IN-DEPTH: Activism gains momentum in Korea
This article first appeared on Diligent Market Intelligence's Activism newswire. To register for a demonstration and trial of the product, click here.
Korea has seen a steady increase in shareholder activism with 66 companies targeted in 2024, compared to just 10 in 2020. And while recent political upheaval in Seoul might slow corporate governance reforms, industry sources told DMI's Jason Booth that such events won't halt efforts to hold Korean companies accountable for their returns to shareholders.
Shareholder activism got a boost early last year when Korea’s Financial Services Commission (FSC) announced that it will require listed companies to produce corporate value improvement plans in their annual governance reports, as well as detailed dividend payment plans.
“There's a growing push from both society and the government for better governance, which works in our favor,” Darren Kang, co-CEO of South Korean activist fund Life Asset Management told DMI in an interview. “This trend is particularly timely as many second-generation family owners are currently looking for ways to enhance their companies' value to manage potential issues like inheritance taxes.”
Refreshing the board with new skillsets has been a common focus in the wider push for better governance. The year saw South Korean activist fund Align Partners press seven local banks to add more directors with financial expertise and focus on improving per share metrics to close the value gap with foreign peers. In another situation, Korean steelmaker POSCO Holdings, the nation’s fifth-largest business group, pushed out its Chairman and CEO Choi Jeong-woo due to complaints from pension funds, and later faced activist opposition to its choice of new leadership.
South Korean tobacco and ginseng producer KT&G also reshuffled its board in the face of activist demands by appointing a director candidate nominated by state-backed lender Industrial Bank of Korea (IBK) and supported by activist fund Flashlight Capital Partners. "With the addition of a truly independent director committed to advancing shareholder interests, KT&G has taken a crucial step towards governance normalization," Flashlight commented in a March 28 statement.
Palliser Capital saw similar success at semiconductor company SK Square, which in November announced plans to launch a share repurchase scheme and appoint independent directors after pressure from the activist. "SK Square’s corporate value-up plan announcement is an endorsement of our investment thesis in the company and a helpful step forward,” said Palliser CIO James Smith.
However, the future of activism in Korea was thrown into question in December by political instability sparked by an aborted declaration of martial law by President Yoon Suk Yeol, whose party was seen as a proponent of governance improvements and greater rights for minority shareholders.
Both domestic and foreign investors have argued that current Korean law enables controlling shareholders at family-run chaebol conglomerates and other firms to pursue actions that benefit the founding family at the expense of minority investors.
Lee Changhwan, founder and CEO of Align Partners told DMI in an interview that while reforms may slow due to the political situation, the popularity of such measures among the general public means he doesn’t expect that they will stop. He noted that both major political parties have introduced legal initiatives to boost corporate governance and returns.
“These initiatives are the result of the people of Korea wanting better shareholder protections and a better-kept market,” noted Lee. “That's why both parties are competing with different, but similar plans.”
