More institutions adopt stewardship code, embrace shareholder activism

The number of South Korean institutions that have embraced shareholder activism by adopting the stewardship code surged last year, raising tensions for companies ahead of their general shareholders meetings in March.

The stewardship code sets forth guidelines for institutional investors, allowing them to participate actively in corporate governance by exercising their voting rights in the interests of their beneficiaries. 

The code was introduced in December 2016. The National Pension Service, the third-largest national pension fund in the world with 640 trillion won ($540 billion) in assets, adopted the code in July 2018.

According to the Korea Corporate Governance Service, the number of participating organizations reached 116 as of the end of last year, up from 73 the previous year. This year, three more have signed on.

Currently, asset management companies account for the greatest number of participants with 42 firms, followed by 36 private equity firms, five insurance companies and three brokerages. They also include two pension funds, two banks and two investment advisers.

As more companies adopt the stewardship code, a clear trend has emerged over the past two years in which institutional investors have voted against initiatives proposed by their companies.

On financial statements and dividends, institutional investors opposed moves just 1.1 percent on average in 2018, but this figure soared to 36.2 percent last year, according to the KCGS. Opposition to changes in corporate articles rose from 7.2 percent to 11 percent, and objections to internal director appointments jumped from 4.8 percent to 28.9 percent.

The rate at which asset management firms that have adopted the stewardship code opposed corporate moves more than doubled from 2017 to 2018. However, rates for those that did not adopt the code remained almost unchanged, the KCGS said. 

By Shin Ji-hye (shinjh@heraldcorp.com)