Contribution'Korea discount' still persists despite chip-driven rallies

Hana Bank employees celebrate the benchmark KOSPI’s historic breakthrough above the 9,000 mark at the bank’s dealing room in Seoul, June 18. Korea Times photo by Shim Hyun-chul

Lee Chang-hwan, founder and CEO of Align Partners

KOSPI has risen roughly 144 percent over the past eight months, but the gains have been concentrated in a handful of memory names. The broader market remains substantially undervalued: 68.2 percent of KOSPI constituents trade below book value, against just 1.9 percent for the S&P 500, 23.4 percent for Taiwan’s TAIEX and 22.2 percent for Japan’s Nikkei 225. The “Korea discount” persists.

The discount is structural. At about 93 percent of KOSPI 200 companies, a single shareholder or family exercises effective control, while holding only around 44 percent of the shares; with this year’s shareholders' meetings attendance averaging just under 74 percent, such a holder can pass ordinary resolutions largely unaided. Pyramid ownership compounds the problem, and a high inheritance tax gives founding families a persistent incentive to keep share prices low.

Korea is now addressing these issues directly. Successive amendments to the Commercial Act have extended directors’ fiduciary duty beyond “the company” to “the company and its shareholders,” made cumulative voting mandatory for large listed companies, expanded the “3 percent rule” and the separate election of audit committee members, and tightened the rules on treasury shares. The Corporate Value-up Program, a more assertive National Pension Service and rising retail participation all point the same way.

The momentum is visible at general meetings.

Shareholder proposals this year targeted 56 companies and 218 agenda items, up from 39 and 151 a year earlier — placing Korea among the world’s most active markets for engagement once environmental and social proposals are excluded. Shareholder-nominated directors won board seats at DB Insurance, Gabia, Korea Zinc and Samyoung Electronics; at Gabia, two prevailed on an ordinary resolution alone, without the 3 percent rule or cumulative voting, and over a major shareholder’s objection.

Regulators, domestic and foreign investors, domestic proxy advisers and foreign institutions are, on the whole, advancing together. As the market evolves, one area where practice is still evolving is how the global proxy advisers, on whom many foreign investors depend, evaluate Korean agenda items.

During this season domestic advisers recommended in favor of shareholder proposals about 67 percent of the time, their global counterparts about 26 percent. The global institutional investors who rely on those advisers supported such proposals roughly 50 percent of the time — nearly double their advisers’ rate. Even on a like-for-like basis, across identical proposals, the global recommendation rate was 47 percent against a domestic 71 percent.

A comparable pattern appears in the opposite direction. Several companies proposed articles of incorporation amendments that appear misaligned with the spirit of reform — “flexible” director terms, board-size caps that could neutralize cumulative voting and the 3 percent rule, and treasury-share use for broadly defined “management purposes.”

Domestic advisers and the National Pension Service opposed most of these, while global advisers supported them at rates from roughly one-half to all, and they passed with 80 to 90 percent support. Shareholder proposals properly bear a higher burden of proof — an asymmetry that is, in principle, justifiable — but a comparable caution would seem no less warranted toward management proposals that could move the other way.

Shareholders enter Samsung Electronics’ annual general meeting at the Suwon Convention Center in Gyeonggi Province, March 18. Joint Press Corps

The Korean context may also be worth weighing here: Where boards are not always independent of a controlling shareholder, the asymmetry that elsewhere justifies deference to management proposals may have less weight, and proposals of the same nature — whoever advances them — may warrant review against a single standard of whether they enhance value for all shareholders.

The local context gives these recommendations particular weight. The season is highly compressed, with most December year-end companies meeting in the final days of March.

English-language disclosure is limited and the notice period short. Foreign investors, who hold roughly one-fifth of the shares in KOSPI 200 companies with major shareholders, may depend on proxy advisers more than in almost any other market, which is also an opportunity to help advance the reforms now underway.

The most constructive path forward is a collaborative one. Continued engagement can help keep global advisers’ analysis aligned with the interests of minority shareholders and with Korea’s reforms; advisers could revisit their frameworks to reflect the amended Commercial Act and the country’s distinctive governance structure.

Investors, for their part, can extend their stewardship to their service providers, and regulators can support these efforts by lengthening the notice period, dispersing annual general meetings' dates as Taiwan has done, and requiring disclosure of how minority shareholders, excluding the controlling shareholder, actually voted.

The Korea discount will not be resolved by a market rally alone. It will narrow only when every stakeholder moves toward the same objective — that every company is run for all of its shareholders.

Lee Chang-hwan is founder and CEO of activist fund Align Partners. On June 18, Align Partners Capital Management released its inaugural report, “2026 Korea AGM: Key Takeaways and Areas for Improvement.” This contribution is based on the findings and observations set out in that report.