South Korea’s Corporate Governance Overhaul Sparks Market Transformation

Market Performance Reaches Historic Highs

South Korea’s stock market has reportedly achieved record-breaking performance in 2025, with the KOSPI 200 index surging by 69% in local currency terms, according to market analysis. This dramatic upturn significantly outpaces the 15% gain recorded by America’s S&P 500 during the same period. Sources indicate that while artificial-intelligence enthusiasm has benefited major chipmakers like Samsung Electronics and SK Hynix, the primary driver appears to be a government-backed campaign to improve corporate governance and eliminate the longstanding “Korea discount” on stock valuations.

Legislative Changes Reshape Corporate Landscape

Since President Lee Jae-myung took office in June, parliamentary amendments to the Commercial Act have reportedly accelerated the “value-up” initiative that began in early 2024. The legislation now establishes a fiduciary duty for managers toward shareholders, whereas previously their obligations were limited to the companies themselves. Analysis suggests these changes are systematically transferring influence from controlling families to minority investors through measures including mandated electronic shareholder meetings and revised voting procedures.

Additional regulatory developments expected by year’s end will likely require companies to retire “treasury shares” – stock reserves that analysts suggest dilute external shareholders and can be utilized against activist investors. The report states that these ownership structures have traditionally favored majority shareholders, typically founding families, creating convoluted corporate frameworks that persist despite reform efforts.

Corporate Response Gains Momentum

Hundreds of South Korean firms have reportedly committed to eliminating treasury shares, with listed companies more than doubling share buybacks since 2023. Activist investors appear increasingly emboldened by the shifting regulatory environment. The transformation is evidenced by cases such as Infovine, a software-maker that for over a decade had resisted calls for improved dividends and treasury share reduction. According to reports, an activist campaign initiated in 2024 has yielded substantial changes, including share buybacks and a dividend increase of one-third, accompanied by a tripling of the company’s share price this year.

Similar pressure has been applied to KB Financial, the parent company of South Korea’s largest bank. Investment firm Orbis, which holds shares in KB Financial, indicates through representative Ben Preston that investors have encouraged the company to scale back foreign acquisitions and return capital to shareholders. KB Financial’s stock has reportedly more than doubled since the beginning of 2024.

Substantial Challenges Remain

Despite the impressive market performance and regulatory progress, analysts suggest the Korea discount persists. Reports indicate that over half of KOSPI 200 constituents trade below their asset book value, compared to 31% in Japan’s Nikkei 225 and just 4% in the S&P 500. The broader South Korean market remains approximately 25% below the government’s stated target of 5,000 points.

Resistance to reform continues in some quarters, with Samsung’s management reportedly blocking an activist-led proposal for higher dividends last year. The family of Samsung’s chairman maintains influence over approximately two-fifths of the company’s shares. Unlike Japan, where cross-company shareholdings are being systematically reduced, South Korea has shown limited progress in unwinding these complex ownership structures.

The ultimate success of the corporate governance revolution reportedly hinges on whether the administration will confront the country’s powerful family-controlled conglomerates or settle for incremental achievements. With substantial work remaining, market observers suggest the investor-friendly transformation will require continued regulatory commitment and corporate cooperation to fully materialize.

References

• http://en.wikipedia.org/wiki/Shareholder
• http://en.wikipedia.org/wiki/South_Korea
• http://en.wikipedia.org/wiki/Lee_Jae-myung
• http://en.wikipedia.org/wiki/SK_Hynix
• http://en.wikipedia.org/wiki/Corporate_governance

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