September 08, 2024

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View of Seoul's financial district Yeouido in western Seoul. (Getty Images Bank)

While shareholder activism is yet to take hold in South Korea with only a handful of initiatives making it past the vote, activist investors are gaining traction, according to London-based shareholder advisory firm SquareWell Partners.

According to the firm's recent report, Korean firms are increasingly being targeted by activist investors, with the number soaring from nine in 2020 to 71 in 2023.

Still, many of the recent activist campaigns have failed to win a majority of shareholder votes. But Ali Saribas, a SquareWell partner, calls the attempts "partially successful,” saying their demands are creating pressure points for firms.

“Having the proposal appearing on a company’s agenda to draw attention to the change needed could be considered as success in itself,” Saribas told The Korea Herald via email.

Also, not all activist investors share the goal of having their demands put on the agenda at shareholder meetings. In some cases, the investors try to initiate a change by having the demands stay at a “public pressure” point and leveraging other tools.

“In a similar way, gaining a respectable level of shareholder support may be considered successful as it could help move forward engagement that had reached an impasse.”

While the Korean government has been pushing for listed companies to join the Corporate Value-Up Program to boost the “undervalued” local stock market here, Saribas suggested the companies could cooperate with the initiative to lower the risks of attacks from activist campaigns.

“If Korean companies do not embrace genuine and direct engagement with its shareholders as part of the Corporate Value-Up Program, there is a greater risk that interests still do not align and activism continues to increase,” he pointed out.

Securing board independence could be a way to preempt the attacks, Saribas added.

“Managing conflicts of interest is challenging, which is why independent boards are vital. They help ensure decisions are made that serve the company's long-term value by considering the broadest interests,” he said.

“Embracing criticism is essential, as recognizing weaknesses is a crucial step toward improvement.”

NPS, a rubber stamp?

In the meantime, SquareWell remained skeptical of the National Pension Service’s role in the local capital market. The NPS, the world’s third-largest pension fund with assets over 1,000 trillion won ($721 billion) under management, is a blockholder for many listed companies here.

A group of activist funds launched a campaign earlier this year, demanding Samsung C&T, a de facto holding unit of the country’s most influential conglomerate Samsung Group, to improve its governance practices, including lukewarm shareholder dividends.

At the time, their call for higher dividend payouts earned support from 23 percent of shareholders. When excluding favorable shares secured by the founding family and those owned by NPS that are believed to have voted against the proposal, SquareWell claimed that the approval rate could surge to some 61 percent.

“The National Pension Service voted against the proposals, again bringing into question the role this public institution plays in improving Korea’s governance practices,” the report said.

“While in certain cases it has acted itself as an activist against some portfolio companies, its favorable position towards chaebols remains very much under scrutiny.”

But the NPS has refuted such accusations, saying it is committed to maximizing financial profits in the long term under its strict investment guidelines.

Last year, the pension fund posted a record 13.59 percent return rate by earning 126.7 trillion won. Its profitability on local shares was even higher with a 22.1 percent return.

By Im Eun-byel (silverstar@heraldcorp.com)