With the amendment of the Korean Commercial Code introducing the fiduciary duties of directors to protect shareholder interests, as well as regulations to limit the voting rights of the largest shareholder and strengthen the rights of minority shareholders, the exercise of voting rights by minority shareholders and institutional investors at general meetings of shareholders is exerting a significant influence on the market.
In particular, large institutional investors such as the National Pension Fund of Korea and major global funds commonly referred to as the “Big Three” (i.e., BlackRock, Vanguard, and State Street Global Advisors) determine how to exercise their voting rights by referring to voting advisory reports prepared by overseas proxy advisory firms such as ISS and Glass Lewis, as well as domestic proxy advisors such as the Korea Institute of Corporate Governance and Sustainability and the Korea ESG Research Institute. As a result, the importance and influence of proxy advisory firms in the course of listed companies’ investor relations and general meetings of shareholders continue to grow.
Amid the growing influence of proxy advisory firms, there has been active global discussion on introducing regulatory frameworks such as licensing or registration requirements for proxy advisory firms, premised on the need to ensure substantive reliability of their recommendations, the appropriateness of their operations (including with respect to compliance with fiduciary duties), the prevention of conflicts of interests, and adequate qualifications and staffing.
In this context, U.S. President Donald Trump issued an executive order on December 11, 2025 entitled “Protecting American Investors from Foreign-Owned and Politically Motivated Proxy Advisors” (the “Executive Order”). The Executive Order, which has drawn considerable attention, directs the U.S. Securities and Exchange Commission (the “SEC”), the primary U.S. securities regulator, to strengthen its oversight and regulation of proxy advisory firms’ report issuance and advisory activities, and also calls for expanded review and regulation by the Federal Trade Commission (the “FTC”) and the Secretary of Labor (Link).
The key details of the Executive Order are as follows:
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The SEC must (i) review and consider revising its rules to curb proxy advisory firms’ policies that emphasize “diversity, equity, and inclusion” (“DEI”) and “environmental, social, and governance” (“ESG”); (ii) apply federal securities law anti‑fraud provisions to any material misstatements or omissions contained in proxy voting recommendations; (iii) assess whether to introduce requirements for proxy advisory firms to register as Registered Investment Advisers and to make transparent disclosures of their proxy voting recommendations, evaluation methodologies, and potential conflicts of interest (particularly with respect to DEI and ESG); (iv) review whether to amend or repeal shareholder proposal regulations that are inconsistent with the objectives of the Executive Order; and (v) examine whether coordination of voting decisions among institutional investors through proxy advisory firms may be regulated as collective “group” voting activity.
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The FTC must investigate whether proxy advisory firms have engaged in anticompetitive conduct, unfair competition or fraudulent practices.
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The Secretary of Labor must strengthen and refine the fiduciary duty standards under the Employee Retirement Income Security Act of 1974 (“ERISA”) as they apply to asset managers and proxy advisory firms involved in the management of retirement assets, so as to better protect and enhance pension value.
The Executive Order is likely to bring significant changes to the activities and influence of proxy advisory firms in the U.S. Major institutional investors may also respond by no longer following proxy advisory firms’ recommendations as a matter of course. Instead, they may strengthen their internal processes for verifying and assessing such reports and work to improve their own internal stewardship codes governing shareholder rights and proxy voting rights. These developments are likely to have a substantial impact on the capital markets.
Such global trends in regulating proxy advisory firms may, over the longer term, affect how foreign institutional investors exercise their voting rights and participate in general meetings of shareholders at major listed companies in Korea. Listed companies should therefore pay close attention to these developments in managing investor relations and operating their general meetings of shareholders.
