[Interview] Fostering stewardship by culture, not just by code

A decade after its introduction, the Korea Stewardship Code is set to undergo its first major overhaul. Dubbed as a call for institutional investors to act as "stewards" for the companies they own, the code has, however, remained largely dormant for the past ten years. The revision will delve into various aspects, including whether the National Pension Service (NPS) should transfer voting rights to external asset managers and how to resolve conflicts of interest at chaebol-affiliated asset managers.

In a recent interview with Hankyoreh, Bruce Duguid, head of stewardship at EOS, a global asset manager's specialist stewardship arm, shed light on the changes needed for Korean institutional investors to effectively engage in the process. Duguid emphasized that the most crucial change required is the development of a genuine culture of stewardship among domestic investors.

While regulatory reforms and updated codes can provide the necessary framework, it is the behavioral change among institutional investors that will determine the effectiveness of stewardship practices.

Duguid also highlighted the unique challenges posed by the chaebol ownership structure in Korea. In such companies, control is highly concentrated among founding families, often through complex circular shareholding structures. This concentration can lead to inadequate protection of minority shareholder rights and ineffective engagement by institutional investors.

To tackle this issue, Duguid suggested focusing engagement efforts on independent directors and framing the agenda in terms that resonate with minority shareholders, such as board effectiveness, valuation impact, and cost-of-capital considerations.

Another common governance challenge in Korea stems from board composition rules, which limit the number of directors a company can have in each board. This results in a limited pool of candidates and often prevents non-Korean nationals from being recruited. Duguid acknowledged the barriers faced by large Korean companies in recruiting non-Korean directors due to language barriers. However, he welcomed recent efforts by these companies to diversify their boards despite these challenges.