Proxy fights expected to rise at upcoming shareholders meetings

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The upcoming regular shareholders meeting season starting next month is expected to see a rise in the number of proxy contests due to the increased activity of various activist funds and minor shareholders submitting shareholder proposals. This trend also corresponds with the government's recent focus on enhancing the corporate valuation of domestic companies in stock markets.

According to a report by the Aju Research Institute of Corporate Management earlier this week, a total of 180 disclosures categorized as lawsuits or management disputes were reported on DART, the electronic disclosure system of the Financial Supervisory Service (FSS), from April of 2023 to Feb. 14 of this year, up 21.62 percent compared to a year ago.

The research institute suggests that companies making disclosures regarding management disputes are more prone to receiving shareholder proposals at their upcoming annual shareholders meetings. Therefore, the increase in disclosures can be viewed as a leading indicator of the anticipated rise in shareholder proposals during this year's annual shareholder meeting season, scheduled for late March.

"Article 363-2 of the Commercial Act stipulates that shareholder proposals must be exercised through written or electronic documents no later than six weeks before the shareholders' meeting. Considering that most listed companies hold their regular shareholders' meetings between mid- to late March, shareholder proposals aimed at acquiring management rights are typically released between late January and early February," the research institute noted.

"As evidenced by the significant year-on-year increase in the number of disclosures related to management disputes or lawsuits, management disputes are forecast to intensify at the regular shareholders meetings in March this year."

The research institute also highlighted that disputes at listed companies can serve as a catalyst for innovating management practices and integrating sustainability into long-term strategies. Despite potential short-term confusion and managerial vacancies, the increase in shareholder proposals may signal a positive shift towards fostering healthy governance structures within corporations.

The government's recent commitment to advancing a corporate value-up initiative, which aims to enhance shareholder value in undervalued companies, has further emboldened activist funds and minor shareholders to assert their rights.

With approximately six weeks remaining until the end of March, specific details and requests from activist funds towards Korean listed companies are beginning to emerge.

For instance, a group of domestic and international activist funds, including City of London Investment Management (CLIM), Whitebox Advisors, ANDA and other long-term shareholders, have jointly submitted shareholder proposals to Samsung C&T, urging the company to expand dividend payments and increase share buybacks.

Truston Asset Management, a major activist fund in Korea, also sent a shareholder proposal to Taekwang Industrial, notifying its intention to nominate candidates for the board of directors.

Some companies have already come up with responses to the calls by shareholder activists.

Samyang Packaging announced at the end of last year it would increase total shareholder returns to 62 percent, amounting to 15.8 billion won ($11.8), half of which would be allocated to cash dividends and the remaining to share buybacks and retirement.

VIP Asset Management, which asked Samyang Packaging to enhance its shareholder policy, welcomed the offer to repurchase and retire treasury shares for the first time since going public.