83 percent of listed companies expect activism to rise if new corporate governance laws are passed: KCCI survey
South Korean listed companies are increasingly wary of the growing influence of minority shareholder activism, fearing it could lead to excessive management interference and short-term profit-driven demands.
As the annual general shareholders meeting season approaches, shareholder activism is intensifying like never before with a noticeable shift in dynamics, according to the Korea Chamber of Commerce and Industry.
A KCCI survey revealed Sunday found that 120 out of 300 listed companies had experienced shareholder engagement over the past year. Shareholder engagement includes various activities aimed at directly influencing corporate governance, such as direct dialogue with management, shareholder letters and proposals.
While institutional investors such as pension funds and private equity firms previously led these efforts, retail investors are now taking the forefront, the study showed.
Among the 120 companies that reported shareholder engagement, 90.9 percent identified individual shareholders or coalitions of small shareholders as the primary participants. This was followed by pension funds at 29.2 percent and private equity and activist funds at 19.2 percent.
Over the past decade, the proportion of shareholder proposals initiated by individual shareholders or shareholder alliances has nearly doubled, rising from 27.1 percent in 2015 to 50.7 percent in 2024, based on the electronic disclosure system.
"Shareholder engagement was once considered the exclusive domain of activist funds, but with individual shareholders now taking the lead, we are witnessing a new phase in shareholder activism," said Kang Seok-gu, head of KCCI’s research division. "Companies should actively engage in dialogue with general shareholders when their demands are reasonable. At the same time, policies that hinder shareholder returns, such as cooperative taxation regulations, need to be improved."
When companies were asked about the specific demands raised through shareholder engagement, the most common requests included dividend increases (61.7 percent), share buybacks and cancellations (47.5 percent), appointment or dismissal of executives (19.2 percent), amendments to articles of incorporation such as the introduction of cumulative voting (14.2 percent) and other governance-related issues (10.8 percent).
Regarding proposed amendments to the Commercial Act set to be reviewed by the National Assembly, 83.3 percent of listed companies anticipated that shareholder engagement activities would increase if the amendments were passed.
KCCI noted that many companies are concerned about the potential consequences of these amendments, fearing they may provide a legal basis for excessive shareholder activism. At the same time, the existing legal framework already ensures sufficient shareholder rights through shareholder proposals and derivative lawsuits, so any expansion of directors’ responsibilities should be approached with caution, the report analyzed.
Looking at the long-term impact of rising shareholder activism, 66 percent of companies expressed concerns, citing increased conflicts between boards and shareholders due to excessive management interference (40.7 percent) and disruptions to large-scale investments and R&D projects caused by short-term profit-seeking (25.3 percent). On the other hand, 31 percent of respondents viewed shareholder activism positively, expecting it to enhance governance structures, improve management efficiency and increase transparency.
By Kim Hae-yeon (hykim@heraldcorp.com)
