According to the Financial Services Commission’s guidelines released on June 8, a pension fund, an asset management firm or an insurance company implementing a stewardship code does not have to announce participation in management as its purpose of holding a large number of shares, at least 5% to be specific. According to the current Capital Markets Act, a public announcement has to be made about whether the purpose of holding is to affect management rights in a case where the combined shareholding ratio of an institutional investor and an affiliated person, such as a major shareholder, a staff member and an executive, exceeds 5% and it changes by at least one percentage point. This has been called a 5% rule.
According to the new rules, however, an institutional investor’s expression of an opinion and its simple communication regarding corporate management activities, such as the appointment and dismissal of an executive, a change in the articles of association, dividend payment and stock transfer, without the exercise of shareholder proposal rights and a request for an extraordinary meeting of shareholders are regarded as simple investment activities.
When it comes to the exercise of voting rights, the public announcement of participation in management as the purpose of holding shares is to be applied only to institutional investors aiming to cause determinations to be made as they wish in cooperation with other shareholders at shareholders’ meetings. “Exercise of influence on corporate management and executives is a matter to be determined in view of every situation related to shareholder activities and it does not always constitute participation in management,” the commission explained.
According to the new guidelines, a meeting of executives of institutional investors that have a combined shareholding ratio of more than 5% and their exercise of voting rights in the same direction by the use of the same advisory body do not constitute a joint holding of shares and, as such, are not subject to the duty of disclosure if the activities are based on an independent determination. This is to reflect the opinion of institutional investors, which have claimed that the interpretation of the 5% rule should be changed to some extent. They, asset management firms in particular, have been opposed to the current way of interpretation of the 5% rule, claiming that it results in the disclosure of their strategies related to stock purchase and sale.
A major local asset management firm that submitted its plan for the introduction of a stewardship code to the Korea Corporate Governance Service last month clarified at that time that it would observe the code for the exercise of voting rights rather than its rights as a shareholder. At present, 35 institutional investors have adopted or are planning to adopt a stewardship code and most of them are private equity funds and venture capitals with the number of large asset management firms among them standing at four.