At this year's regular shareholders meeting, the first held since the Commercial Act was revised, activist funds made their voices heard. Shareholder proposals demanding stronger shareholder rights, including the cancellation of treasury shares and the appointment of independent directors, followed one after another. But most of these items were voted down at the actual meeting.
According to the financial investment industry on the 2nd, at LG Chem's regular shareholders meeting on the 31st, a proposal to amend the articles of incorporation to introduce "advisory shareholder proposals" was voted down, which automatically discarded the linked shareholder proposal from the U.K.-based activist fund Palliser Capital. The proposal to appoint a lead independent director was also rejected. Earlier, Palliser had demanded the introduction of advisory shareholder proposals, the appointment of a lead independent director, the repurchase and cancellation of treasury shares, and the monetization of the equity in the subsidiary LG Energy Solution. Palliser holds 0.67% equity in LG Chem.
The opposition from LG, the largest shareholder of LG Chem (34.95%), and the National Pension Service (8.56%), the second-largest shareholder, had a major impact. Earlier, the Stewardship Responsibility Expert Committee of the National Pension Service (NPS) judged that Palliser's introduction of advisory shareholder proposals "could limit the board's authority." It also expressed opposition to the capital allocation policy on the grounds that "with the company having already disclosed a plan to monetize equity in LG Energy Solution, additional equity monetization could negatively affect shareholder value."
At Taekwang Industrial's shareholders meeting held the same day, only the expansion of separate elections for audit committee members among the proposals by domestic activist fund Truston Asset Management (Trustone) passed, while all other proposals were voted down. Truston sought mandatory adoption of an advisory shareholder proposal system, a 1-for-50 stock split, and cancellation of treasury shares, but these did not pass the meeting. Friendly equity for Taekwang Industrial Chairman Lee Ho-jin amounts to 54.53%.
At DB Insurance's shareholders meeting on the 20th, the proposal to appoint an audit committee member put forward by activist fund Align Partners passed, but major items such as the appointment of inside and outside directors and changes to the articles were approved as originally proposed. Earlier, through an open letter, Align Partners demanded eight items, including adopting management based on the required return on equity (ROR), lowering the target risk-based capital ratio (K-ICS), and raising the consolidation-based shareholder return ratio to 50%.
The backdrop to the stream of activist fund shareholder proposals at this shareholders meeting is seen as the revision of the Commercial Act. As the National Assembly successively passed the second amendment to the Commercial Act, which expands directors' duty of loyalty from the existing "company" to "the company and shareholders," and the third amendment centered on measures such as cancellation of treasury shares, analysis suggests attention to shareholder protection and strengthening of shareholder rights has increased.
Experts say that while the actual approval rate of shareholder proposals remains low, they view it as a meaningful change that has created cracks in corporate decision-making structures. Lee Nam-woo, chair of the Korea Governance Forum, said, "At this meeting, support for activist fund proposals among minority shareholders generally rose," adding, "In particular, the actual success of appointing an audit committee member at DB Insurance is a meaningful trend."
In practice, most of the items Palliser proposed to LG Chem were voted down, but minority shareholder approval rates were high at 56% and 42%, respectively. The outside director candidate that Truston proposed at Taekwang Industrial was also rejected, but the approval rate reached 49.8%. At DB Insurance, the director candidate proposed by Align Partners was appointed, which is regarded as the first case in a domestic insurer where a director was appointed through a shareholder vote contest.
There are calls for structural changes to make activist fund shareholder proposals more effective. Lee said, "Foreign funds with high equity stakes often exercise their voting rights two weeks before the shareholders meeting, but notices for shareholders meetings at domestic listed companies typically go out two weeks in advance, leaving a short window to exercise voting rights," adding, "If, in addition, the National Pension Service's voting direction were disclosed in advance, it could lead to substantive change."