Shareholder activism gathers momentum in South Korea

Institutional investors gathered momentum for shareholder activism in South Korea not only to boost their values but also to improve corporate governance by exercising their voting rights as partial owners to influence management.

A South Korean court on Sept. 16 approved a request by Seoul-based Truston Asset Management Co. to peruse and copy the board of directors’ meeting minutes of a local underwear maker BYC Co. Truston is BYC’s third-largest shareholder with an 8.13% stake.

BYC’s market capitalization stood at 242 billion won ($174.5 million) even as it has real estate worth more than 1 trillion won and reports an operating profit of 200 billion won every year.

Truston, which declared its plan for management participation in December last year to start shareholder activities, said the share has been undervalued due to alleged internal transactions for private benefits, closed management of the top shareholder and the damaged corporate image due to violations of laws.

The asset management firm said the management has yet to accept a minimum request although they have been in informal talks for more than one year.

The court said it is reasonable to open the minutes if those internal transactions have been made through legal processes as the company claimed.

“The ruling is significant as it indicated the court recognized shareholder activism by institutional investors as an engine to improve corporate governance,” said Kim Woojin, a professor at Seoul National University Business School.

Truston is set to examine the legality of transactions between BYC and its top shareholder by checking the minutes for the board of directors’ meetings from 2016 to May this year as allowed. It plans to request access to accounting books and file shareholder derivative suits if the internal transactions are found illegal.

SM ENTERTAINMENT, SK

Last week, SM Entertainment Co., the pioneer of K-pop, announced it will consider terminating the production contract with its founder Lee Soo-man.

SM has been paying about 20-30% of its annual operating profit every year to Like Planning, wholly owned by Lee, which some shareholders said undermined their values. A local activist fund named Align Partners Capital Management Inc. has requested the company to take action on the production contract.

After the announcement, shares in SM on Sept. 16 surged by 18.6%.

In August, SK Inc., the holding company of South Korea’s No. 2 conglomerate SK Group, said it plans to buy back 200 billion won in its own shares and cancel them.

That came after US hedge fund Dalton Investments LLC urged SK to focus more on share buybacks and cancelations than dividends to improve shareholder value. South Korea’s Life Asset Management requested the company to cancel 1.8 million shares, 10% of its treasury stocks.

In March, the company unveiled a plan for an annual share buyback equivalent to 1% or more of its market capitalization by 2025, in addition to the existing measure to utilize more than 30% of dividend income from subsidiaries to fund dividend payments to shareholders.

Write to Eui-Myung Park at uimyung@hankyung.com
Jongwoo Cheon edited this article.