Institutional investors playing 'rubber stamp'

By Yoon Ja-young

Institutional investors continue to “rubber stamp” decisions at shareholders’ meetings, opposing less than 3 percent of the decisions made this year.

According to the Daishin Corporate Governance Institute, a neutral observer which analyzed how 112 institutional investors voted on decisions, they voted against in only 563 of 20,169 issues raised at general shareholders’ meetings - 2.8 percent - far lower than the Daishin’s informed recommendation. After analyzing each decision, the institute had recommended shareholders should vote against the decisions 20.9 percent of the time.

The National Pension Service (NPS), the country’s biggest institutional investor, voted against the decisions 11.4 percent of the time, which is still far lower than Diashin’s recommendation.

Institutional investors voted against decisions 18.2 percent of the time at the shareholder meetings of Hyosung, followed by 15.9 percent at POSCO, 8.8 percent at Hyundai Mobis, 8.3 percent at Samsung C&T and 7.7 percent at Hyundai Motor.

“Some institutional investors don’t even exercise their voting rights at the general shareholder meetings,” institute researcher Ahn Sang-hee said.

“To improve corporate governance structure, institutional investors should play a bigger role than ever,” Ahn said. “They have far higher capacity than small shareholders to make analysis and gather information. If they disclose how they will exercise their voting rights ahead of general shareholder meetings, it will have a positive impact on the participation of small shareholders.”

Experts agree that institutional investors’ active participation would help enhance shareholder value. According to an analysis of five Organization for Economic Cooperation and Development (OECD) member countries that have adopted the Stewardship Code for more than five years, businesses increased dividend payouts and their price-earnings ratio (PER).

The Stewardship Code is a set of guidelines for shareholders to exercise their voting rights. It encourages institutional investors to participate in management decisions of the companies they have invested in.

Following President Moon Jae-in’s inauguration, institutional investors are increasingly adopting the Stewardship Code.

According to the Korea Corporate Governance Service, about 40 institutional investors have said they will adopt the code. The NPS is also preparing to adopt it at the government’s request.

President Moon pledged during the election campaign he would influence and encourage the NPS to exercise its shareholder rights to prevent irregular control or transfer of wealth by chaebol owner families or infringement on small shareholders’ interests.

Following adoption of the Stewardship Code, the NPS is expected to exercise its rights at shareholder meetings. It faced huge criticism for backing the merger of two Samsung Group subsidiaries during former President Park Geun-hye’s administration, allegedly pressured by Cheong Wa Dae.