Angry 'Donghak Ants' working together to 'Save Kospi'
Shareholder activism — where equity owners exercise their voting rights to pass board resolutions — is on the rise in Korea ahead of stockholder meetings slated for March.
On Dec. 23, 2021, Truston Asset Management sent a shareholder letter to BYC, Korea's oldest underwear maker, demanding major changes in the company's business strategy and internal policies.
VIP Research & Management called for improvement in shareholder returns policies at Halla Holdings, which owns 30.2 percent of automotive part supplier Mando, last week.
"We plan to take shareholder action toward more than four companies before the shareholder meetings in March," said Kim Hyung-kyoon, a managing director at Tcha Partners Asset Management.
Tcha Partners Asset Management requested Tovis, a display maker, disclose the list of shareholders on Feb. 11. The law allows shareholders to have access to a company's shareholder list needed for action.
Retail investors are on board with the investment firms.
In January, Anda Asset Management made a complaint against SK Chemicals, which split off drugmaker SK Bioscience in 2018. The investment firm argued that the split-off damaged the value of the chemical company and demanded SK Chemicals reform the management structure and dividend policy.
Small shareholders of SK Chemicals sided with Anda, combining their votes to put pressure on the company.
"The stock price declined because the board and top executives ran the company in favor" of the majority shareholder, said a spokesperson for Anda Asset Management.
Shareholder activism is a win-win strategy for both smaller shareholders and the company, investors argued, as the corporate value will eventually go up if the management responds to investor demands.
"As investment firms with professional knowledge work with minority stockholders, we expect to make a significant impact," vice president of Truston Asset Management Lee Sung-won said.
Lee said that BYC, of which Truston Asset Management owns 8.13 percent, has a market cap of only 300 billion won ($250 million) due to poor management, even though its asset value is several trillion won.
"Many companies were undervalued due to lack of adequate monitoring systems, and they can provide new opportunities for asset managers," said Lee.
Shareholders want to work with management.
"The goal of investment firms is to find and manage hidden companies worth investing in," said Kim Min-guk, CEO of VIP Research & Management.
Kim explained that shareholder actions are part of the value investment strategy.
"The primary purpose of shareholder activism is to assist a company in enhancing its corporate value."
Individual investors are at the forefront of the "Save Kospi" movement.
The Save Kospi movement, led by the retail investors, aims to come up with financial market legal reforms and take the proposals to the presidential candidates.
Retail investors posted a hashtag #savekospi on social media while gathering ideas on the Save Kospi website. Some 13,000 people visited the website, and 2,500 put forward their ideas since the campaign started on Feb. 4.
"A number of individual investors entered the market since the 'Donghak Ant Revolution,' yet shareholder rights are not sufficiently protected," said the former SK Securities analyst Lee Hyo-seok who started the Save Kospi movement.
The Donghak Ant Movement is a buying spree led by individual investors — the Donghak Ants — in 2020.
"The current management structure and system, which were established during the rapid market growth in the past, are damaging shareholder value," said Lee, adding that the goal is to raise awareness and promote change.
Shareholder action led to an actual change in some recent cases. Kakao, for instance, was under fire after Ryu Young-joon, the former Kakao Pay CEO and co-CEO designate of Kakao, and seven other executives sold 90 billion won of Kakao Pay shares. Namkoong Whon was named the CEO after Ryu resigned, and promised to only receive minimum wage until Kakao's stock price reaches 150,000 won. Kakao was trading at 88,300 won on Tuesday.
"It was a rare case of setting a goal with the stock price," said an industry insider, "which indicates that Korea began to follow the global trend of evaluating management performance with the stock price."
CJ ENM, which announced in November the establishment of a new split-off, said that it will reconsider its plan after facing a backlash from the shareholders.
BY KIM YEON-JOO [firstname.lastname@example.org]