Korea Capital Market Institute

The active exercise of shareholder rights requires institutional investors to have their own engagement philosophies, strategies and know-how. As with Japan, collaboration with other shareholders including foreign pension funds (e.g., CalPERS) is necessary for Korean institutional investors to share the relevant philosophies, strategies and know-how, thereby boosting the capital markets. To this end, the following legal and regulatory efforts should be exerted: i) broadening the subject matter categories of shareholder proposals to include ESG issues, ii) enhancing the precatory nature of shareholder proposals, as in the US, to ensure that shareholder proposals take hold as a key tool for market discipline; and iii) rationalizing the proposal exclusion process through regulatory intervention. For proxy advisory firms that are expected to become part of the value chain and wield large influence over the markets, following the adoption of the stewardship code in Korea, investment adviser regulation and stringent conflict of interest regulation should be imposed to ensure that proxy advisers remain independent and have relevant expertise and skills. For nonprofit proxy advisers, it is worth considering the constructive application of the adviser regulation, and the establishment of an independent committee to deliberate on voting recommendations in order to ensure their independence.