FSS: "Asset Managers Must Overhaul Systems for the Stewardship Code to Work"

The Financial Supervisory Service has instructed asset management companies to overhaul their internal systems related to stewardship activities, including establishing dedicated organizations, decision-making bodies, and key performance indicators (KPIs). This measure reflects its assessment that shareholder activities by asset management companies, such as the exercise of voting rights, remain inadequate.

On the 24th, the Financial Supervisory Service held a meeting at the Korea Financial Investment Association in Yeouido, Seoul, with the association and the heads of 18 asset management companies under the theme of "Enhancing the Quality of Voting Rights Exercise," where they discussed measures to strengthen the implementation of stewardship responsibilities, including these points.

Hwang Seonoh, Vice Governor of the Financial Supervisory Service, stated, "The asset management industry has played a major role in ushering in the era of KOSPI 5000, but in terms of faithfully performing stewardship responsibilities in line with the trend of strengthening shareholder rights, there are still shortcomings." He pointed out, "Although the exercise rate of voting rights by public and private funds improved from 79.6% in 2023 to 91.6% in 2024, and the opposition rate also improved from 5.2% to 6.8% over the same period, it still falls short compared with the National Pension Service in 2024 (exercise rate 99.6%, opposition rate 20.8%) and the Government Employees Pension Service (exercise rate 97.8%, opposition rate 8.9%)."

He viewed the establishment of internal organizations, securing personnel, and setting KPIs as necessary to strengthen the implementation of stewardship responsibilities. Vice Governor Hwang said, "Because many asset management companies have yet to establish dedicated organizations for exercising voting rights, decision-making bodies, and performance reward systems such as KPIs, chief executives must pay special attention and take care of these matters."

He also stressed the need for detailed review and robust disclosure of individual agenda items at shareholders' meetings so that they can assist investors in making investment decisions. Vice Governor Hwang said, "Asset management companies must faithfully carry out the exercise of voting rights and disclosure as part of their basic stewardship duties," adding, "The fact that there have been cases of simply voting in favor of important agenda items without proper review is something the asset management industry must reflect on."

He continued, "With the first implementation review for asset management companies and pension funds scheduled for this year, meticulous preparation is required," and added, "Through this, we must ensure that the stewardship code, which is currently being improved, can function effectively in practice."

The asset management industry also agreed with this assessment. It suggested that, to strengthen stewardship activities, incentives should be granted to institutions with strong implementation records and that best-practice examples of related training programs should be provided. It also proposed establishing committees within asset management firms to hear the opinions of external experts.

The Financial Supervisory Service plans to review the details of voting-rights exercise by asset management companies and whether their shareholder-rights exercise processes have been established, and to communicate actively with the industry to ensure that stewardship activities are carried out faithfully.