Shareholder activism falters as retail investors back management

A screen shows the board of directors and other participants of Kumho Petrochemical's 2024 general meeting of shareholders at its headquarters in central Seoul, Friday. Yonhap

Shareholder activism appears to be losing steam in Korea, as evidenced by the general meeting of shareholders at several companies this year, contrary to expectations of an uptick in the influence of retail investors on corporate governance.

This trend is surprising given the considerable attention directed toward the government's Corporate Value-up Program that aims to enhance the value of perennially undervalued Korean stocks.

Shareholder activists have grown more outspoken in recent years, notably since the introduction of the value-up program by the Financial Services Commission on Feb. 26. This initiative has emphasized enhancing transparency in corporate governance, aligning with the demands of shareholder activists who leverage their stakes in publicly traded companies to exert pressure on management.

However, due to their relatively smaller equity ownership levels compared to major stake owners, shareholder activists — including hedge funds — have been trying to enlist the support of retail investors in conglomerates, banking groups, and other major firms in Korea. Their aim is to exert pressure on management to enhance corporate governance practices.

However, retail investors have thus far distanced themselves from shareholder activists, often voting in favor of management during annual shareholders' meetings. This trend persists despite the fact that over 1,600 listed companies have conducted their annual shareholders' meetings starting in early March.

The annual shareholders' meeting of Samsung C&T takes place at its headquarters in southern Seoul, March 15. Courtesy of Samsung C&T

“Such outcomes, diverging from initial expectations, may suggest that retail investors do not perceive shareholder activists as reliable representatives of their interests in challenging management decisions,” said Kim Kyu-shik, chairman of the Korean Corporate Governance Forum, which monitors transparency in business management.

Kim added, “Retail investors appear to view shareholder activism as excessively aggressive and radical, expressing a preference for moderate reform initiated by management instead.”

Samsung C&T and Kumho Petrochemical are two such examples where shareholder activism failed to persuade retail investors. Kim noted that retail investors mostly voted for Samsung C&T’s decision concerning the appropriate amount of treasury stocks to be canceled during the company’s general meeting of shareholders, March 15.

The cancellation of treasury stocks is implemented as a strategy to boost stock prices by reducing the number of tradable shares available in the market.

With a combined stake of 1.46 percent, five activist funds — ANDA Asset Management, City of London Investment Management, and Whitebox Advisors — have requested the cancellation of treasury stocks worth approximately 500 billion won ($372.8 million).

They also demanded the distribution of dividends amounting to 4,500 won per common share and 4,550 won per preferred share.

Samsung C&T on the other hand proposed the cancellation of 1.9 million common shares and 159,835 preferred treasury stocks.

In the end, management emerged victorious, securing the approval of 77 percent of shareholders with voting rights.

Kumho Petrochemical prevailed against its former Managing Director, Park Chul-wan, who sought to exert influence by teaming up with activist fund Cha Partners Asset Management. Park, who is a nephew of the firm’s chief, along with his associates, urged for an expedited cancellation of treasury stocks, aiming to finalize the process by the end of 2025.

But the refiner insisted that such a process requires more time. Its proposal garnered approval from 74.6 percent of its shareholders.

Another analyst pointed out that allocating excessive dividends to shareholders might not always be beneficial for businesses, as it could diminish their capacity to invest and thereby erode future corporate value.

"Retail investors may have been cognizant of this aspect when they opposed the proposals put forth by activist funds," he said on condition of anonymity.