IN-DEPTH: Q&A with Bside Korea
An interview with Sungchul Lim, CEO of Bside Korea, on how the shareholder activism landscape is evolving in Korea.
What is Bside’s core focus area in the shareholder activism space?
Bside is the first activist strategic communication and solicitation platform launched in Korea. Established in 2022, we provide services that enable all shareholders to better understand their invested companies and to exercise their valuable right to vote in the most transparent and convenient way.
As a strategic consulting firm, we support both activists and public companies to execute their campaigns and effectively communicate with shareholders. We also offer proxy solicitation services, supporting clients in crafting proposals, engaging with investors and launching successful campaigns.
Our online solutions also provide a space where both activists and companies can publicly post content to share with shareholders year-round, enhancing transparency and offering a space for debate.
Looking back on 2023, what was the most memorable or successful campaign for Bside?
We were involved in various campaigns last year, but the most memorable was undoubtedly SM Entertainment. This campaign was driven by Align Partners, which first filed a proposal in 2022 seeking an independent auditor to help enhance the company’s governance and boost returns, which then evolved into a tender offer and a bidding war for the media company.
It was a challenging but thrilling experience to persuade shareholders to support Align’s initiatives while a public tender war between Kakao Corp. and HYBE was taking place. SM Entertainment also ended up becoming a client, which prompted other public companies to seek our expertise and advice. As a result, we represented clients in most major activist campaigns and significant management disputes in South Korea last year.
South Korea experienced a 57% increase in the number of companies subject to activist demands in 2023, according to Diligent Market Intelligence (DMI) data. What do you feel is driving this?
The beginning of the activism boom in South Korea is undoubtedly attributable to the SM Entertainment campaign. Align Partners' shareholder proposal, which was backed by solid rationale and compelling arguments for change, won significant backing and marked the first successful story of shareholder activism in the country. This campaign ignited shareholders to believe in the power of activism to change companies for the better. We have also seen legislative developments which help provide a favorable environment for investors to engage with companies.
How do companies in the region typically respond when targeted by an activist? Are they willing to engage?
The market is still in its infancy, so many companies don’t fully understand how to engage with shareholders and express their goals or justifications for what they are doing. We often find ourselves suggesting to listed companies how best to prepare for these situations and how to proceed.
Most companies, even those with investor relations teams, have little experience in persuading shareholders to support particular initiatives or campaigns. There's still a long way to go, and the proxy solicitation market is still learning.
Targeted companies tend to adopt a very defensive posture, regardless of how modest the proposal's request is or how positive a view the shareholder may have of the company. Companies often dismiss investor requests for engagement or enhanced transparency and can sometimes view investors as enemies rather than individuals looking to strengthen the company. In our work, we strive to reduce the adversarial perception companies often have toward shareholders, facilitating open dialogue and campaigns that can benefit both parties.
Do you have any advice for boards on the most productive way to work with investors pushing for reforms?
Companies that fail to adapt and evolve will eventually be phased out, and this applies to boards as well. Times are changing and the level of shareholder involvement and engagement with boards will continue to increase, inevitably increasing the costs of staying public and prompting more regulatory changes. Boards need to educate themselves and adapt to these changes.
Boards should feel the pressure as director responsibilities and what they are expected to maintain oversight of are bound to increase. This pressure will naturally lead to greater transparency and objectivity in the boardroom, which in time should foster boards that are more receptive and engaged with shareholders.
The Financial Services Commission (FSC) recently revealed that mandatory ESG reporting is a priority. How do local investors tend to view ESG?
While ESG has become a widely recognized term, many investors perceive it merely as an investment theme some fund managers may offer to attract ESG-conscious investors.
The FSC's upcoming ESG disclosure requirements may not be enough to enhance investor focus on ESG, perhaps indicating the need for a more mature investment culture in Korea.
What trends have you observed in Korean activism?
While, traditionally, Korean activism has involved investors building stakes in companies before advancing proposals, 2023 saw innovative attempts by some shareholders to implement activist strategies while simultaneously launching public tender offers. We saw a significant rise in the number of public tender offers in 2023 compared to 2022, with various funds adopting open purchase strategies and delisting investment strategies. Additionally, the use of special shareholder meetings to defend against activism strategies became more prevalent.
Looking at 2024, although the number of shareholder proposals subject to a vote in Korea is expected to increase, the quality of these proposals may decline. Proposals submitted by coalitions of minority shareholders often lack the rationale and compelling business arguments to gain institutional investors' sympathy and, therefore, their support.
Although some proposals are in need of improvement, I see this as a transitional phase towards a healthy capital market, and I believe these engagements serve as a valuable opportunity for companies to change their perception of shareholders and understand that engagements can be positive and can help foster long-term value creation.
Another interesting development is how activism in Korea is diversifying. We are seeing more campaigns launched by individual investors, larger activist funds, proposals from public investment institutions and even family disputes among insider shareowners.
