Tightening Corporate
Governance

KT&G improves protection of shareholders rights, invigorates board of directors activities

KT&G has gone a long way toward improving its governance system in recent years to the extent that it has recently been selected as the best enterprise in terms of corporate governance structure by the securities market.
The company listed since April 1, 1987, has introduced the ethical regulations defining its officers behaviors at the office and the charter for corporate governance structure for transparent management and the protection of shareholders. The company also has taken action to protect the rights of minor shareholders by providing reasons for the concentrated voting. The company has also decided to notify the location and date of shareholders meetings and major agendas four weeks before the event aimed at a wider participation of shareholders with the participation rate of minor shareholders coming to 43.3 percent.
The company has also taken measures to vitalize the function of the board of directors and raise the effectiveness of its management methods. The number of outside directors came to 9, two/thirds of total number of directors, which is aimed at strengthening the management auditing by the board, which is centered around outside directors. The outside directors have been chosen by the recommendation committee upon recommendation by minor stockholders and institutional investors and through a public personnel selection, not by major shareholders and persons with special interests.
The sole tobacco company also took measures to ensure the independent nature of the reimbursement committee and the outside director candidate recommendation committee by requiring these committees to be headed by outside directors. The company also created the system of senior outside director, who will chair the meetings of outside directors, which will provide for independent decisions to be made by outside directors free from management.
Ten outside directors attendance rate in board meetings came to 96.92 percent on average with the company providing a special session for those outside directors to catch up with company office procedures and operation to help them understand the company better and faster. The company has also made possible for outside directors to access expert help outside the company when needed in according to the company regulations so revised to accommodate the occasion.
In 2005 alone, the company conducted 10 investor relations to provide information on its operation. Activities and performance results of outside directors have been included in the company's business reports to allow shareholders to evaluate the activities of outside directors. The announcement date for the preliminary operation record will be announced before the date so that shareholders would have a clear decision on their investment.
Outside directors decisions on important cases that requires public notices will be announced publicly. Outside directors who has another job or businesses will be put on public notices to help shareholders judgment on independence of outside directors.
KT&G has been inputting the organizations and activities of the board of directors and its management structure on its homepage, along with information on the difference in the corporate governance structure model standards and the classes of the governance evaluation so that the public would have an easy understanding on KT&G's governance structure.
The company has also been working to upgrade the operation of the audit department. The company took action to fill the member of the audit committee with only outside directors with an outside heading the committee to strengthen independence of the committee from management. The audit committee has the right to agree with the personnel appointment in the audit related units in the company and operate the internal informer system to strengthen the activities of the audit function.Outside auditors will be selected through public auditions and require them to report to the audit committee. The committee held 13 meetings in 2005 to show that auditing functions have been invigorated. The company's annual dividends had averaged 48.93 percent in the past three years, in line with the company's effort to pay proper amount of dividends every year to shareholders. nw

KT&G Chairman & CEO Kwak Young-kyoon