During the 2024 annual general shareholders’ meeting season, we continued to witness a significant increase in (i) the exercise of minority shareholder rights – such as the right to make shareholder proposals and the right to request access to (and copying of) accounting books – and in (ii) the solicitation of votes against company-proposed agenda items at shareholder meetings by activist funds and minority shareholders (including minority shareholders’ associations). Engaging with minority shareholders and managing shareholder meetings are emerging as key issues concerning investor relations and corporate governance, drawing heightened interest.
Increasingly, votes cast by institutional investors including domestic and overseas pension funds and asset managers are turning out to be a critical factor that determines the outcome of shareholder meetings. In addition, the influence of domestic and overseas proxy advisors that advise institutional investors on voting matters (e.g., ISS and Glass Lewis) has been growing steadily. This is because institutional investors have actively engaged proxy advisors to enhance the expertise and objectivity in their voting, considering the heightened importance of fiduciary responsibilities arising from developments such as the introduction of stewardship codes.
As mentioned in our previous newsletter (Link), on October 26, 2023, the Financial Supervisory Service and the Korea Financial Investment Association announced and implemented amended guidelines for the exercise of voting rights by domestic asset managers in portfolio companies with a view to enhancing the effectiveness of these guidelines.
Recently, overseas proxy advisors including ISS and Glass Lewis, and foreign institutional investors including the top three global asset managers (i.e., BlackRock, Vanguard and State Street Global Advisors) have also amended their proxy voting guidelines, which are summarized below.
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Overseas Proxy Advisors
Accounting for roughly 90% of the global proxy advisory market, ISS and Glass Lewis continue to exert significant influence on global institutional investors.
In 2023, ISS amended its guidelines (Link) regarding board accountability for climate-related issues as follows (with no further amendments in 2024 in relation to the Korean market):
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For companies emitting significant greenhouse gases through their operations or value chains that are failing to take the minimum steps necessary to tackle the climate crisis (i.e., systematic and detailed disclosure of key climate-related matters, including governance, corporate strategy, risk management, metrics and targets, according to reliable standards such as the framework established by the Task Force on Climate-related Financial Disclosures (“TCFD“) and the establishment of an appropriate greenhouse gas emissions reduction target), ISS recommends voting against the election of responsible director(s) and other related item(s).
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In 2024, Glass Lewis amended its proxy voting guidelines for the Korean market (Link). Key details are outlined below:
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Approval of financial statements:
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Considering the market practices in Korea (i.e., an audit report is usually disclosed one week before the general shareholders’ meeting), the guidelines have been amended to recommend voting in favor of financial statement proposals in case the company, during the past three-year period, has received unqualified opinion audit reports and has had no issues in relation to accounting practices, even if an unqualified opinion audit report has not been disclosed before the publication of the Glass Lewis report (the previous recommendation was to vote against financial statement proposals if an unqualified opinion audit report has not been disclosed prior to the publication of the Glass Lewis proxy report, which usually takes place one or two weeks before the general shareholders’ meeting).
Articles of incorporation amendments regarding virtual-only shareholders’ meetings:
Election of directors:
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Large listed companies with assets of KRW 2 trillion or more are recommended to have gender diverse directors (at least 10%) by strengthening their board gender diversity standards.
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For companies failing to comply with the above standards, the guidelines recommend voting against the chair of the nominating committee or the chair of the board (except for large listed companies that have met the minimum statutory requirement – such as having at least one female director on their board – and made reasonable disclosures on their plans to ensure board diversity).
Cybersecurity
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The guidelines encourage companies to make disclosures regarding the role of the board in overseeing issues related to cybersecurity.
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In case cyberattacks have caused harm to shareholder value, the guidelines also recommend voting against the election of responsible directors if the cybersecurity system and the related disclosures have been insufficient.
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Major Overseas Asset Managers
In 2024, BlackRock, Vanguard and State Street Global Advisors, the top three global asset managers, which also exert significant influence on Korean listed companies through their sizable equity investments, amended their proxy voting guidelines.
First, the key amendments to BlackRock’s 2024 proxy voting guidelines (Link) are as follows:
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Shareholder proposals: BlackRock supports shareholder proposals that are focused on material business risks and may oppose the election of director(s) if the board fails to respond sufficiently to shareholder proposals regarding the company’s material risks.
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Composition of committees within the board: BlackRock requests clear disclosure of corporate governance guidelines regarding committee leadership and membership replacement/rotation and may oppose the election of director(s) in charge of the related duties if any serious concern arises in this regard.
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Measures related to climate and sustainability: For climate risks, BlackRock encourages companies to publicly disclose how they intend to deliver long-term financial performance through the transition to a low-carbon economy. For sustainability, BlackRock recommends that companies disclose information for the effective evaluation of material sustainability-related risks and adopt the International Sustainability Standards Board (“ISSB“)’s IFRS S1 and S2 standards.
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In addition, BlackRock’s 2024 proxy voting guidelines for Korean companies (Link) (i) recommend large companies to ensure that the chair of the board does not represent the management (separate election of a lead outside director recommended in such case), and (ii) oppose proposals granting performance-based remuneration or retirement benefits to outside directors to ensure their independence.
Secondly, key amendments to Vanguard’s 2024 global proxy voting policy (Link) are as follows:
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If directors are not deemed independent or if the board is not structured in line with the market and corporate strategies, Vanguard may oppose the election of the chair of the nominating committee or of the corporate governance committee.
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Vanguard will determine whether to vote for executive pay proposals considering (i) the alignment of performance and remuneration (based on an analysis of total shareholder returns and executive remuneration for a three-year period), (ii) the company’s adjustments to pay-for-performance compensation plan structure in accordance with its long-term strategies, and (iii) the governance of executive pay plans (the disclosure of executive pay plans to shareholders and responsiveness to shareholders’ views).
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Thirdly, key amendments to State Street Global Advisors’ 2024 global proxy voting policy (see Link 1 and Link 2) are as follows:
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State Street Global Advisors requests that companies (i) provide a description of the activities and review processes annually undertaken by the committees within the board, and (ii) publicly disclose a policy limiting the number of committee seats a director can hold.
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In connection with the abovementioned policy, State Street Global Advisors requests that companies provide a policy setting limits on executive or non-executive directors’ board positions at other listed companies.
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Going forward, companies will need to take note of the amended guidelines above when engaging with minority shareholders and managing general shareholders’ meetings. To gain overseas institutional shareholders’ support for shareholder meeting agenda, companies may need to structure their agenda and solicit proxy votes from institutional shareholders in line with the amended guidelines.
[Korean Version]
