Entering Shareholders' Meeting Season, Activist Funds' Voices Grow Louder

KT&G Approves Agenda to Exclude CEO from Cumulative Voting
Align Proposes Cumulative Voting at Coway Shareholders' Meeting
Major Institutional Investors Side with Align
Dalton Attempts to Join Kolmar Holdings Board

As the regular shareholders' meeting season approaches, the voices of activist funds and other minority shareholders are growing louder. In particular, they are expanding their influence by engaging in more direct management interventions such as amendments to the articles of incorporation, rather than just focusing on dividends or share buybacks.

According to industry sources on the 27th, KT&G approved the agenda item to exclude the CEO from cumulative voting as originally proposed at the shareholders' meeting held the previous day.

On the 26th, the 38th KT&G Annual General Meeting of Shareholders is being held at the Daejeon Human Resources Development Institute. KT&G

Earlier, the activist private equity fund Flashlight Capital Partners (FCP) expressed opposition to the agenda item to exclude the CEO from cumulative voting. The agenda proposed excluding the CEO appointment from the cumulative voting system and conducting a separate general vote, arguing that this undermines the original purpose of cumulative voting.

However, KT&G shareholders sided with the company. As a result, a new clause was added stating that when directors are appointed by cumulative voting, the CEO and other directors are to be treated separately, which is expected to pose no problem for KT&G's control over management.

Nonetheless, the voices of minority shareholders such as FCP are expected to continue growing. Although they lost this time, the global proxy advisory firm ISS recommended opposing the agenda item to exclude the CEO from cumulative voting, and the National Pension Service also shared FCP's opinion.

Coway, which is holding its shareholders' meeting on the 31st, is in a similar situation to KT&G but the atmosphere is quite different. Domestic activist fund Align Partners has proposed an agenda to introduce cumulative voting, arguing that Coway's board lacks independence and that the largest shareholder Netmarble exerts excessive influence relative to its shareholding.

In response, major global institutional investors such as the California Public Employees' Retirement System (CalPERS), California State Teachers' Retirement System (CalSTRS), British Columbia Investment Management Corporation (BCI), and Florida State Board of Administration (FSBA) support the introduction of cumulative voting, lending strength to Align. Proxy advisory firm Glass Lewis also recommended voting in favor.

Netmarble is the largest shareholder of Coway with a 25.08% stake, but about 60% of the remaining shares are held by foreign investors. If Align's arguments gain traction among foreign investors, Netmarble may face difficulties in operating Coway as it wishes.

US activist fund Dalton Investment is publicly aiming to enter the board of directors of Kolmar Holdings. On the 14th, Dalton changed its purpose for holding Kolmar Holdings shares to "management participation," signaling a management takeover attempt. It also increased its stake from 5.02% to 5.69% by purchasing additional shares.

Dalton will attempt to enter Kolmar Holdings' board at the regular shareholders' meeting on the 31st. Previously, Dalton submitted a shareholder proposal nominating Im Sung-yoon, co-CEO of Dalton Korea, as a non-executive director.

Regarding its purpose of holding "management influence," Dalton stated, "If matters related to the company's business execution arise, we intend to exercise influence within the scope and methods permitted by relevant laws and regulations, considering the interests of shareholders and stakeholders, to align with the company's management objectives."

Industry insiders expect the offensive by activist funds to intensify further following the passage of amendments to the Commercial Act in the National Assembly, which expand directors' fiduciary duties to shareholders and mandate the introduction of electronic shareholders' meetings.

According to the "Recent Changes in Shareholder Activism and Implications Research Report" published by the Korea Chamber of Commerce and Industry, among 1,993 shareholder proposals submitted at regular and extraordinary shareholders' meetings of 412 companies from 2015 to last year, the number of proposals by minority shareholders and shareholder coalitions increased 2.2 times from 33 in 2015 to 73 in 2024.