Back to Corporate and M&A Law Committee publications

Report on a session of the Corporate and M&A Law Committee at the IBA Annual Conference, Seoul

Monday, 23 September 2019

Reporters

Bertrand Cardi

Darrois Villey Maillot Brochier, Paris

bcardi@darroisvilley.com

Steven A Cohen

Wachtell Lipton Rosen & Katz, New York

SACohen@wlrk.com

Moderators and Session Co-Chairs

Bertrand Cardi  Darrois Villey Maillot Brochier, Paris

Steven Cohen  Wachtell Lipton Rosen & Katz, New York

Speakers

Hosun Euh  Goldman Sachs, Seoul

Hye Sung Kim  Kim & Chang, Seoul

NG Wai King  Wong Partnership, Singapore

Asa Shinkawa  Nishimura & Asahi, Tokyo

 

Part 1 – Activism: introduction and evolution in both Asia and the West

After providing an introduction to the global landscape of shareholder activism, including both European and North American trends, Hosun Euh provided context regarding certain specificities of activism in Asia, with a particular focus on Korea. He noted that some of the specificities in Korea include local traditions and a conservative reaction to activism, which is reinforced by a significant number of family-controlled businesses, including among large cap groups.

Statistically, there have been few activist campaigns compared to Europe or North America and this may also have an impact on how activism is viewed by senior management. 

However, there is also some evolution and change may be accelerating in Asia. Hosun touched on some of the underlying fundamentals impacting activism around the world, including fundraising by activist funds. Activists may regard Asian countries as an opportunity, as they may view the field of targets as less ‘picked over’, companies have thought less defensively (given that there has been less activity) and institutional shareholders are increasingly global and more sympathetic to activist perspectives.

The regulatory and legal environment, including anticipated reforms, may support future activist campaigns. However, local sentiment may be more generally hostile to foreign interlopers.

Part 2 – Examples of activism in Asia and particularly in Korea

Hosun also provided a review of selected recent examples of situations in Asia, with anemphasis on prominent cases in Korea. 

Activism in Japan

Asa Shinkawa then provided an overview of activism in Japan. She distinguished two main modern phases of activism, with an initial wave in 2000 to 2007 driven by local activists such as Murakami Fund and Steel Partners. This fuelled a surge of interest in anti-takeover defence mechanisms and adoption of poison pills, as well as recourse to searching for friendly shareholders.

As a general matter, this first wave of activism crystallised resistance to aggressive shareholder activism (especially short-termism) in Japanese society.

A second wave of activism began in 2013. This wave took place in the context of ‘Abenomics’ and corporate governance reform by the Abe Administration, including corporate governance reforms, such as the Corporate Governance Code of 2015 and the Stewardship Code of 2014. It should be acknowledged that there are a certain number of fairly recurring corporate governance weaknesses among Japanese listed companies, including a lack of independent directors, low margins and excess cash reserves, cross-shareholdings and listed subsidiaries.

There has also been a change of attitude of Japanese institutional investors, which have become more diligent in company review and engagement. In addition, the Stewardship Code now requires disclosure of proxy results on an individual proposal basis.

Major activists in this second wave include international activists as well as local players, such as Oasis, Elliott, Third Point, ValueAct Capital, AVI, Effissimo, Strategic Capital and Leno/C&I.

During this second wave, activists have been more successful in gaining the support of institutional shareholders.

Part 3 – Recent developments of activism in Korea

Hye Sung Kim discussed recent evolutions of activism in Korea, including a significant jump in campaigns since 2018. This has taken place in a cultural and political context characterised by an increasing emphasis on economic democratisation and better corporate governance/chaebol[1] reform.

The Stewardship Code was promulgated in July 2018 and the shareholder dissent rate has increased dramatically in recent years. Local activist players have also begun to enter the scene (eg, KCGI). Other recent regulatory reforms have also reinforced activists’ hands (eg, electronic voting, cumulative voting, multi-derivative suits, ten per cent voting restrictions on private equity funds/hedge funds and audit committee election method). Nonetheless, many significant challenges remain for foreign activists, resulting in Korea remaining perhaps one of the most challenging advanced jurisdictions for activists.

Part 4 – Shareholder activism in Singapore

Ng Wai King discussed shareholder activism in Singapore, which has included both international and local activism, including the Securities Investors Association Singapore (SIAS), a volunteer led investors association, with more than 71,000 retail investors as members. Singapore has also seen a number of short campaigns.

The participants then discussed various case studies, including: as regards Korea, Huyandi/Elliott, Samsung Electronics/Elliott and Samsung C&T/Elliott; as regards Japan, Oasis Management/Alpine Electronics; and as regards Singapore, Laxey Partners/United Int’l Securities Ltd.

Part 5 – Conclusion

Finally, the panellists concluded with a general discussion of various questions, including the most successful defences to common activist strategies, key mistakes to avoid, notable litigation, and how best to prepare for a potential activist attack.

Back to Corporate and M&A Law Committee publications