After the Commercial Act was amended to expand shareholder rights, the first shareholder meeting season has arrived. With directors' fiduciary duty to shareholders applying starting with this round of meetings, expectations are high that minority shareholders' influence will expand.
As shareholder activism gains steam, voices in the securities industry say investors should select and invest in corporations with governance structures where cumulative voting can actually wield power.
With the government naming the resolution of the Korea discount (undervaluation of the Korean stock market) as a core task, institutional reforms are also accelerating. The National Assembly passed the first amendment to the Commercial Act, the so-called "3% rule," which limits the combined voting rights of the largest shareholder and related parties to 3% when appointing audit committee members. It then handled the second amendment to the Commercial Act, centered on mandating cumulative voting and expanding separate elections for audit committee members. The first amendment is set to take effect in Jul., and the second amendment in Sep..
The market is interpreting this not as a simple legal revision but as a signal of a governance overhaul. With the institutional foundation in place, expectations have grown that the influence of minority shareholders will expand in a meaningful way.
Activist funds are also moving quickly. Truston Asset Management argued that KCC's equity stake in Samsung C&T is excessively large, leading to an undervaluation of the corporation's value, and demanded equity monetization and share cancellations. Align Partners took issue with DB Insurance's opaque governance and submitted a shareholder proposal to separately appoint outside directors to the audit committee. Afterward, shares of KCC and DB Insurance surged, reflecting expectations of improved corporate value.
So where should investors focus their investments? The securities industry advises paying attention to corporations with governance structures where cumulative voting can genuinely exert power.
KB Securities presented the following conditions under which the effects of cumulative voting can be maximized: the largest shareholder's equity ratio below 30%; a combined institutional and foreign equity share of at least 40%; and corporations with assets of at least 2 trillion won where three or more directors are up for election. The analysis is that the more these conditions are met, the greater the chance directors representing minority shareholders' positions will enter the board, potentially becoming a driver for share price gains.
In addition, holding companies or intermediate holding-company–structure corporations with a discount to NAV of 50% or more are cited as key investment targets. Kim Jun-seop, an analyst at KB Securities, said, "If activist intervention overlaps with a governance structure that has a high NAV discount, it will be a direct catalyst for narrowing the valuation gap."