FSC pushes for adoption of stewardship code

The Korean financial authority is pushing institutional investors such as the pension fund and asset management firms to actively engage in the management decisions of companies that they are investing in.

The Financial Services Commission on Monday said it will create policies that will provide incentives to institutional investors that actively adopt the stewardship code, which is a set of guidelines made to encourage institutional investors to act on behalf of their shareholders on companies that they have voting rights in. The institutional investors will also have to report their participation in the companies’ management decisions transparently to its clients or to the public that they represent.

“In Japan the number of institutional investors that subscribed to the stewardship code increased, which created active participation in shareholders’ activities that led to companies buying back shares and adopting payout policies,” said FSC Chairman Yim Jong-yong during a meeting with institutional investors at the Korea Exchange office in Yeouido on Monday. “This provided the engine for the stock market to breakthrough from long-term doldrums.”

According to the government, since Japan adopted the stewardship code in February 2014, the number of institutional investors that follow the guidelines has increased from 127 in June of that year to 214 as of end of last year.

The FSC chairman added that the stewardship code will not only strengthen customers’ trust in institutional investors but also create a culture that emphasizes long-term growth, which will contribute in raising the investment attractiveness of the Korean market as it will not only improve the fairness in the equity market but also improve corporate transparency.

He said there are three conditions that are needed to boost the Korean stock market out of the box it is stuck in and help it grow into an advanced market.

The conditions included pushing the structural reform of the stock exchange, boosting publicly offered funds and implementing the spread of stewardship.

Stewardship code, which first started in U.K. in 2010, is currently adopted in 12 countries. In December, the Korea Corporate Governance Service created a committee that included both Samsung Asset Management, Mirae Asset Global Investments and announced Korea’s own stewardship code consisting of seven guidelines, which includes disclosing its participation as an institutional investor as well as regular monitoring of companies that they invest in.

The FSC and the Korea Corporate Governance Service plans to form a team that will be reviewing the incentives that will be provided to institutional investors actively participating in the stewardship code within the month.

Korea has one of the lowest involvements of institutional investors exercising their voting rights, as more than 96 percent of the issues are addressed during shareholders’ meetings. The institutional investors voted in favor as on April 30, 2016 while those that opposed only accounted for 1.8 percent. This vote didn’t include the decisions made by pension funds.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]