are generally no limits on reappointment. While there may be concerns about focusing on short-term profits, the reality is that most shareholders do not reappoint directors who do not perform well, so there is no issue.
Japan is similar. The basic term under the company law is two years, but for large companies or listed companies that adopt the committee structure, the term for directors is one year. Most companies listed on the Tokyo Stock Exchange's Prime Market, such as Sony, Toyota, and Hitachi, fall under this category.
Given that this is the global standard, it is clear that Samsung Electronics and representative companies of the KOSPI are submitting amendments to their AOI with the obvious intent to avoid cumulative voting through the staggered term system. It is a shameful and regrettable situation.
After three revisions to the commercial code since last July, it is clear that there is still much work to be done.
At least for listed companies in Korea, it is advisable to set the term of directors to one year as a standard, requiring annual reappointment by shareholders, and accurately reflecting the purpose of introducing cumulative voting. There is no need for amendments to the commercial act or the capital markets act; the exchange can decide.
If directors are reappointed annually based on their performance, there will be no need for term limits. There is also no need to impose a six-year limit on independent directors.
Indeed before this system is "revised," the role of shareholders in the forthcoming AGMs is extremely important. Shareholders, including foreign and local institutional investors, should demand thorough explanations from the company regarding amendments to the AoI that could be misused to implement a staggered term system and avoid cumulative voting. If there are no satisfactory explanations despite these demands, I hope they actively oppose and reject the proposals.
Appendix 1:
Appendix 2:
March 13th, 2026
Korean Corporate Governance Forum
Chairman, Namuh Rhee