[Weekend Money] "Solidarity Is My Weapon"... Minority Shareholders Join Forces to Highlight Listed Companies' Undervaluation

Do shareholder proposals really work?
Even if rejected, they can still have an impact

In South Korea's corporate governance structure, which is centered on conglomerates and their controlling families, alliances of minority shareholders are often seen as "David taking on Goliath." Even when shareholder alliances make the difficult effort to submit shareholder proposals, the proposals are likely to be rejected. However, analysts say such efforts can ultimately draw market attention to a company's undervaluation and drive efforts to enhance corporate value.

A Gemini-generated image created with generative artificial intelligence (AI)

According to the financial investment industry on November 14, under the Commercial Act, shareholders of listed companies with capital of at least KRW 100 billion as of the end of the most recent fiscal year may submit shareholder proposals if they have held at least 0.5% of the company's voting shares for six months. For listed companies with capital of less than KRW 100 billion, shareholders must have held at least 1% of the shares for six months. Shareholders of unlisted companies may submit proposals if they hold at least 3% of the shares, with no minimum holding period.

Shareholders of listed companies may also submit proposals without meeting the holding-period requirement if they own at least 3% of the shares. In a dispute over control, a shareholder who has accumulated a stake in a short period may submit a proposal if that stake reaches at least 3%.

Some have questioned whether the shareholding requirements are effective. In the case of large listed companies with high market capitalizations, enormous funds are required to secure a 0.5% or 1% stake. This makes it difficult for an outside minority shareholder to meet the requirements alone. As a result, shareholders often join forces and combine their stakes, or receive delegated shareholder rights, to meet the requirements for exercising the right to submit proposals at large listed companies.

Of course, even if a shareholder proposal is put to a vote at a general meeting through this approach, there is no guarantee that it will pass. In 2024, an alliance of five activist funds, including Anda Asset Management and Whitebox Advisors, submitted proposals at Samsung C&T's annual general meeting calling for cash dividends of 4,500 won per common share and 4,550 won per preferred share, as well as a share buyback worth KRW 500 billion. The alliance's combined stake was 1.46%. Global institutional investors, including the California Public Employees' Retirement System (CalPERS) and the California State Teachers' Retirement System (CalSTRS), were reportedly among those who voted in favor. Palliser Capital, a U.K.-based activist fund with a 0.62% stake, also publicly supported the proposals. Nevertheless, all of them were rejected. Samsung C&T's largest shareholder and related parties, including the controlling family, affiliates and executives, held a combined 33.63% stake, while KCC, whose stake was considered friendly to the largest shareholder, held 9.17%.

Even when shareholder proposals are rejected at a general meeting, the proposals themselves can have an impact on the market. Eom Sujin, a researcher at Hanwha Investment & Securities, said, "Even when shareholders meet the ownership requirement for submitting a proposal through joint shareholding or the delegation of voting rights, getting a proposal approved in a confrontation with the major shareholder's side can feel like David taking on Goliath." She added, "However, the mere fact that minority shareholders have joined forces to submit a proposal can draw market attention to a company's undervaluation or prompt it to expand shareholder returns."

This content was produced with the assistance of AI translation services.