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Is shareholder activism finally taking hold in South Korea?

Industry watchers view leveled playing field, government initiatives to uplift activist environment here

By Im Eun-byel

Published : Feb. 15, 2024 - 22:10

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Electronic boards signboards show stocks and currency movements in South Korea at a Hana Bank dealing room in central Seoul, Thursday. Electronic boards signboards show stocks and currency movements in South Korea at a Hana Bank dealing room in central Seoul, Thursday.

South Korean companies are facing increasing shareholder activism with the government's recent push for improvements in corporate governance expected to fuel the trend, according to industry experts on Thursday.

A report released Thursday by Diligent Market Intelligence, a solution from governance software provider Diligent, showed a record-high number of 77 companies headquartered in Korea were targeted by activist campaigns in 2023, outnumbering its economic peers such as Singapore and Hong Kong.

While only 10 companies headquartered in Korea faced activist demands in 2020, the number has grown since then, increasing to 27 in 2021, 49 in 2022, and to 77 in 2023.

This is significantly higher than the number seen in other Asian markets. Eleven Singapore-headquartered companies saw demands from activists last year, while eight companies based in China and Hong Kong saw such moves.

Globally, 550 companies in the US were publicly subject to activist demands last year, along with 103 companies in Japan and 69 companies in Canada.

“The quantity and track record of activists in 2023 confirms that Korean companies should be prepared for shareholder activism and actively monitor the market for developing trends this year,” said Josh Black, editor-in-chief for Diligent Market Intelligence.

“There was a lull after the most recent high-profile spell of activism in 2015 when activists appeared to view the environment as hostile,” Black said. In 2015, the US hedge fund giant Elliott Investment Management questioned the controversial merger of Samsung C&T and Cheil Industries but was later defeated in court.

“Recently there has been a big surge of activist activity that suggests they believe the environment is now more favorable,” Black said.

The report assessed that improvements in governance regulations have leveled the playing field for shareholders, such as boosting executive accountability, implementing stricter disclosure rules for large shareholders, and introducing electronic voting for shareholders’ meetings.

With the rise in the number of activist campaigns here last year, Korea also saw an increase in the number of successful initiatives.

The company assessed that a total of 29 campaigns were successful in Korea in 2023, while 21 were partially successful. The combined figure marked a sharp increase from two in 2020, 14 in 2021 and 24 in 2022.

The report further enlisted Korean activist fund Align Partners Capital Management in its activist watchlist for 2023, a list for ranking the most prolific activists around the world.

Align Partners made its name here last year by calling on local financial institutions to deploy an improved shareholder returns policy and initiating a proxy fight over a major entertainment agency SM Entertainment last year, which led to tech giant Kakao acquiring the K-pop powerhouse.

Meanwhile, the Korean government’s upcoming plan to introduce a “corporate value-up program” later this month to boost the local capital market may initiate more activist involvement in the coming years, under an aligned interest of enhancing the market value of listed companies for higher shareholder returns, industry watchers viewed.

"The government requiring or strongly recommending listed companies to boost their market value will add power to the voices of activist funds that are demanding such initiatives," said analyst Ryu Ho-joung at Sustinvest, an ESG advisory firm in Korea. "Companies are likely to show a different stance (in the face of) demands from the government."

Lee Hyo-seob, a senior research fellow at the Korea Capital Market Institute, viewed the expansion of activist funds as crucial in the Japanese stock market in moving out of the bargain pricing.

“In the case of Japan, the government’s introduction of stewardship code and governance code paved the way for more activist approaches. The change led to companies working to heighten their market value,” Lee said.

“This was not an overnight change. It was made over a decade. We will have to see how things turn out for Korea,” he said.

Black echoed the view that the government’s arbitrage could lead to an expansion of shareholder activism here, saying “Government intervention has been key to the resurgence of activism in Japan and could be in Korea too.”

But he highlighted the National Pension Service should play a crucial role. Managing assets of around 1,000 trillion won ($750 billion), the pension service holds stakes in major corporates here, including Samsung C&T and Korea’s top cigarette manufacturer KT&G.

“In addition to rhetoric favoring higher returns, activists will be looking for tangible evidence that the stewardship code is promoting a focus on maximizing sustainable returns and that the National Pension Service is open to supporting well-thought-out dissident campaigns.”