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Shareholders get bolder against Korean chaebol owners

March 13, 2015

JK Shin, CEO of Samsung’s mobile division, shows the new Galaxy S6 and S6 Edge, during a Samsung Galaxy Unpacked 2015 event on the eve of this weeks Mobile World Congress wireless show, in Barcelona, Spain, Sunday, March 1, 2015. Samsung unveiled a stylish new flagship phone that ditches its signature plastic design for metal and glass. The South Korean phone manufacturer also unveiled a premium model with a display that curves around the left and right edges so that information can be quickly glanced at on the side. (AP Photo/Manu Fernandez)

SEOUL, March 13 (Yonhap) – Institutional and small investors are growing more aware of their rights as stake owners, as evident at this year’s shareholder meetings, but their efforts for change in corporate transparency and governance still remain largely symbolic.

Sixty-eight listed companies, including affiliates of Samsung, Hyundai and LG, held their annual shareholder meetings on Friday, which are intended to scrutinize their management issues and decisions.

This year, the meetings at some of the companies saw disenchanted shareholders speak against owner families’ unilateral business decisions and ethical lapses that hurt the firms’ stock performances and corporate value.

At Hyundai Motor, a foreign investor asked the company to form a new committee to improve governance and communicate more with shareholders.

At Samsung Electronics, investors raised issues with how the board of directors is formed and run.

The state-run National Pension Service (NPS), the nation’s biggest institutional investor, on Wednesday said it will oppose the reappointment of two external board members at Hyundai Mobis Co. and Kia Motors Corp. over their lack of oversight when Hyundai Motor Group bought a pricey piece of real estate last year.

Hyundai Motor Co. formed a consortium with Mobis and Kia to buy a plot of land in Seoul for 10.55 trillion won (US$9.39 billion), three times the appraised price, leading to a massive sell-off by investors worried about the purchase hurting company profits.

Brain Asset Management, a Seoul-based equity fund holding a 0.14 percent stake in Hyundai Motor, voted against the reappointment of company board director Yoon Kap-han, complaining the land deal drove down its stock prices and caused damage to investors.

But at the end of the day, the results were mostly in favor of the companies.

The NPS, the second-largest shareholder in Hyundai Mobis with an 8 percent stake, failed to get other investors to vote with it to dismiss the board members. The vote count showed 83 percent of the shareholders wanted them to stay on.

A majority of shareholders at Hyundai Motor also went against Brain Asset Management and voted to keep Yoon.

Kia Motors’ meeting is scheduled for next Friday.

The opposing voice from the NPS, which has been a quiet shareholder despite owning 7 percent of the local equity market, came amid growing pressure for it to speak up instead of serving as a rubber stamp.

The cost of staying silent showed at Hyundai Motor and its two affiliates, whose share prices have yet to recover to the level before the September land purchase despite the automaker’s announcement of a dividend hike and share buyback plans.

A small victory was marked, however.

Responding to the call by the foreign investor, Hyundai Motor CEO Kim Choong-ho said his company will consider forming a committee tasked with improving the company’s governance structure and increasing communication with shareholders.

Samsung Electronics Co., the nation’s largest firm by market capitalization, had to fend off angry investors who tackled issues ranging from salaries and outside board directors to affiliate stake sales.

One shareholder urged the flagship company of Samsung Group to enhance transparency in selecting outside board members, saying the board is filled with “yes men” who put the interests of founding families before shareholders.

“The board of directors is criticized for prioritizing the interest of majority shareholders and those with special interests,” the unidentified shareholder said during a Seoul meeting. “The company hasn’t clarified the criteria for selecting outside board directors.”

Samsung Electronics CEO Kwon Oh-hyun replied that external members have “positively contributed” to the company’s development over the past three years, without elaborating on details, citing confidentiality rules.

The complaint reflects growing calls for Samsung Group to unwind its circular shareholding structure that allows the owner family to control about 70 affiliates with a total stake of 2 percent.

Another shareholder complained about company executives’ lump-sum salaries when the tech affiliate froze the pay for rank-and-file employees this year due to its slumping handset business.

Nonetheless, all agendas were passed through, as at other meetings.

Market watchers say that while the NPS and minor shareholders weren’t able to turn the tide, their movements still count as a warning signal to conglomerates.

“Institutions should more actively exercise their rights to check and balance business activities, but it is not easy for them to attend all shareholders’ meetings because they usually take place simultaneously,” Yon Kang-heun, a business professor at Seoul’s Yonsei University, said. “Companies should allow institutional investors to actively exercise their voting rights by giving them enough time to review the agendas and schedule meetings on different dates.”

The problem of having to be present at the meetings has somewhat been resolved with the increased adoption of an electronic voting system, but it has yet to prove its impact because it is still in its infant stage.

The electronic voting system, which allows individuals to cast their votes without having to be at the meetings, was introduced in 2010 but still isn’t used effectively. This year, 181 companies have adopted it, bringing the total to 260.

The role of outside board members remains a chronic problem, from how they are selected to whether they are exercising their given duties, which is to monitor chaebol owners.

“The board of directors should represent shareholders’ interests to monitor and rein in the management, but they have failed to fulfill their responsibilities. Despite their poor performance, board directors decide on too many agendas and have too much authority,” Park Yoo-kyung of AP Asset Management Asia, a Dutch fund whose portfolio includes Samsung Electronics, wrote in a corporate governance report.

“The outside board directors at Korean companies are appointed with recommendations from chaebol owners or management under the influence of the government, so they cannot make independent decisions.”