Chaebol fear ISS proposals ahead of yearly AGMs; ISS is releasing reports opposing reappointments of many of their directors

Chaebol fear ISS proposals ahead of yearly AGMs

Morgan Stanley unit wields influence over foreign investors


Mar 14,2014

Tension is growing at local companies ahead of their shareholders’ meetings as the U.S.-based International Institutional Shareholder Services (ISS) is releasing reports opposing reappointments of many of their directors. 
ISS is a subsidiary of Morgan Stanley that advises institutional investors. Established in 1985, the company provides analyses of around 40,000 companies around the world for as many as 1,700 institutional investors, to help them make decisions ahead of shareholders’ meetings.
Hyosung Group, for example, will hold a shareholders’ meeting next Friday. Ahead of that, the ISS released a report opposing the reappointment of chairman Cho Suck-rai as a director, citing a criminal indictment for breach of trust.
In the report, the ISS said the chairman, who is coming up for trial, disqualifies as a director because directors are supposed to raise the value of company stock.
The conglomerate is concerned that foreign investors, who own 29.34 percent of its shares, will be influenced by the ISS guideline.
“We have told foreign investors that the trial isn’t over yet and there are chances of winning it,” said Ahn Hong-jin, communications chief of the group.
Eight conglomerates such as Samsung Electronics, Hyundai Motor and SK are holding shareholders’ meetings today and next Friday. They are concerned about the ISS guidelines, especially since the numbers of foreign shareholders in those companies has increased steadily.
The ISS analyzes agendas of shareholders’ meetings at about 700 Korean businesses.
Foreign investors hold a 50.12 percent stake in Samsung Electronics, 62.87 percent of KB Financial Group and 59.58 percent of Naver. More than half of the stock of KT&V and Posco are owned by foreigners.
These investors take ISS reports very seriously, analysts said.
Last year, the management of KB Financial Group sent the ISS confidential information about new directors the group wanted to nominate ahead of its shareholders’ meeting to get its approval.


It turned out the information was deliberately false, which led to an investigation and punishment of former Chairman Euh Yoon-dae.
The ISS opposed the actual nominations last March, but major shareholders of Korea’s second-largest lender approved the plan anyway.
This year, the ISS opposes SK’s decision to raise annual salaries of directors to 12 billion won ($11.2 million).
SK Group Chairman Chey Tae-won and his younger brother, Chey Jae-won, the vice chairman, were both sentenced to four years in prison late last year for corporate crimes. They then resigned from all posts. According to the group, the ISS says that since the chairman’s actions have put the company at risk, it should reduce the salaries paid to its directors.
“We believe it is going too far to take issue with the upper cap on salaries,” said an SK Group official. “Literally, it is the maximum level, not the actual amounts directors are taking.”
The Supreme Court early this month upheld a ruling by lower court that sentenced Chey to a four-year prison term on charges of embezzling 45.1 billion won in corporate funds.
Chey has been jailed since early 2013 and will serve his sentence until January 2017 without the possibility of an early release.
Some local lawyers and analysts say the ISS doesn’t understand Korea.
“It is desirable to demonstrate opposition to appointments of directors who are unqualified but [the ISS] isn’t taking into account the unique Korean corporate culture,” said Lee Ji-soo, a lawyer at the Center for Good Corporate Governance.


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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