"Opaque Governance Structures Are a Factor in Stock Market Undervaluation... Strengthening the Role of Institutional Investors and Improving Systems"

'2022 ICGN Seoul Conference' Held After 14 Years
"Enhancing Shareholders' Meetings and Board Diversity to Ensure Corporate Governance Transparency"
"Strengthening Oversight to Ensure Institutional Investors Fulfill Their Fiduciary Duties"

Kim So-young, Vice Chairman of the Financial Services Commission, is delivering a welcome speech on the morning of the 5th at the Westin Chosun Hotel in Jung-gu, Seoul, ahead of the '2022 ICGN Seoul Conference.' / Provided by Korea Exchange

[Asia Economy Reporter Lee Myunghwan] Concerns have been raised that the opaque governance structures of domestic listed companies are a factor contributing to the undervaluation of the Korean stock market. Policy authorities have expressed their intention to strengthen institutional reforms for improving corporate governance as well as to enhance the responsibilities of institutional investors.

On the morning of the 5th, Kim Soyoung, Vice Chairman of the Financial Services Commission, stated at the '2022 International Corporate Governance Network (ICGN) Seoul Conference' held at the Westin Chosun Hotel in Jung-gu, Seoul, "The opaque governance of Korean companies is still pointed out as one of the factors causing undervaluation in the stock market."

In her welcoming remarks, Vice Chairman Kim pointed out that corporate governance issues are a matter that our economy must consider for growth. She said, "There are claims that government regulations should be strengthened to limit the abuse of controlling shareholders' rights and protect minority shareholders' rights amid the perception that our corporate governance is still opaque and has much room for improvement," but also noted, "There is a coexistence of views that our corporate governance has become so advanced compared to the past that, in some cases, it may even act as a burden on companies' free management activities."

She then mentioned measures to improve corporate governance. Specifically, she stated that through enhancing the substance of shareholder meetings and increasing the diversity of board members, the board of directors will secure transparency in corporate management. She also conveyed the intention to strengthen management and supervision to ensure institutional investors fulfill their responsibilities as fiduciaries.

She also revealed a commitment to institutional improvements for governance enhancement. Vice Chairman Kim announced that in preparation for mandatory ESG (Environmental, Social, and Governance) disclosures, related disclosure systems will be specified and education will be strengthened. She added that existing systems such as English disclosures, foreign investor registration, and dividend procedures will be reviewed to see if there is room for improvement compared to international standards.

Vice Chairman Kim emphasized, "Companies with excellent corporate governance receive higher evaluations in the market," adding, "It is important to establish a virtuous cycle in the market where shareholders share in the increased corporate value."

Son Byungdoo, Chairman of the Korea Exchange, who attended the event, said, "(The Exchange) has long recognized the importance of corporate governance and has mandated corporate governance report disclosures for large corporations in the KOSPI market since 2019," and added, "An analysis of disclosure performance over the past three years confirmed that the companies subject to disclosure have achieved substantial governance improvements and ESG rating enhancements."

Chairman Son continued, "We plan to continuously develop and promote policies related to improving the governance of listed companies in Korea and activating ESG management," emphasizing, "I hope this conference will help Korean companies take a step closer to global standards in corporate governance."

Kerry Whaling, CEO of the International Corporate Governance Network (ICGN), is answering reporters' questions at the '2022 ICGN Seoul Conference' held on the morning of the 5th at the Westin Chosun Hotel in Seoul. / Photo by Korea Exchange

Kerry Whaling, CEO of ICGN, expressed welcome and support for the recent positive developments in Korean corporate governance, stewardship, corporate disclosure, and audit systems in his welcoming remarks. Whaling said, "Effective corporate governance based on fairness, trust, responsibility, and transparency contributes to corporate success and sustainable value creation."

He also offered recommendations for the development of domestic governance policies. Whaling advised that "early adoption of ESG disclosures, introduction of mandatory tender offer systems to protect minority shareholders during mergers and acquisitions, expanded disclosure of the basis for executive compensation, and expansion of female director quotas are necessary" for domestic corporate governance policies.

Meanwhile, the conference jointly hosted by the Korea Exchange and the Korea ESG Standards Institute with ICGN began its two-day schedule on this day. Held in Seoul for the first time in 14 years since 2008, the event was successfully conducted with the participation of over 400 key figures from global capital markets, including overseas pension funds, institutional investors, international organizations, and corporations.

ICGN, established in 1995 primarily by institutional investors in North America and Europe to improve corporate governance, establishes global standards related to corporate governance, facilitates information exchange, and conducts joint research. The assets managed by ICGN members total approximately $70 trillion (about 90 quadrillion KRW).