As of late, the exercise of minority shareholder rights by activist funds and minority shareholders’ associations, etc. and the manner in which general meetings of shareholders are conducted in relation to proxy voting have become prevalent issues in corporate governance. This has led to a number of major disputes this year. In light of the above, the proxy voting policies adopted by institutional investors, such as pension funds and asset managers, and the impact of their proxy voting have drawn a significant amount of attention as in some instances their votes ended up being “pivoting votes” affecting the outcome of resolutions adopted at general meetings of shareholders.
In April, 2023, the Financial Supervisory Service (the “FSS”) organized a task force with the Korea Financial Investment Association (the “KOFIA”), the Korea Capital Market Institute (the “KCMI”), and major asset managers in order to complete the task of updating the Asset Manager Proxy Voting Guidelines and to explore ways to improve the overall proxy voting system for asset managers. Based on a consensus on the need to create an environment where those who actively participate in proxy voting are treated as “good fiduciaries,” the task force agreed to improve the management system for proxy voting disclosures and the practicality of proxy voting guidelines as well as the comparability between the practices of different asset managers.
On August 2, 2023, the FSS announced plans to improve the management system governing asset managers’ proxy voting decisions and disclosures and to create a proxy voting database.
The current management system governing asset managers’ proxy voting decisions and disclosures with respect to their portfolio companies consists of bifurcated disclosures with the KOFIA and the Korea Exchange (the “KRX”). The KOFIA discloses funds’ proxy voting records each quarter based on the business reports submitted by asset managers. The KRX, on the other hand, discloses listed companies’ proxy voting records on an annual basis. The current system makes it difficult for one to search the proper agenda category or calculate the number of shares in respect of which proxy voting was made, or otherwise conduct a targeted search (e.g., searching for the proxy voting records of a particular stock). The table below is an illustration of the current system.
Proxy Voting and Disclosure Process relating to Ordinary General Meeting of Shareholders Held in March
|
Period |
Classification |
Key Task |
Detail |
|
D-14 |
Notice of convocation of general meeting of shareholders |
Kick-off |
Request advice from external advisory firms, if any. |
|
Between D-14 and D-7 |
Agenda analysis |
Data collection/ |
Collect basic data for consideration in light of the proposed agenda. |
|
D-7 |
Response from advisors |
Review of advisors’ opinion |
Consider advisors’ recommendations with internal review results, feasibility study, etc. |
|
Between D-7 and D-3 |
Decision-making |
Final decision-making |
Deliberation by the decision-making body on key agenda items and reach final decision on the course of action. |
|
D-day |
Proxy voting |
Proxy voting |
Conduct paper or electronic voting. |
|
- |
Follow-up |
Disclosure of the proxy voting record |
(KRX) Must be submitted by the end of April for proxy votes cast between April 1 of the previous year and March 31 of the current year. |
FSS announced the following improvements will be implemented beginning from the general meeting of shareholders to be held in 2024.
|
1) |
Standard disclosure templates: The current business report templates for collective investment assets will be revised into standard disclosure templates that can be used for disclosures with the KOFIA and KRX (with additional agenda categories and updated disclosure standards). |
|
2) |
Enhanced disclosure features: Search tabs will be improved to enable searches based on a variety of search criteria, such as agenda categories and stock issues, in addition to comprehensive disclosures made by each asset manager. |
|
3) |
Interlinking of KOFIA and KRX data: KOFIA data (on funds) and KRX data (on asset managers) will be linked to enable a multi-faceted analysis of disclosures. |
With these improvements, the FSS aims to encourage asset managers to adopt responsible asset management practices and increase share value by:
|
1) |
Allowing asset managers to vote through proxy more effectively by referring to past cases and records (e.g., past cases with similar agenda items, proxy voting records of other asset managers, etc.). |
|
2) |
Providing an improved platform for investors to compare the proxy voting records of different asset managers at a glance and assess the appropriateness of their decisions on key agenda items. |
These improvements will enable listed companies and shareholders to systematically check and refer to the standards used by asset managers and other institutional investors when proxy voting as well as records of past proxy voting cases on a similar agenda. They will also permit asset managers to make proxy voting decisions more conscientiously and systematically in anticipation of the expanded proxy voting disclosure requirements. The scheduled update of the Asset Manager Proxy Voting Guidelines is expected to impact firms’ corporate governance and operation of shareholders’ meetings.
