As South Korea's stock market approaches the KOSPI 8000 mark, the demand for improved corporate governance has intensified. Despite the government's value enhancement program gaining traction, some companies' closed management styles and low shareholder returns continue to hinder the Korean capital market.
Lee Sung-won, CEO of Trusstone Asset Management, has been vocal about the need for corporate reform from the frontlines of the capital market. A former journalist turned CEO, Lee is recognized for setting new benchmarks in shareholder engagement in South Korea. In a recent interview, he emphasized the importance of 'authenticity' and 'capital efficiency.' He stated, "Activism is not just about boosting stock prices and exiting; it’s about guiding companies to allocate capital more productively, finding a path for both the company and its shareholders to thrive."
- Your evaluations of Taekwang Industrial and KCC, two companies recently involved in shareholder activities, seem to differ significantly. What are the specific differences?
"In a word, it boils down to the 'owner's perception.' Taekwang Industrial is a company that Trusstone has identified as having the most room for improvement, yet it continues to disappoint. Currently, the average price-to-book ratio (PBR) of Taekwang's listed affiliates is only 0.25. Taekwang itself has a PBR of 0.24, Daehan Synthetic Fiber is at 0.18, and Heungkuk Fire & Marine Insurance is at 0.33. This indicates that their stock prices are severely undervalued compared to their asset values.
However, at this week’s shareholders' meeting, the company only passed a bylaw amendment regarding treasury shares, failing to present any concrete plans for share buybacks or value enhancement that shareholders had hoped for. The issue of board independence is particularly serious, as outside directors are being appointed in a circular manner among affiliates. Existing outside directors from Taekwang move to Daehan, and vice versa.
Is this in line with the intent of the recent amendments to the Commercial Act, which stipulate the fiduciary duty of directors to shareholders? It is unacceptable for a major shareholder to provide generous dividends to unlisted companies while offering only 1-2% to listed companies."
- On the other hand, you mentioned seeing 'hope' in KCC. Can you elaborate?
"KCC has begun to actively embrace changes in the world. We have been demanding that KCC liquidate its stake in Samsung C&T, valued at approximately 6.888 trillion won, and conduct share buybacks. In response, KCC decided to split the buyback of 13.21% (1,174,300 shares) of its treasury shares, which account for 17.24% of its total shares, by September 2027.
This is not just about the numbers; the communication has been positive. The company explained to us, 'We cannot sell now as Samsung C&T's stock price is low, but we will liquidate it for shareholder returns once the price recovers.' We understood their reasoning and made concessions. Ultimately, this case illustrates that the key to corporate change lies in how actively the board and owners accept changes in the world alongside institutional reforms."
- You have consistently pointed out the low capital efficiency of Korean companies. Why is 'capital reallocation' urgent?
"Currently, many Korean companies are accumulating cash or real estate instead of investing or returning profits to shareholders, despite generating substantial profits. This is toxic. When equity becomes too large, the return on equity (ROE) inevitably declines. A low ROE indicates that capital is not being used productively, leading to market discounts.
Take Taekwang Industrial as an example. There are unofficial claims that its real estate value alone reaches 20 trillion won, yet its market capitalization is just over 1 trillion won. Not re-evaluating assets and merely sitting on land is akin to real estate speculation rather than corporate management.
Therefore, we propose capital reallocation. Companies should sell unnecessary assets to invest in high-growth industries or optimize their capital size through share buybacks or dividends. This is the essence of productive finance that enhances corporate profitability and leads the entire capital market into a virtuous cycle. It’s not just a demand for 'give me money,' but a strategic dialogue about where to allocate capital for better corporate performance."
- How do you respond to the perception of Trusstone Asset Management as 'hardline activism'?
"I want to draw a clear line here. We are not speculative capital aiming for short-term profits and quick exits. How can we be considered hardline when we have invested in companies like Taekwang Industrial and BYC for over eight years, attempting sincere dialogue? Thus, I prefer the term 'shareholder engagement' over 'activism.'
Public confrontations are merely a last resort when numerous private discussions are insincerely rejected. We aim to serve as long-term partners to improve governance. While shareholder activities have become more active recently, the actual size of funds executing activist strategies is only one-thirtieth of that in Japan. Without the financial power to secure voting rights, our influence diminishes. Ultimately, we must enhance our research capabilities to prove our returns and grow our fund size for true democratization."
- What institutional improvements do you believe are necessary?
"The most urgent need is to ensure the independence of the shareholders' meeting chair. Currently, most CEOs also serve as the chair, which is akin to a player also being the referee. We need to change the system so that the chair can be proposed by shareholders or appointed by an independent party approved by the court. Given the chair's significant authority over agenda setting and proceedings, they must be independent from major shareholders to ensure fair decision-making.
Another point is the flexible application of the '5% rule.' It is excessive regulation to restrict voting rights by categorizing discussions about enhancing shareholder value, such as increasing dividends, as 'joint ownership.' We need to differentiate regulations between management issues like director appointments and general shareholder rights. Only when an environment is created where minority shareholders' voices can be genuinely reflected will the Korea discount be resolved, and value enhancement can be achieved."
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.