"Stewardship Code Should Be Reformed Toward Long-Term Corporate Growth Direction"

Introduction of Dual-Class Voting System, Prohibition of Treasury Stock Cancellation, and Other Necessities

[Asia Economy Reporter Minwoo Lee] The Korea Listed Companies Association has argued that the 'Stewardship Code' system should be reformed to focus on long-term growth through long-term investment. To this end, it emphasized that measures such as the introduction of a dual-class voting rights system and a ban on treasury stock cancellation must be established.

The Listed Companies Association announced on the 9th that it obtained these results after commissioning research to Professor Shin Chang-seop, an economics professor at the National University of Singapore.

In his study titled "Balance between Value Creation and Value Extraction and Sustainable Growth of Corporate Value ? Practical Alternatives between Corporate Dividend Policy and National Pension Service Dividend Engagement," Professor Shin pointed out, "Companies are not responding sustainably by examining their business conditions but are expanding dividends in reverse under pressure from the National Pension Service (NPS). The Stewardship Code assumes that institutional investors, such as the NPS, exerting broad influence over companies leads to better value creation, ignoring the fundamental difference that institutional investors and listed companies have different roles as serving customers and being responsible parties."

He explained that the only way for a 'management trustee' who bears the responsibility for a company's long-term growth to contribute to stock value is to succeed in long-term investment, thereby raising the long-term stock price as a result.

He continued, "Considering that institutional investors have little incentive or capability to strive for long-term corporate value growth, and their legitimacy is increasingly undermined by index funds, while their influence on companies is significantly strengthened, this task should ultimately be handled directly by the government, which bears the ultimate responsibility for the sustainable growth of companies and the economy. The government should intervene to reform the Stewardship Code and establish 'corporate-institutional standards,'" he emphasized.

The core contents of these standards include ▲mandatory rationalization of long-term value increase when proposing agenda items at general meetings of shareholders ▲introduction of a dual-class voting rights system that grants more voting rights proportional to the holding period of shares ▲ban on treasury stock cancellation ▲mandatory disclosure of institutional investors' engagement with companies ▲and gradual reduction of the National Pension Service's individual company shareholding ratio below 5%.

Professor Shin stated, "Constructive communication between institutional investors and listed companies must continue regarding what constitutes an 'appropriate rate of return' for shareholder profits," adding, "The metric for communication should be total shareholder return (TSR), not the dividend yield."