The Review for Improvement on Cumulative Voting System under the Related Laws in China

The Korean Commercial Act, revised at the end of 1998, allowed shareholders holding at least 3% of the total issued shares (excluding non-voting shares), or at least 1% in the case of large-scale listed companies, to appoint directors through the CVS. However, companies could exclude this CVS through their articles of incorporation. As of 2024, companies that excluded the CVS via their articles of incorporation accounted for 96.2% of the 334 listed companies belonging to publicly disclosed corporate groups. Furthermore, among companies that did not exclude cumulative voting via their articles, only one company actually appointed directors using CVS. Given these circumstances, the revised Commercial Act passed by the National Assembly plenary session on August 25, 2025, amended the system. For large-scale listed companies, it prohibited the exclusion of the CVS via articles of incorporation, transforming it from an optional to a mandatory requirement. The CVS has its roots in the United States, first implemented in Illinois in 1870. It subsequently spread rapidly across the entire country, leading to its mandatory adoption in the Model Business Corporation Act of 1950. However, after the 1950s, seven states that had previously mandated cumulative voting changed it to an optional system. By the 1980s, an additional twelve states shifted from mandatory to optional cumulative voting. By the 1990s, only six states retained mandatory proxy voting. The remaining 43 states and the District of Columbia (DC) adopted it as optional, while Massachusetts actually prohibited it. Meanwhile, most major Asian countries did not adopt cumulative voting from the outset; Australia, Singapore, Malaysia, and Hong Kong did not introduce cumulative voting. Japan introduced cumulative voting under Article 342 of its Companies Act, initially making it mandatory before later changing it to an optional provision. In Taiwan, when the CVS was first introduced in 1966, it was mandatory. However, in 2001, it was changed to an optional system. Yet, following the so-called Taiwan YAGEO incident in August 2007, it was reverted to a mandatory requirement. India introduced cumulative voting under Section 151 of its Companies Act, specifically stipulating that listed companies can appoint directors elected by minority shareholders. This is an optional rather than mandatory provision, giving it a similar level of significance to other countries. China took the lead in implementing the CVS at the local government level in 1989, which was elevated to a regulatory authority rule in 2002 and finally incorporated into the Company Law, forming a mixed framework of “voluntary principles under the Company Law and mandatory exceptions in regulatory rules”. This paper examines the history of CVS in China and focuses on how it is implemented in specific companies, aiming to promote the development of CVS not only in Korea but also in China. Based on these implementation examples, it proposes improvements at both the legal and practical levels, thereby suggesting developmental approaches for CVS in China.