Corporate Value-up

The Financial Services Commission (FSC) in Korea recently released  the “Corporate Value-up Program”. Some highlights:

• Companies that prioritize shareholder returns will be granted incentives including tax breaks.
• Korea Exchange (KRX) will publish financial indicators of listed firms by sector, including P/B ratio and ROE, and establish a department to foster the adoption of Value-up plans.
• The KRX will publish a list of companies that are implementing Value-up plans.
• Companies will be encouraged to disclose Value-up plans on company websites and via the stock exchange disclosure system.
• A Value-up index will be introduced in 3Q, similar to Japan’s JPX Prime 150 index, made up of companies which adopt best practices. An ETF that tracks this index will be launched in 4Q.
• The stewardship code will be revised to ensure that institutional investors consider companies’ Value-up efforts when making investment decisions.

The proposed measures are all voluntary. There is a risk that company managements may pay lip service without actually doing anything.

Metrica’s view is that, once the proposals are released, it will be hard for companies to stick their heads in the sand to avoid awkward questions from shareholders. With the number of activism-minded investment managers in Korea increasing, we can expect to see frequent references to the proposals in public campaigns.