In our previous newsletter, we discussed that, in February 2024, the Financial Services Commission (“FSC”) and the Korea Exchange (“KRX”) announced the introduction of a new policy called the Corporate Value-Up Program (the “Program”) (Link). By May 2024, the FSC and the KRX had finalized the guidelines for public notice and disclosure, encouraging companies to actively disclose their value-up programs (Link 1, Link 2). As a result, many listed financial and large companies are participating or have announced plans to participate in the Program. To support their involvement, the government has also introduced the Korea Value-up Index (the “Index”) and Index-linked ETFs.
On February 11, 2025, as part of its policy to support the Program, the KRX released the (Proposed) Selection Criteria for Corporate Value-Up Best Practice Companies (the “Proposed Selection Criteria”) to encourage active participation from listed companies. The KRX plans to recognize companies that are excelling in their efforts for valuing-up (the “Best Practice Companies”) using the evaluation criteria for selecting Best Practice Companies provided in the Proposed Selection Criteria. To motivate companies, the KRX will offer various incentives to awardees, and foster a corporate culture focused on corporate value maximization.
It is essential to pay attention to these specific evaluation criteria for selecting Best Practice Companies. This is because such evaluation criteria are not only important to the KRX’s selection procedures, but they also provide an important benchmark for the listed companies during their annual general meetings in 2025, as well as shareholder and investor relations (“IR”) following those meetings. The detailed evaluation criteria set by the KRX can serve as an objective basis for domestic and foreign proxy advisors, institutional investors, and activist shareholders when deciding (i) how to exercise their voting rights at general shareholder meetings or (ii) whether or not to support current management based on the company’s corporate value-up programs, shareholder value maximization policies, and dividend distribution plans at the annual general meetings.
“Best Practice Companies” are selected through a three-stage evaluation process: (i) the first stage is a quantitative assessment, (ii) the second stage is a qualitative evaluation, and (iii) the third stage is a comprehensive evaluation. Companies are evaluated based on their practices from January to December of the previous year, and Best Practice Companies are selected from the companies that disclosed their corporate value-up programs during the period subject to evaluation. Companies that are deemed inappropriate for evaluation, such as newly listed companies or those awarded as Best Practice Companies in the past three years, are excluded from evaluation. For the second and third stages of evaluation, evaluations are conducted by an evaluation group primarily comprising external experts (for the second evaluation) and a Corporate Value-Up advisory group (for the third evaluation). The detailed evaluation items are as follows:
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Stage 1: Quantitative Assessment Items
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Assessment of the indicators representing the output of corporate value maximization, including TSR (Shareholder Return), PBR (Market Standing), ROE (Capital Efficiency), and elimination of the companies that fail to obtain a certain level of ratings in governance (Cut-off system). |
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TSR (Shareholder Return): An intuitive indicator that represents the benefits from investment in a company’s stock from the perspective of its shareholders. TSR (value) as of the end of the evaluated period is used as a proxy. |
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PBR (Market Standing): A market valuation indicator that best represents the phenomena so called “Korea Discounts.” PBR (value) as of the end of the evaluated period is used as a proxy. |
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ROE (Capital Efficiency): This is an indicator of the profitability and efficient utilization of shareholder capital. The ROE value and year-on-year increase (△ROE) at the end of the evaluation period are used as proxies. |
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Governance: Companies rated “C” or “D” in governance, based on the corporate governance ratings disclosed by the Korea Institute of Corporate Governance and Sustainability (“KCGS”), are eliminated. |
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Stage 2: Qualitative Evaluation Items
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Evaluation of whether companies fulfilled their disclosed corporate value enhancement plans |
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(i) |
Board Participation: Whether the board of directors actually participated in establishing corporate value enhancement plans (through resolutions or reports). |
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English and Periodic Disclosure: Whether a company disclosed its corporate value enhancement plans in both Korean and English. |
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Compliance with Guidelines: Whether a company prepared the corporate value enhancement plans according to the guidelines, ensuring full disclosure for each evaluation item (Current Status Analysis/Goal Setting/Planning/Implementation and Evaluation/Communication). |
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Evaluation of the corporate value enhancement efforts |
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Shareholder Return and Investment Efforts: Evaluate shareholder returns (via treasury stock cancellation and dividends) and investment efforts, which are important means of increasing capital efficiency and the company’s mid/long-term development. |
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(ii) |
Market Standing on Value Maximization Plan: Evaluates market reaction to a company’s corporate value enhancement plans by examining whether the company presented forward-looking plans and whether such plans were favorably viewed by the market. |
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Exemplary Governance Structure: Evaluates a company’s corporate governance rating, and whether the company respects or disregards shareholder value. |
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Stage 3: Comprehensive Evaluation Items
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A comprehensive evaluation based on scores from the first and second-stage evaluations, the results of corporate value enhancement, corporate value enhancement plans, and any negative issues related to the companies. |
Once the Proposed Selection Criteria are finalized, the KRX plans to establish the “Guidelines for Selecting Corporate Value-Up Best Practice Companies,” and select a total of ten Best Practice Companies in May 2025 to award them.
As outlined above, the evaluation criteria for Best Practice Companies may serve as an objective benchmark for domestic and foreign proxy advisors, institutional investors and activist shareholders when determining the appropriateness of the company’s value enhancement programs, shareholder value maximization policies, and dividend distribution plans at the annual general meetings. With regard to the annual general meetings of listed companies in 2025 and the subsequent shareholder and investor relations, the criteria may be used as a key reference for companies to self-assess their shareholder value maximization efforts, anticipate potential market objections, and identify necessary improvements. Therefore, it is important to pay attention to the relevant developments.
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