CONTENTS
- 1. Shareholder Activism | The Concept and the Capital Market Environment
- - Main Types of Shareholder Activism
- 2. Shareholder Activism | Applicable Laws and the Regulatory Framework
- 3. Shareholder Activism | Legal Risks Arising in Corporate Management
- - Management Control and Shareholder Disputes
- 4. Shareholder Activism | Corporate Response Strategy and Legal Advisory
- - How Daeryun Law Firm Can Help
1. Shareholder Activism | The Concept and the Capital Market Environment
Shareholder activism refers to activity in which shareholders actively voice their views on a company's management strategy, financial policy, and governance and seek to influence its management.
Shareholders have traditionally tended to remain passive investors who simply earn investment returns, but the number of investors seeking to intervene actively in management to enhance corporate value has grown in recent years.
As institutional investors, private equity funds, and activist funds in particular call for improvements to corporate governance or changes to dividend policy, shareholder activism has become a major management issue within the capital market.
Shareholder activism can take many forms, and its representative types are as follows.
Category | Key Details |
Demands to improve management | Demands to improve management, such as business strategy, asset utilization, and dividend policy, in order to enhance corporate value |
Demands to overhaul governance | Demands to overhaul the board structure, expand outside directors, and improve internal controls and governance |
Exercise of shareholder rights | Exercising the right of shareholder proposal, exercising voting rights, and proposing agenda items at the general meeting |
Attempts to participate in management | Seeking board seats, calling for changes in management, and participating in key management decisions |
Shareholder activism can play a positive role in enhancing the transparency and accountability of corporate management, but it also carries the possibility of management control disputes or conflicts over corporate strategy.
Main Types of Shareholder Activism
Shareholder activism takes many forms, and the approach can vary with a company's circumstances and an investor's objectives.
The most common types of shareholder activism are as follows.
Exercise of Voting Rights and Shareholder Proposals
Shareholders can influence the direction of a company's management by exercising their voting rights at the shareholders' meeting.
Shareholders holding a certain stake may propose agenda items for the shareholders' meeting, which allows them to put forward matters such as changes to dividend policy, the appointment of directors, and amendments to the articles of incorporation.
Recently, shareholder proposals have increasingly taken the form of demands to expand dividends, repurchase treasury shares, or restructure the business.
Participation in Management and Governance Demands
Activist investors may also seek to take part in management by calling for improvements in corporate governance.
Examples include recommending candidates for outside director, demanding a reorganization of the board, and pressing for changes in management strategy.
In this process, investors may take issue with how a company uses its assets, its business strategy, or its cost structure, and call for greater management efficiency.
Public Shareholder Campaigns
Some activist investors run public shareholder campaigns to pressure a company's management.
Through media interviews, the release of materials for investors, and campaigns aimed at shareholders, they can raise questions about a company's management direction.
Because such activity can directly affect a company's reputation and share price, the company needs a strategic response.
2. Shareholder Activism | Applicable Laws and the Regulatory Framework
Shareholder activism is not a mere investment activity but a capital market activity connected to a range of legal provisions.
For listed companies in particular, conduct relating to the exercise of shareholder rights may be subject to several laws, including the Commercial Act, the Financial Investment Services and Capital Markets Act, and the disclosure rules.
The principal legal framework reviewed in connection with shareholder activism is as follows.
Category | Key Details |
Commercial Act | Provisions on the right of shareholder proposal, the exercise of voting rights, and the appointment and removal of directors |
Financial Investment Services and Capital Markets Act | Large-holding reporting obligations, prohibition on the use of material nonpublic information |
Financial Services Commission disclosure rules | Large-holding reporting and disclosure obligations |
Korea Exchange disclosure rules | Standards for listed company disclosure and the provision of investor information |
For example, when a shareholder comes to hold a stake above a certain threshold, a large-holding reporting obligation may arise under the Financial Investment Services and Capital Markets Act, and the content of the disclosure may differ depending on whether the purpose is to participate in management.
If a shareholder who has gained access to a company's internal information then uses it to trade, this can also lead to insider trading issues.
Conduct relating to shareholder activism is therefore regarded not as a simple investment strategy but as a capital market activity that calls for legal review.
3. Shareholder Activism | Legal Risks Arising in Corporate Management
Shareholder activism can have a positive effect on corporate management, but it also carries the possibility of various legal disputes.
A legal review is needed in the following situations in particular.
Principal Risk | Details |
Management control disputes | Competition for management control among shareholders |
General meeting disputes | Conflict over general meeting agenda items and the exercise of voting rights |
Disclosure-related issues | Large-holding reporting and management-participation disclosure issues |
Investor disputes | Litigation arising from conflicts over corporate strategy |
Management Control and Shareholder Disputes
When shareholder activism intensifies, it can develop into a dispute over management control.
The most common types of dispute are as follows.
Type of Dispute | Key Details |
Director appointment dispute | Demands to change the composition of the board |
Dispute over shareholders' meeting resolutions | Suits to void or revoke a shareholders' meeting resolution |
Contest for management control | Conflict over control between major shareholders and activist investors |
Shareholder derivative suit | Suits holding management accountable |
Because these disputes can affect not only the stability of corporate management but also a company's value, a proactive response strategy carries real weight.
4. Shareholder Activism | Corporate Response Strategy and Legal Advisory
Shareholder activism can have a direct effect on a company's management strategy and governance, so companies generally need a structured plan for responding to it.
When shareholder proposals, the exercise of voting rights, or demands for participation in management arise, the procedures under the Commercial Act and capital markets rules should be reviewed carefully.
In developing a response strategy, a company may want to consider the following.
Review Item | Key Details |
Shareholder structure analysis | Identifying major shareholders and the ownership structure |
Voting rights structure | Strategy for securing voting rights at the shareholders' meeting |
Disclosure response | Managing disclosure obligations under the Financial Investment Services and Capital Markets Act |
Governance management | Composing the board and securing management stability |
If a company fails to respond appropriately to shareholder activism, the situation can lead to a dispute over management control or to shareholder litigation.
For that reason, companies should weigh shareholder relations management and legal response strategy together.
How Daeryun Law Firm Can Help
Shareholder activism sits at the point where corporate governance and capital markets regulation operate at the same time, so it calls for a comprehensive legal review that draws on both corporate law and capital markets regulation.
At Daeryun Law Firm, specialists in corporate law and capital markets work together to provide legal advisory services on shareholder activism.
We support companies in the following areas.
· Responding to shareholders' meeting and voting rights disputes
· Responding to management control disputes and shareholder litigation
· Responding to capital markets disclosure and regulation
· Improving corporate governance and providing legal advisory
· Developing strategies to address activist investors
Shareholder activism is a significant capital markets issue that directly affects corporate management strategy and investor relations.
Because it brings together the Commercial Act and capital markets regulation, companies should build both a strategic response and a framework for managing legal risk.
If you need a response strategy or legal review concerning shareholder activism, you may arrange a consultation on the relevant matters through Daeryun Law Firm's 🔗corporate attorney consultation booking.
