FSS: "97% of Asset Managers Fail to Disclose Voting Reasons Sincerely"

Exercise focused on corporations subject to voting rights disclosure
Many entries are formalistic... insufficient protection of investor interests
FSS encourages improvement by asset managers... ongoing inspections

It has been revealed that 97% of asset management companies are not sincerely exercising their voting rights, often providing only formal reasons for exercising or not exercising such rights.

High-rise buildings in Yeouido's financial district. Photo by Younghan Heo younghan@

On the 6th, the Financial Supervisory Service (FSS) announced that after reviewing the voting rights exercise and disclosure records of 274 companies that disclosed their shareholder meeting voting records to the stock exchange in the first quarter, 265 companies, accounting for 96.7%, did not provide specific reasons for exercising or not exercising voting rights on each agenda item.

These companies stated the reasons for exercising or not exercising voting rights as "based on the company's detailed guidelines," but did not disclose the detailed guidelines, or uniformly cited "no special matters" as the reason for approval. Alternatively, they collectively did not exercise voting rights, citing reasons such as "minimal impact on the shareholder meeting."

Asset management companies are required to faithfully exercise the voting rights of shares held by funds in listed companies where the fund holds 5% or more of total assets or shares worth 10 billion KRW or more, and to specifically disclose the details of voting rights exercise, internal guidelines related to voting rights exercise, and the number of shares owned by each fund.

Additionally, management companies must disclose internal guidelines related to voting rights exercise so that investors can assess the appropriateness of whether voting rights were exercised. However, among the 274 companies, 121 companies (44.2%) only disclosed basic policies at the level of listing regulations and did not disclose detailed guidelines.

There were also many cases where the stock exchange disclosure form preparation standards were not followed. A total of 246 companies (89.8%) did not specify the agenda item names in detail, 233 companies (85.0%) did not specify the type of agenda, and 198 companies (72.3%) did not disclose their relationship with the target corporation.

After examining 1,582 agenda items to assess the appropriateness of voting rights exercise, the FSS found that only 344 cases (21.7%) were appropriately exercised according to internal guidelines. In 1,124 cases (71%), it was impossible to judge due to insincere disclosure of reasons for exercising voting rights. In 114 cases (7.3%), asset management companies exercised voting rights insincerely, such as not exercising voting rights without reasonable grounds despite holding more than 1% equity or exercising them contrary to internal guidelines.

Cases were found where companies approved amendments to articles of incorporation that potentially violated laws without thorough review, or approved executive appointments contrary to the management company's internal guidelines.

The FSS pointed out that "the current status of management companies does not align with the purpose of the Capital Markets Act, which requires faithful exercise of voting rights and disclosure for the benefit of investors."

The FSS plans to communicate the deficiencies revealed by the inspection to each management company to encourage improvements and to promote active participation and implementation of the Stewardship Code within the asset management industry through CEO meetings and other means.