As the government pushes a value-up policy to resolve the "Korea discount" and even amends the Commercial Act, an environment is taking shape in which corporations must focus more on shareholder interests. In this climate, ahead of regular shareholder meetings in March, shareholder proposals from activist funds are arriving one after another. Experts say that regardless of whether the proposals pass, the exercise of shareholder rights itself will serve as a powerful catalyst for a revaluation of corporate value.
According to the financial investment industry on the 12th, activist fund Truston Asset Management sent a shareholder letter to KCC, calling for stronger shareholder return policies, including monetizing its equity stake in Samsung C&T and retiring treasury shares.
The value of KCC's equity stake in Samsung C&T is 4.9 trillion won (10.1%), exceeding KCC's own market capitalization of 4.1 trillion won. Truston pointed to inefficient asset allocation and emphasized that shareholder value could jump by up to 78% if the equity is monetized. Truston currently holds 1.87% (166,225 shares) of KCC's equity.
Not only "shareholder letters" that publicly press corporations, but also "shareholder proposals" submitted as agenda items for shareholder meetings are active. Activist fund Align Partners said DB Insurance's stock price is undervalued due to opaque corporate governance, including rampant related-party internal transactions involving controlling shareholders, and submitted, in the form of a shareholder proposal, the reestablishment of a transaction monitoring body and the separate appointment of two outside directors belonging to the audit committee. Align Partners has been buying DB Insurance shares since January last year and now holds about 1.9% equity.
U.K.-based hedge fund Palliser Capital also proposed that LG Chem sell its equity stake in LG Energy Solution to reduce the discount to net asset value (NAV), and change its capital allocation policy to buy back and retire treasury shares with the funds secured. Palliser Capital is said to be a long-term holder of more than 1% equity in LG Chem.
As shareholder letters and proposals from activist funds follow in succession, expectations for boosting corporate value are being reflected and related stock prices are stirring. KCC rose 12% on the 11th, when the shareholder letter was sent, and DB Insurance climbed 11% from the 6th to the 11th after the shareholder proposal was disclosed.
However, it should be noted that shareholder proposals do not immediately translate into passage of agenda items. Although activist funds that submitted shareholder proposals hold only 1–2% equity, ordinary resolutions at shareholder meetings require attendance by more than 25% of total issued shares and approval by a majority, while special resolutions require attendance by more than 33.3% and approval by at least two-thirds.
Experts assess that the activist funds' demands alone exert a considerable impact on corporate management. If a shareholder proposal is approved at the shareholder meeting, it can bring substantive changes across management, and even if it does not pass, analysts say it will be difficult for management to ignore it in an environment where the orientation toward boosting shareholder value has been strengthened, including amendments to the Commercial Act.
Lee Nam-woo, chair of the Korea Governance Forum, said, "In the past, there were few cases where shareholder proposals actually won in votes," but added, "This time is the first shareholder meeting where the Commercial Act requiring directors not to act against shareholders' interests applies, so management has no choice but to consider the agenda more carefully."
Some also analyze that even if shareholder proposals are not reflected, active participation by shareholders itself has the effect of pressuring corporations. Cho Myung-hyun, a business administration professor at Korea University, said, "The mere fact that an environment has been created in which shareholders can raise their voices will inevitably make corporations consider shareholders' positions."
However, concerns are being raised that the demands of some activist funds pursuing short-term gains could instead undermine corporations' medium- to long-term competitiveness. A business community official said, "We agree with the direction of boosting shareholder value, but the essential goal of activist funds is to push up stock prices in a short period and realize profits," adding, "We need to examine whether their proposals will actually lead to stronger corporate growth potential."