KT&G issues response letter to ISS and shareholders regarding ISS’ unilateral proxy voting recommendation against the Board

SEOUL, South Korea, March 15, 2024 /PRNewswire/ — KT&G Corporation (“KT&G” or the “Company”) (KRX:033780) responded to Institutional Shareholder Services’ (“ISS”) unilateral recommendation to vote against KT&G Board of Directors’ (“BOD” or the “Board”) proposals, by issuing a letter to both ISS and its shareholders on March 15, 2024 and published the letter on its website. The following provides the company’s clarification concerning ISS’ recommendation.

Firstly, KT&G has observed that ISS’ analysis incorporates data and assertions provided by a dissident shareholder, Flashlight Capital Partners (“FCP”). The company is concerned with the proxy advisory firm’s reliance on the data provided by FCP, particularly regarding the company’s overseas business performance, which the company believes may not entirely align with its reported financial results.

Secondly, KT&G believes that ISS’ recommendation to vote against the appointment of CEO nominee Kyung-man Bang appears to contradict its own proxy voting guideline. These guidelines generally do not recommend against the election of a CEO. KT&G has operated its Senior Management Training Program for over four years, and selected the CEO nominee through an impartial and transparent process, which encompasses open recruitment of CEO candidates and incorporation of objective opinions from the advisory panel composed of external experts. KT&G is concerned that ISS’ recommendation might not fully reflect the rigorousness of this selection process, potentially impacting shareholder value, including the risk of creating a leadership vacuum.

Thirdly, KT&G finds ISS’ recommendation against Sang-wook Kwak, the Board-endorsed Outside Candidate director candidate who will also serve as an Audit Committee member, lacking a clear reasoning. KT&G believes this recommendation may indicate a misunderstanding of the cumulative voting system and possibly suggest an unduly critical perspective towards the company.

Fourthly, according to ISS’ proxy voting guideline, if a dissident shareholder who owns more than five percent of the company’s stock nominates a director, the candidate may not be considered independent. Therefore, KT&G believes that ISS’ recommendation to vote for Dong-hwan Son as Outside Director contradicts its own proxy voting guideline, given that Mr. Son was nominated by Industrial Bank of Korea (“IBK”), which holds 7.1% stake in KT&G.

Lastly, the company expresses its concern over the interactions between ISS and FCP, particularly regarding discussions about the company’s export business profitability.

After a meeting with ISS on March 11, 2024, where FCP-provided data was cited, KT&G sought clarification and requested the data for review. However, KT&G did not receive a response.

Subsequently, KT&G reviewed data publicized by FCP during its webinar and considered that some discrepancies and inaccuracies are there. For instance, FCP has claimed that KT&G’s export cigarette business and export Next Generation Product (“NGP”) business recorded deficits of KRW 68 billion and KRW 57 billion from 2020 to 2022, respectively. In fact, the company achieved a combined operating profit of KRW 550 billion in export cigarette business and export NGP business during the same period. KT&G notified ISS on March 14, 2024 that there were sufficient material errors and misinformation in the materials FCP provided to ISS, but ISS proceeded to publish its Proxy Research Report on the same day FCP’s webinar ended.

In conclusion, KT&G seeks to address these concerns constructively and is committed to engaging in transparent discussions with all stakeholders. The company hopes for a careful reconsideration of the recommendations and a dialogue that serves the best interests of all shareholders.


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