The Numbers Don't Lie — And They're Not Flattering

So here's the thing about South Korea's asset management industry: the people who are supposed to be holding corporations accountable for shareholder value are, by a large measure, just... going along with whatever management wants. According to data released by the Korea Financial Investment Association on June 17, 46 asset managers exercised voting rights at 684 domestic companies during shareholders' meetings in the first half of this year — and they voted in favor of proposals a staggering 84.4% of the time. That's actually up from 81.9% in the same period last year.

To put that in perspective: the opposition rate was just 7.0%, and a mere 0.5% of votes were withheld. Four firms — Asset Plus, V, HDC, and KTB — approved literally every single proposal put in front of them, a 100% approval rate. Another 19 asset managers, including the major player Mirae Asset Global Investments, posted approval rates above 90%.

Critics are calling this out plainly: the stewardship code, a framework designed to ensure institutional investors actively engage with the companies they hold shares in and protect long-term investor interests, is functioning largely as a rubber stamp.

The Lotte and CJ Cases: A Masterclass in Loophole Use

What's really interesting is the specific proposals these asset managers were waving through. Let's start with Lotte Corp., one of South Korea's largest conglomerates. At its March shareholders' meeting, Lotte proposed an amendment to its articles of incorporation allowing the company to retain or dispose of treasury shares — shares the company holds of itself — with shareholders' meeting approval, rather than cancelling them outright.

Why does this matter? South Korea's recently proposed third revision to the Commercial Act was supposed to require companies to cancel treasury shares, closing a loophole that controlling shareholders have long exploited to maintain their grip on companies without owning more stock. The revision does allow an exception, however: companies can continue holding treasury shares if the purpose is spelled out in their articles of incorporation and approved at a shareholders' meeting. Lotte used exactly that exception.

Here's the problem. Lotte Group Chairman Shin Dong-bin and related parties already control 59.9% of the company excluding treasury shares. That means the controlling shareholder side alone can approve the retention of those shares at any meeting — effectively making the "shareholder approval" requirement meaningless for ordinary investors. The National Pension Service, South Korea's largest institutional investor, voted against the proposal, citing a likely decline in shareholder value. But four asset managers holding Lotte Corp. shares — Kyobo AXA, Samsung, Korea Investment, and Hanwha — all voted 100% in favor.

And Lotte's stock? It's sitting at around 26,850 won at the time of writing — down 34.5% from five years ago and down 12.8% from the day of that very shareholders' meeting. Meanwhile, South Korea's benchmark KOSPI index has been climbing toward the 9,000 level, making Lotte's underperformance all the more glaring.

CJ Corp., the entertainment and food conglomerate, tells a nearly identical story. Four asset managers voted unanimously in favor of a similar treasury share retention clause, again against the National Pension Service's opposition. Chairman Lee Jay-hyun and related parties hold 47.8% of CJ. Add the 7.3% in treasury shares, and you're already over 50%. CJ's stock has since fallen 8.0% from its meeting date.

It Goes Beyond Treasury Shares

The rubber-stamping wasn't limited to treasury share controversies. Consider these cases:

  • Kakao Pay, the fintech arm of Korean tech giant Kakao, proposed capping its board of directors at seven members — a move critics said would make it harder for minority shareholders to get representation on the board. All four asset managers holding Kakao Pay shares voted in favor. Kakao Pay's share price has since fallen 21.8%.
  • Lotte Wellfood, a food subsidiary within the Lotte group, proposed a clause that would reduce directors' liability and potentially shift the cost of their mistakes onto the company and its shareholders. Three asset managers approved it without objection. Shares are down 6.3%.
  • Doosan Enerbility, SK Innovation, and Hanwha Engine collectively recorded hundreds of billions to trillions of Korean won in net profit last year on a standalone basis — and paid zero dividends. Yet 19 asset managers voted in favor of their financial statement approvals without raising any concerns about dividend policy.

A Policy Problem with No Easy Fix

What makes this situation particularly thorny is that the Korean government has been pushing the stewardship code as a major policy priority. President Lee Jae-myung has listed stronger stewardship as a national agenda item, and financial regulators moved late last year to introduce implementation reviews and tighten disclosure rules. The latest revision of the code specifically emphasized that institutional investors should go beyond just showing up to vote — they should be actively engaging with portfolio companies to enhance long-term value.

So what's going wrong? Experts point to a lack of teeth in the current system. Lee Chang-min, a professor of business administration at Hanyang University, put it bluntly: "It is difficult to say that asset managers are properly implementing the stewardship code. The procedures for evaluating and supervising each asset manager's implementation level need to be made more binding."

He added that there has effectively been no real evaluation or supervision of whether asset managers actively exercise their voting rights — and that regulators need to step up. Proposed reforms include extending the short notice period companies are required to give before shareholders' meetings, strengthening oversight of voting and conflict-of-interest management, and offering bonus points to stewardship-compliant asset managers when the National Pension Service selects external managers to run its money.

Not everyone agrees that high approval rates alone tell the whole story, though. Choi Jun-sun, professor emeritus at Sungkyunkwan University Law School, offered a counterpoint: "The stewardship code is not a system that requires unconditional opposition. If an asset manager determines that a proposal will help returns and corporate value, it can vote in favor." He also cautioned against the government micromanaging how asset managers vote, arguing that autonomy and objective judgment should be preserved.

It's a fair point in principle. But when asset managers are approving proposals that the National Pension Service — a far larger and more scrutinized institution — is flagging as harmful to shareholder value, it's hard not to wonder whether "active dialogue" is actually happening, or whether it's just a convenient excuse for going along with management.

For ordinary Korean retail investors, who have watched their holdings in companies like Lotte and CJ underperform for years, that distinction matters quite a lot.

This article is based on reports from Chosun Ilbo, Chosun Ilbo, Maeil Business.