We recently participated in a panel discussing corporate reform focusing on Japan and South Korea. As evidenced by the strong turn-out, interest in this topic is very high. In general, the panel was optimistic on the prospect of Korea corporate reform eventually replicating the success of Japan. While the Korean market naturally has its own long-standing and wellknown structural challenges – deriving mainly from the dominance of founding families – the significant rise in retail ownership in recent years should continue to incentivise politicians to push ahead with reforms even when faced with fierce resistance from entrenched interests.

In this context, both “carrots” and “sticks” are critical to the long-term success of the reform programme.

President Lee has achieved admirable progress with the “sticks”. The expansion of directors’ fiduciary duties and implementation of cumulative voting should go a long way to limit the recurrence of the bad behaviour seen in recent years, as will the upcoming treasury share cancellation proposals when enacted. On the “carrot” side, the upcoming dividend taxation changes are important, as they should encourage companies to raise payout ratios, making stocks more attractive to domestic retail investors when compared to alternatives such as real estate.

However, more is needed if Korea is to make progress similar to Japan:

  1. We need to see reforms to the inheritance tax system, which currently incentivises major shareholders to drive down share prices around succession events. A tax rate reduction would be helpful, but even better would be taxation of assets on fair value instead of an artificially depressed market price. The “0.8x proposal” mentioned in our May newsletter could be an ideal solution. We look forward to seeing the government’s inheritance tax reform roadmap early next year.
  2. We would like to see more engagement by the stock exchange. In our recent discussion, one panellist said that Mr. Yamaji (Group CEO of Japan Exchange Group) was “the greatest activist investor in Japan”, and we share that sentiment. For its part, the Korea Exchange (KRX) has made good progress with promoting the 2024 Corporate Value-up programme via seminars,  website disclosures and custom indexes etc. Nevertheless, the take-up rate among listed corporates still remains rather low at only 7%7. Korea needs something similar to Japan’s “Management that is Conscious of Cost of Capital and Stock Price” policy, i.e. whereby companies that have not submitted Value-up plans have to explain themselves annually. We attended a seminar by Mr. Jeong of the KRX recently and came away optimistic that he will develop further ways to advance the reform programme within the Korean context.
  3. Finally, investors must play their part in advancing all aspects of the reform agenda. While Korean shareholder activism has greatly increased in the last two years, much of this has been focused on governance items such as board appointments. What is also needed are more Japan-style campaigns focusing on capital allocations and balance sheet efficiency. While there has been some activity along these lines in 2025, we expect further developments in 2026. In particular, we are closely monitoring the current selection process for the next head of the National Pension Service, as the appointment of a reform-minded candidate would be a very significant positive.

The good news is that valuations in names affected by corporate governance reform in Korea are still very attractive even after the market’s impressive run in 2025, and although the path to success may not be a straight line, we ultimately expect significant return potential from the fund’s positions in this space.