Voices calling for a more active role from institutional investors in exercising stockholder rights are on the rise. The role of institutional investors, which are responsible for protecting investors’ assets, is important in order to address problems such as arbitrary decision-making by business owners and the ensuing Korea discount. What matters in this context is how to exercise the rights without infringing upon independent corporate management.
One possible solution is shareholder engagement, which can be defined as a series of communication processes in which institutional investors discuss and ask for improvements on specific issues that can affect corporate value such as labor, social, and environmental issues.
A more active exercise of voting rights is another consideration, too. At present, domestic institutional investors are regarded as mere rubber stamps for stockholders’ meetings. According to the Korea Corporate Governance Service, 82 private institutional investors showed a disapproval rate of only 1.4 percent at the meetings of KOSPI-listed companies during the first half of last year, and the National Pension Service was opposed to just 8.7 percent of the 2,541 cases during the same period. The percentage recommended by the Korea Corporate Governance Service is 18.7 percent.
Institutional overseas investors are much more active in exercising their voting rights. They actively participate in corporate matters even if their shares are minor, because they may face class action suits if they fail to exercise their rights properly.