[Shareholders' Meeting Hot Issue] The Two Faces of Shareholder Activism... Enhancing Shareholder Value vs. Hindering Corporate Growth

Samsung Electronics on 16th, LG and Kakao on 29th
407 Listed Companies Hold Shareholder Meetings This Month

88% of Listed Companies Say "Preparing for Shareholder Meetings Has Become Difficult"
Struggling to Respond to Strengthened Shareholder Activism

Calls for Increased Dividends and Outside Directors Grow
Excessive Demands Threaten Corporate Sustainability
New Industry Companies Prioritize Investment Over Dividends

[Asia Economy Reporters Hyunseok Yoo, Chaeseok Moon]

The full-fledged season of shareholder meetings for listed companies begins this month, starting with Samsung Electronics' general meeting on the 16th. This year, companies have been busier and faced more challenges than ever in their preparations. With shareholder activism intensifying and even "Donghak Ants" raising their voices, it has become increasingly difficult for companies to respond. The expansion of information openness, such as the prior provision of business reports, phased mandatory ESG (Environmental, Social, and Governance) disclosures, and increased information demands from minority shareholders, has also increased the administrative burden on corporate staff during the preparation process. This year's shareholder meetings will also see many agenda items, including the enforcement of the Serious Accidents Punishment Act, mandatory appointment of female outside directors, and stronger demands for dividend expansion.

Ahead of the regular shareholder meeting season in March, companies are deeply concerned about the strengthened shareholder activism. Voices to protect shareholder rights, such as calls for increased dividends and recommendations for outside directors, are growing louder.

However, there are also criticisms that indiscriminate shareholder activism hinders corporate growth and ultimately harms both shareholder interests and corporate continuity.

Era of Shareholder Activism, Increasing Burden on Companies

According to the business community on the 14th, the season will officially begin with the shareholder meetings of Samsung Electronics, Samsung Electro-Mechanics, and Samsung SDS on the 16th. On the 17th, 20 companies including Samsung SDI will hold meetings; on the 25th, 361 companies including Kumho Petrochemical; and on the 29th, 407 companies including LG and Kakao will hold theirs.

Most companies have faced more difficulties preparing for shareholder meetings this year than ever before. According to a recent survey by the Korea Chamber of Commerce and Industry of 336 domestic listed companies, 88.4% responded that "preparing for shareholder meetings has become more difficult than in the past." This is due to increased administrative burdens from mandatory prior disclosure of business reports and increased information demands from minority shareholders, as well as the growing challenge of responding to intensified shareholder activism. Shareholder activism refers to shareholders moving beyond mere interest in dividends or capital gains to actively intervening in corporate governance to pursue profits.

In South Korea, the first notable case was the Jang Ha-sung fund in 2006. Since then, there have been cases such as ▲2015 opposition by U.S.-based Elliott Management to the merger ratio of Samsung C&T and Cheil Industries ▲2018 Elliott's demand for restructuring Hyundai Motor's governance ▲2018 KCGI's declaration of management participation in Hanjin KAL.

This year, several companies have received shareholder letters. The National Pension Service, holding an 8.69% stake, has decided to vote against the appointment of Kyung Kye-hyun, head of the DS division, and Park Hak-gyu, head of the DX division's management support office, as inside directors at Samsung Electronics' shareholder meeting, as well as against the reappointment of Kim Han-jo, chairman of Hana Financial Public Interest Foundation, and Kim Jong-hoon, chairman of Keyswimobile, as audit committee members. The main reasons cited are "damage to corporate value or infringement of shareholder rights" for Kyung and Park, and "negligence in monitoring shareholder rights infringement" for Kim Han-jo and Kim Jong-hoon.

Anda Asset Management has requested SK Chemicals to expand dividends and introduce a cumulative voting system. The cumulative voting system grants a number of voting rights per share equal to the number of directors to be elected when appointing two or more directors. KCGI also proposed agenda items to Hanjin KAL for amending the articles of incorporation to improve governance and nominating outside director candidates, while U.S. private equity firm Teton Capital Partners proposed appointing one outside director and audit committee member to Hanssem.

APG, the asset management company of the Dutch public pension fund ABP, sent letters last month to 10 domestic companies selected as a "Climate Focus Group," requesting implementation of carbon emission reductions. The companies include Samsung Electronics, Hyundai Steel, SK, SK Hynix, LG Chem, LG Display, Lotte Chemical, POSCO Chemical, LG Uplus, and SK Telecom.

This strengthening of shareholder activism has the positive aspect of maximizing shareholder value by pointing out issues related to dividends, performance, and governance.

Excessive Activism, Infringement on Management Independence

On the other hand, there are concerns that indiscriminate intensification of shareholder activism increases corporate burdens and infringes on management independence. The industry is most worried about cases where CEOs or controlling shareholders become embroiled in legal disputes during the implementation of shareholder activism. A chemical industry official said, "While difficulties in director elections and management rights infringements by so-called 'forces' seeking short-term gains are concerning, the worst-case scenario is litigation," adding, "If the CEO becomes involved in lawsuits, it could seriously disrupt management decision-making, which is the biggest concern."

The Korea Chamber of Commerce and Industry, in a survey of listed companies on "recent difficulties in shareholder meetings and changes in shareholder activities," revealed that 68.2% of listed companies have already experienced or are currently experiencing difficulties due to the introduction of the separate election system for audit committee members. They also pointed out problems with the separate election of audit committee members and the 3% rule, including ▲possibility of director election rejection ▲entry of unfriendly figures into the board ▲management involvement by minority shareholders focused on short-term gains. The 3% rule and separate election of audit committee members were introduced to strengthen the independence of audit committees established on boards and to enhance minority shareholder rights.

There are also opinions that actions should be tailored by industry since indiscriminate activism can hinder corporate growth. An industry insider said, "For companies entering new growth or new industries, it is more rational to connect resources to investment rather than paying dividends," expressing concern that "indiscriminate demands could actually harm corporate growth."

This content was produced with the assistance of AI translation services.