Other amendments put an end to the shadow voting system from onwards; through shadow voting, companies were able to meet the quorum requirement to pass resolutions with the help of the Korea Securities Depository, which cast votes on behalf of absent shareholders in proportion to the actual votes. Last December the Financial Services Commission FSC amended the decree of Capital Markets Act letting firms utilise shadow voting for the next three years, until , in the case of introducing the electronic voting as well as the proxy solicitation.
In April the FSC formed the Financial Company Governance Improvement Taskforce, which formulated a plan to strengthen the role of board of directors by making them more responsible for risk management, and establish and disclose a remuneration system in accordance with their accomplishments and responsibilities. This required them to publish a more detailed corporate governance annual report and explain their current governance under a comply-or-explain requirement to promote the monitoring activities within the market, planning to assess the forementioned corporate governance annual report through the assessment-specialised institution.
After the day public consultation period, the FSC released the Corporate Governance Code for Korean financial institutions with some amended content concerned with a director candidate nominating committee. KCGS recommends firms build a more shareholder-friendly environment by introducing electronic and cumulative voting so that more shareholders cast votes, and make it easier for minority shareholders to propose agenda items at annual grand meetings AGMs.
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Additionally, KCGS recommends that firms adopt the comply-or-explain method when they publish their annual reports or sustainability reports based on best practice codes, such as KCGS's ESG best practice code. We believe shareholder activism will be receiving more attention as the abolishment of shadow voting schemes became effective on January 1 So far most institutional investors have consistently voted in favour of the board of directors, which results from a lack of understanding and infrastructure to produce advice for exercising voting rights properly.
However NPS, along with some asset management firms and minority shareholders, has made an increasing number of proposals in shareholder meetings. The total number of listed firms' AGM agenda items proposed by shareholders in was 41 — nearly three times the 15 agenda items proposed in KCGS strongly believes that institutional investors should not follow the passive attitudes of investors trading shares, and exercise their voting rights to increase their customers' benefits through becoming actively involved in monitoring management activities of target investment companies and making decisions as a representative of customers.
He has worked at the KCGS since Previously he worked at the Korea Institute for the Advancement of Technology KIAT from to , where he assessed small and medium enterprises and developed national policy for technology commercialisation.
He received his PhD in business administration from Texas Tech University in , where he specialised in production operations management. She previously worked as a research assistant in the equity research team of Meritz Securities and Hana Daetoo Securities.
Korea's corporate revolution | Pendal Group
She received her bachelor's degree from Korea University, where she double-majored in Economics and Business Administration. She is interested in SRI and integrated reporting, and has written several articles on Korean companies' ESG performance as well as their disclosure of that performance. The material on this site is for financial institutions, professional investors and their professional advisers.
It is for information only.
South Korean Corporate Governance
Understanding the chaebols is key to navigating the Korean investment universe. The chaebols have been instrumental in developing the companies and we tend to like to invest where there is strong private ownership as this creates an alignment of interest with minority shareholders. Nevertheless, a change to a clearer structure would be good for the Korean market as it would help attract more international investors that may see the current structure as convoluted and difficult.
There is currently a wind of change that is blowing in Korea when it comes to openness, transparency and corporate governance in general. We believe there will be progress, if not on all, then on some of the proposals. Until recently, it was a given that what is good for the chaebol is good for South Korea. But this has changed after years of scandal and subterfuge.
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Crucially the National Pension Service has adopted a formal stewardship code in July this year. The explicit aim is to push for better governance, transparency and accountably from its portfolio companies. South Korea is at an economic cross-roads. The export model that served them so well is faltering.
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The Korean economy is increasingly reliant on consumption — but consumption growth is tepid. Tax reform is rarely a subject to set pulses racing but in Korea it is essential: Korean individuals — particularly the third generation owners of Chaebols — are disincentivised to pay-out cash because they pay so much tax on their income.
Shareholder Activism: Corporate Governance Reform in Korea - By Han-Kyun Rho
Ironically, tax code reform was taken off the agenda by a left-leaning president — partly because it is seen as a fillip to the oligarchs. President Park planned to address it. The corollary of higher pay-out ratios is focusing investment decisions on return on equity or return on invested capital: management deploying capital only when it makes economic sense, not because a client or the chairman says so. Employee stock option schemes — aligning interests between managers and owners — are rare.
Adopting compensation structures which align the interests of owners, managers, employees and minority investors would be a marker to international investors that the old, misaligned ways are gone.