[Editorial] Surge in Shareholder Activism Calls for Urgent Institutional Reforms to Prevent Management Interference

Shareholder Activism, which aims to enhance shareholder value, is gaining momentum. With 11.4 million individual investors, it is no longer unusual to see them voicing opinions on corporate management through online platforms. This trend has gained further traction this year, riding the bullish wave of the Korea Composite Stock Price Index (KOSPI).
Going forward, Shareholder Activism will become a central issue at General Meetings of Shareholders. According to a report released by The Federation of Korean Industries (FKI) on the 16th, the number of companies targeted by Shareholder Activism surged from 10 in 2020 to 66 last year. The number of shareholder proposals at this year’s regular meetings also increased by 20% year-on-year, reaching 164 cases.
When properly implemented, Shareholder Activism can yield positive outcomes. Demands from shareholders for increased dividends or improved governance are a natural part of capital market advancement. Active participation by shareholders can enhance corporate transparency and boost stock value.
However, the rapid spread of Shareholder Activism in Korea, even compared to major overseas economies, is concerning. Of the 1,028 global companies targeted by Shareholder Activism last year, 66 were in Korea, ranking third after the United States and Japan. Notably, among 23 major global economies, Korea recorded the highest growth rate in the number of target companies. Over the past four years, the figure has risen approximately 6.6 times. Considering the global average growth rate is around 4%, this is a significant surge. As Shareholder Activism issues proliferate, it is questionable whether Korea’s systems and practices can adequately support this trend.
Another noteworthy point is the recent passage of a series of amendments to the Commercial Act, including the strengthening of directors’ fiduciary duties to shareholders and the mandatory adoption of cumulative voting, amid concerns from the business community. In addition, a bill requiring the mandatory cancellation of treasury shares is now close to passing the plenary session of the National Assembly of the Republic of Korea. If these significant legislative changes are widely applied to the corporate sector, the scope of Shareholder Activism will expand even further.
If these laws are implemented, the center of corporate management could rapidly shift from the Board of Directors (the Board) to the General Meeting of Shareholders. As a result, the Board’s professional judgment and autonomy may be undermined, potentially leading to infringements on management rights. The nature of shareholder meetings could also change drastically, transforming from the highest decision-making body into a battleground of conflicting shareholder interests.
It is appropriate for companies to consider and reflect the diverse opinions expressed by shareholders at General Meetings of Shareholders. However, there is a risk that shareholder proposals aimed at short-term stock gains, rather than enhancing corporate value, may become rampant. The spread of false information during this process could also disrupt the market. If companies focus solely on shareholder interests at the expense of overall corporate value, various stakeholders—including creditors, employees, partners, and consumers—may suffer. This could result in unintended negative consequences, harming rather than benefiting these groups.
It is time to examine and improve related systems by considering the side effects of Shareholder Activism. As more laws are enacted to protect shareholder rights and interests, legislation to ensure a stable management environment is also necessary. Adjusting the requirements for shareholder proposals to better reflect current realities is one such measure. Institutional frameworks must be established so that Shareholder Activism can move in a healthy direction, with responsibilities matching the rights granted.