South Korea's "Corporate Value-up Program" Aims to Enhance Shareholder Value
In an effort to address the "Korea discount" – the tendency for Korean companies to have lower valuations compared to global peers – the South Korean government has proposed a "Corporate Value-up Program." This program aims to encourage companies to enhance shareholder value by providing them with detailed guidelines and principles.
The program, first proposed in February 2023, is intended to tackle the issue of low dividend payouts and the dominance of opaque conglomerates known as chaebols, both of which contribute to the lower valuations of Korean companies.
Under the program, companies are encouraged to select key indicators for enhancing corporate value, set mid- to long-term objectives, and devise plans for investment, shareholder return, and business portfolio reorganization.
While the program is voluntary, companies are encouraged to submit filings on their plans each year. These filings will serve as a way to communicate with investors about the company's commitment to enhancing shareholder value.
The program has been met with mixed reactions. Some market watchers believe that stronger measures, such as tax incentives or penalties, are needed to ensure meaningful change. Others argue that the voluntary nature of the program is sufficient to encourage companies to participate.
Despite the mixed reactions, the government is committed to finalizing the guidelines by the end of November 2023. This will allow companies to start submitting filings and begin implementing their plans to enhance shareholder value.