[Edaily Marketin Song Seung-Hyeon Reporter] “If we set the global standard at 100, our market currently scores about 30. We’re still at the starting point.”

Lee Chang-hwan, CEO of Align Partners (hereinafter “Align”), a leading domestic shareholder activist firm, met with E-Daily at the company’s office in Yeouido, Seoul, on the 10th and offered this assessment of the current state of the Korean capital market.

Align set another milestone this year with the Gavia and KINX cases. These are effectively the first instances in Korea where duplicate listings were resolved through shareholder activism.

However, despite standing at the center of this achievement, his assessment of the market was sobering. This is because, although the Commercial Act has been amended, there are no corresponding changes in case law, and companies have yet to demonstrate any actual changes in their behavior.

◇What Gabia Left Behind… Advisory Shareholder Proposals and the Resolution of Dual Listings

Of the seven public campaigns he has led over the past year, the case he considers most significant is undoubtedly Gabia. After Align Investment Partners declined to participate in Macquarie’s initial tender offer—thereby causing the deal to fall through—the firm negotiated a new agreement that raised the price by 10.4% to 53,000 won per share and allowed even KINX’s general shareholders to sell their stakes at 190,000 won per share. A tender offer is initiated following government approval.

He highlighted two key points. First, Gavia set a precedent by successfully passing an “advisory shareholder proposal”—which, while not legally binding, encourages the board to consider shareholder opinions—at a general shareholders’ meeting following a court-mediated settlement recommendation.

CEO Lee stated, “If advisory shareholder proposals are codified into law, shareholder activism could become less confrontational than it is now.”

The other issue is the resolution of dual listings. He assessed, “Dual listings are one of the biggest causes of the ‘Korea discount,’” adding, “Gavia is the first case where a parent company that was already listed was delisted entirely based on shareholder input, thereby guaranteeing a fair opportunity for all shareholders to sell their shares.”

However, he refrained from making specific comments, citing that the matter has not yet been concluded.

◇“Despite the Commercial Act Amendment, Gaining Board Seats Remains Difficult”

In September of this year, the amended Commercial Act—which mandates the cumulative voting system and the separate election of two audit committee members—went into effect. This system broadens the channels through which minority shareholders can make their voices heard on the board and is a tool that Align has actively utilized.

Nevertheless, CEO Lee remained cautious. He noted that securing board seats at JB Financial Group and DB Insurance occurred before the amended Commercial Act took effect, and that even with the strengthened regulations, gaining a seat on the board through a shareholders’ meeting remains difficult.

While he pointed out that companies are circumventing cumulative voting through staggered terms or reducing the number of directors, he viewed positively the fact that financial authorities revised their guidelines on the 5th to require the disclosure of such circumvention tactics in corporate governance reports. He added, “Ultimately, shareholders have no choice but to monitor and exercise checks and balances.”

CEO Lee also cited the banking holding company campaign, which has been ongoing since 2023, as a success. “We presented a framework to the entire industry suggesting that creating capital flexibility—by maintaining the common stock capital ratio and avoiding excessive loan growth—to increase shareholder returns would be more beneficial to corporate value,” he said, adding, “In the past, research of this kind didn’t even exist.”

The campaign concluded with the banks’ voluntary acceptance, without a proxy battle. He added, “I am also grateful to the bank management teams for actively incorporating shareholders’ opinions.”

Regarding the relaxation of the 5% rule—the mandatory disclosure requirement for large shareholdings that has the business community on high alert—he said, “The current law is so excessive that it causes hesitation, as even a simple exchange of opinions among shareholders could be viewed as joint ownership.” He added, “We must ensure cooperative shareholder engagement in accordance with the revised Stewardship Code, such as by providing a Japanese-style ‘safe harbor.’”

A “safe harbor” refers to a safeguard (or exemption clause) that prevents an action from being deemed a violation of the law or grants exemption from penalties and regulations if specific requirements are met.

Regarding the recent trend of multiple funds making the same demands in the cases of Orion and Samsung Electronics, he drew a clear line, stating, “It is simply a natural phenomenon that analyzing the same public information leads to similar conclusions; it is an overstatement to call it a ‘united front’ merely because they voiced similar opinions.”

◇“Management Rights Are Not Inalienable Rights, but Delegated Authority”

Addressing concerns about “infringement of management rights”—which grow louder as shareholders’ voices intensify—he stated, “We must abandon the notion of viewing management rights as private property, such as an inalienable right or a property right.” He added, “Management rights are not private rights but authority delegated by shareholders, so the very term ‘infringement of management rights’ is misguided.”

He pointed out that, in the past, many mergers and acquisitions (M&A) in Korea were “value-destroying” deals that involved paying high premiums only on major shareholders’ stakes while diluting minority shareholders’ stakes through third-party private placements.

He described the recent trend toward 100% public tender offers at a uniform price—such as TPG’s acquisition of Lotte Rental, Macquarie’s acquisitions of Gabia and KINX, EQT’s acquisition of Dzon Bizon, and the earlier acquisitions of Osstem Implant by Unison Capital Korea (UCK) and MBK Partners—as a “normalization process.”

CEO Lee is focusing his attention in the short term on the annual general meeting of shareholders scheduled for next March. He noted that the key issue will be how many directors are appointed based on nominations from general shareholders during the first season in which the revised Commercial Act takes effect.

Finally, regarding Align’s decision to disclose all materials from its activist campaign, he said, “The market ecosystem can only be revitalized if people can see and follow our example.” He added, “Even if the system is changed, it won’t become standard practice without precedents,” and concluded, “It is our role to set those precedents.”