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2023 Sep/21
The Impact of Expanded Role of Shareholder Activism on the Market Issue Papers 23-17 PDF
Recently, there has been a notable increase in the influence of shareholder activism funds in Korea. Shareholder activism has been predominantly led by foreign hedge funds for a long time. But shareholder activism funds have been initiated by domestic capital in earnest since 2022, spurred by market changes such as the revision to the Commercial Act and the introduction of the Korea Stewardship Code. The number of companies targeted by shareholder activism has witnessed a substantial surge in 2022 and 2023, and this growth trend is expected to continue going forward. 

It is observed that the appointment of executives is the primary focus of shareholder proposals, followed by proposals related to amendments in articles of incorporation and dividend payments. Notably, however, the approval rate of activist shareholder proposals at an annual general meeting (AGM) remains relatively low, hovering around 20%. This modest approval rate suggests that shareholder activism still has a limited impact. Shareholder activism funds have mainly called for changes in corporate governance and shareholder return policies, drawing considerable attention from the market and investors. While various shareholder proposals were put forth, many failed to make it to AGM agendas or were rejected after submission. In terms of stock performance, target companies showed a tendency of posting above-average returns compared to the market, yet only a handful sustained such performance. In performance analysis using the cumulative abnormal return (CAR), short-term CAR was frequently observed; however, most companies analyzed struggled to consistently generate high returns over the long term.

Policy improvements should be put in place to bolster the positive role of shareholder activism. To this end, it is crucial to establish a regulatory framework where directors’ fiduciary duty of care is exercised to safeguard the proportional interests of shareholders. Additionally, the disclosure system should be improved to ensure that small shareholders and ordinary investors can quickly identify accurate details of shareholder proposals and letters to shareholders. Lastly, there is a need to close loopholes in shareholder return policies regarding repurchase and cancelation of treasury shares. In this context, it is also essential for shareholder activism funds to strive to actively cooperate with institutional investors.