The government’s Corporate Value-up Program to support undervalued companies with low PEBs or PERs has garnered massive attention from all players in the capital markets, including shareholders and investors. In fact, one of the most discussed topics at annual general meetings in 2024, was the Corporate Value-up Program, and based on this Program, minority shareholders, such as activist funds and minority shareholder alliances, have presented shareholder proposals or raised issues during annual meetings. Therefore, developing an effective response strategy to this issue has become a major agenda item for finance, strategy, and legal personnel in most listed companies.
 
The Financial Services Commission (“FSC”) unveiled the Corporate Value-up Program on February 26, 2024 (Link 1, Link 2), and announced initiatives, including the revision of the stewardship code to include the Corporate Value-up Program, and the development of the Korea Value-up index, and discussed such initiatives with institutional investors at a town hall meeting on March 14, 2024 (Link 1, Link 2). A follow-up town hall meeting was also organized by FSC Vice Chairman Kim Soyoung on April 2, 2024, to discuss accounting and dividend payout processes in relation to the Corporate Value-up Program with related organizations, including the Financial Supervisory Service and the Korea Exchange (“KRX”), as well as associations and companies (Link).

At the above meeting Vice Chairman Kim Soyoung said, “Accounting and dividends play key roles in the relationship between companies and their shareholders, including investors, and are closely related to corporate governance, as well as have great significance in terms of corporate value-up, which requires harmony between companies’ financial and non-financial components and shareholder return.” He announced additional initiatives, including the exemption of businesses with outstanding corporate structure from the requirement to be audited by auditors appointed regularly by the Securities and Futures Commission (“SFC”), and expanded incentives in relation to the Corporate Value-up Program. The details are as follows.
 

• The FSC will establish a “Governance Evaluation Committee,” comprised of external organizations and experts, which will evaluate the performance of companies in improving governance structure (such as checking whether companies properly establish and operate the system to select and supervise auditors) and nominate those with outstanding performance to the SFC. Once the nominees pass the SFC’s resolution, they will be exempt from the requirement to be audited by auditors regularly appointed by the SFC for a certain time (for elaboration, a listed company’s auditors are appointed by the listed company itself for six years and then by the SFC for the next three years).

• Companies awarded at the Corporate Value-up Awards will receive extra points in the governance evaluation and be eligible for penalty relief, including administrative surcharges, if they are imposed with penalties according to the inspection results.
   

• Companies awarded at the first Corporate Value-up Awards, which are to be held in May 2025, will receive incentives. The types and areas of these incentives are as follows.
   

In relation to the government’s initiative to improve the dividend payout process revealed in January 2023, the government announced that 1,011 listed companies (about 43%) revised their articles of association as part of efforts to improve the dividend payout process, and 109 businesses, or about 34% of those required to improve the dividend payout process, actually broke away from the “blind dividend” practice, in which investors decide whether to invest, without knowing how much they will receive in dividends. The government and related authorities stated further that they will amend the Financial Investment Services and Capital Markets Act so that the quarterly dividend payout process may be improved following the closing dividend payout process.

Potential legal risks and challenges associated with the Corporate Value-up Program include: (i) potential requirement to disclose shareholder return and business restructuring, as well as potential penalties for disclosure of false information; (ii) measures to effectively respond to the exercise of shareholder rights, including recommended shareholder proposals for shareholder returns and value-up; and (iii) comprehensive review of various issues related to governance, including the link between executive remuneration and value-up. In order to address these above-listed issues, it is advisable to monitor the progress of the government’s new policies.

[Korean Version]