Foreign investors beef up shareholder activism with legal clarity

South Korea introduced a law in February to support a new form of activism by “general” equity investors, enabling minority shareholders to have a say in corporate decisions.

The revision of the Capital Markets Act has offered investors legal clarity in their move to boost shareholder value and adhere to stewardship codes.

So far, four foreign investors have declared they are “general” investors in eight listed companies,” so that they can be more actively engaged in dividend payout policies and executive pay plans as a minority shareholder.

This comes as one of the largest investors here, National Pension Service, declared that it is revising its stewardship policies regarding 56 listed companies. Similar actions have been announced by KB Asset Management and Korea Investment Value Asset Management.

The new rule is expected to allow foreign investors to act freely without being refrained as before, experts said.

Under the new category of “general investing,” more shareholder engagement is allowed compared with “nonengagement investing,” where shareholder activism is not permitted, but still not quite as much as when one is “investing with the purpose of engagement,” which means investors can hire or fire board directors. Now that the categories have been more clearly delineated, investors do not have to worry that their actions might be against the law.
“Foreign investors felt restrained from shareholder activism, because the law did not clearly define the scope of shareholder activism until now,” Park Sang-il, senior partner and founding member of law firm HMP Law, told The Korea Herald.

The latest to do so was Silchester International Investors, a long-term asset manager in the United Kingdom. It announced on Feb. 20 that it holds shares in KT for “general investing” purpose instead of nonengagement, with a 5.2 percent stake.

This came a month ahead of KT’s shareholders meeting on March 30. The meeting seeks to approve eight agendas, including an upper cap for executive salaries and introduction of new directors including chief executive nominee Koo Hyun-mo.

Silchester has yet to publicly reveal its decision on the agenda items.

This followed similar announcements earlier in February. US investor Franklin Resources on Feb. 10 disclosed that holds a 4.8 percent stake in KB Financial Group and will give its opinion to protect shareholder value. KB Financial Group is scheduled to hold a shareholder meeting on March 20, where new director nominees and directors’ salaries are set to be approved.

Similarly, on Feb. 7, London-based Edgbaston Investment Partners changed the investing purpose of Sindoh and S&T Dynamics, while another London-based Highclere International Investors declared the change for four listed companies -- Komico, Samyung Trading, New Power Plasman and Hy-Lok -- according to regulatory filings.

None of the investment houses have made their proposals public.

Franklin Resources declined to comment on the matter, while others -- Silchester, Highclere and Edgbaston -- could not be immediately reached for comment.

The series of actions, however, will potentially contribute to higher valuation of the foreign investors’ portfolio companies, Park said.

“Shareholders and management will engage in more active conversations, so that they can improve transparency in management, shareholder value and corporate governance,” Park said.

By Son Ji-hyoung (consnow@heraldcorp.com)