'Activist Fund' Variable in Family Ownership Management Dispute

"Improvement of Corporate Governance" vs "Contraction of Business Activities"

As activist funds flood shareholder proposals aimed at expanding shareholder value, the market is expressing both anticipation and concern simultaneously. There is an expectation that activist funds will act as a 'catalyst' for companies that have long resisted changes in governance. On the other hand, there are worries that interference in management without a thorough understanding of internal company affairs could sow seeds of conflict and lead to side effects that stifle corporate activities.

Activist Funds' Offensive Stands Out During Shareholders' Meeting Season

Samsung C&T, facing shareholder proposals from five activist funds, disclosed on the 15th that "the total shareholder return amount proposed is 1.2364 trillion won, exceeding 100% of the company's free cash flow (excluding Biologics) for 2023 and 2024." The company expressed concern, stating, "This amount greatly exceeds the third-phase shareholder return policy carefully established after considering internal and external management environments, and represents a scale that imposes a managerial burden."

Accordingly, Samsung C&T has begun the process of obtaining proxy voting rights from shareholders. Ahead of Kumho Petrochemical's shareholders' meeting, former Kumho Petrochemical executive Park Cheol-wan joined forces with activist fund Chah Partners Asset Management. Park, nephew of Kumho Petrochemical Chairman Park Chan-gu, is the largest individual shareholder. On the 15th, he submitted shareholder proposals demanding 'share buyback cancellation' and 'appointment of outside directors serving as audit committee members,' delegating his rights to activist fund Chah Partners Asset Management.

Although Park holds a 9.10% stake in Kumho Petrochemical, he has been unable to participate in management. On the 16th, Truston Asset Management announced via disclosure that it would propose director candidates through shareholder proposals at Taekwang Industrial. Truston Asset Management stated in the disclosure, "We hope the proposed candidates will participate in the board to contribute to improving the company's business conditions and board-centered management."

Variable in Chaebol Family Management Disputes

There is also room for activist funds to intervene in power struggles over management rights within chaebol families. Activist funds can act as variables in the vote battles between controlling shareholders and the founding family at shareholders' meetings. In the integration decision process of Hanmi Pharm and OCI Group, promoted by activist fund La D?fense, eldest son Lim Jong-yoon, President of Hanmi Pharm, and second son Lim Jong-hoon, CEO of Hanmi Precision Chemical?who were excluded?proposed the appointment of six new directors aiming for management participation.

At Lotte Aluminum, former Vice Chairman of Japan’s Lotte Holdings Shin Dong-joo submitted a shareholder proposal requesting the inclusion of amendments to the articles of incorporation, including "proportional shareholder benefits." Shin, elder brother of Lotte Group Chairman Shin Dong-bin, was a party to the 2015 Lotte Group management rights dispute. Lotte Aluminum plans to submit a division plan approval to the next shareholders' meeting to transfer its next-generation business, the anode foil business, to a newly established corporation.

To block this physical division, former Vice Chairman Shin submitted a shareholder proposal regarding amendments to the articles of incorporation, citing concerns about "dilution of existing shareholders' value and corporate value."

An industry insider from the securities sector analyzed, "Shareholder proposals by activist funds clearly play a positive role in steering corporate management toward shareholder-friendly directions."

Another insider pointed out, "When there is a large gap in shareholding ratios with major shareholders, the effect of proposals is minimal and may cause management confusion."

Reporter Lim Hyun-kyung, Legal Newspaper

※This article is based on content supplied by Law Times.

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