There are signs of change in KT's shareholder landscape. As Wellington Management Company, a major foreign shareholder, increased its equity and rose to become the third-largest shareholder, the possibility of an alliance among foreign shareholders is being discussed ahead of the shareholders meeting in March next year to appoint the next chief executive officer (CEO).
Although foreign major shareholders draw a line by saying their intent is "for simple investment," some note that if the stewardship code (principles requiring institutional investors to responsibly monitor corporations invested in for the benefit of their clients and beneficiaries and to actively exercise shareholder rights) is put into practice, the pattern of voting could change. In particular, if it overlaps with noise around the CEO selection process, there are concerns it could escalate into a power struggle between domestic institutions such as the National Pension Service (NPS) and foreign shareholders.
◇ Foreign major shareholders' three firms exceed 15% equity ratio
According to the industry on the 24th, Wellington, a foreign major shareholder, increased its KT equity to 6.14%. With this equity expansion, Wellington overtook Shinhan Bank, which holds 5.75%, to rise to the No. 3 shareholder after Hyundai Motor Group (8.07%) and the National Pension Service (7.54%). Wellington is a Boston-based global asset manager in the United States and is known to manage more than 1,500 trillion won in assets.
Both inside and outside the industry, there is an assessment that the influence of foreign major shareholders has grown. Including Wellington, if you add the equity of T. Rowe Price (5%) and Silchester International (4.14%), the foreign major shareholders' equity holdings total 15.28%. Given that this is 1.99 percentage points (P) higher than the combined equity ratio of the National Pension Service (7.54%) and Shinhan Bank (5.75%), whose largest shareholder is the National Pension Service, some say the foreign vote could become the "casting vote" at the shareholders meeting in March next year.
The pace of Wellington's equity expansion is also drawing industry attention. Starting below 5%, its equity exceeded 5% at the end of November this year, and it secured more than an additional 1% in less than a month. Some in the industry interpret this as possible positioning with the March shareholders meeting in mind. A telecommunications industry official said, "Even if the National Pension Service receives support from Hyundai Motor, if foreign major shareholders invoke the stewardship code and unite, they could lose the power struggle," adding, "KT's current foreign equity ratio has risen to the red line of 49%. In addition to Wellington, T. Rowe Price, and Silchester, there are likely more foreign shareholders and asset managers holding 2–4% ranges of KT equity."
◇ "If the risk of a management vacuum is concerning, they could invoke the stewardship code"
The key question is whether foreign major shareholders, including Wellington, will remain in "wait-and-see" mode until the March shareholders meeting next year or shift to an active exercise of voting rights such as invoking the stewardship code. The stewardship code is guidance that allows institutional investors to actively exercise voting rights in line with the fiduciary duty principle. When issues such as corporations' governance or board transparency, a prolonged management vacuum, or social controversy arise, invoking the stewardship code can provide grounds to shift from "simple investment" to "shareholder activism," which is why scenarios of foreign shareholder alliances are being discussed.
At the same time, a key variable is how far the National Pension Service will take issue with the controversy over the CEO selection process. Another factor is that the government is scheduled to announce final investigation results on the hacking incident this month. For a swift crisis response, an early debut by the next CEO is needed, and there is a possibility of an extraordinary shareholders meeting in January next year led by foreign major shareholders. Under the Commercial Act, shareholders with more than 3% equity can request an extraordinary shareholders meeting. A telecommunications industry official said, "Foreign major shareholders may not be ruled out from taking active action as shareholders to prevent a prolonged management vacuum."
Ryu Jong-gi, an adjunct professor at Sogang University's School of Integrated Knowledge and Media, said, "It appears Wellington has secured the equity holdings necessary to exercise shareholder rights," adding, "Before the agenda for the March shareholders meeting next year is finalized, they could request by shareholder proposal voting rights such as opposing or supporting the appointment of the CEO and recommending outside director candidates who serve as audit committee members."