Shareholder activist strategies

Strategies

What common strategies do activist shareholders use to pursue their objectives?

The most commonly used tools are agenda proposals and proxy fighting. A proxy fight is conducted by most activist shareholders because it draws public attention effectively. Shareholders also exercise their rights stated in the Commercial Act, including the right to:

  • inspect and copy accounting books;
  • request the court to appoint inspectors in order to obtain information;
  • call a temporary shareholders’ meeting;
  • propose agendas for the shareholders’ meeting in order to adopt certain policies;
  • request cumulative voting;
  • file injunction suits to stop director misconducts;
  • file a derivative lawsuit;
  • request the court to remove managing directors; and
  • request the return of profits by shareholders who illegally profited from the company.
Processes and guidelines

What are the general processes and guidelines for shareholders’ proposals?

Shareholders who hold no less than 3% of the total number of issued shares may issue a proposal to directors in writing or through an electronic document stating that certain matters be raised as agenda items for a shareholders’ meeting at least six weeks before the date of that meeting. This is also possible for persons who have continued to hold stocks equivalent to no less than 10:1,000 (5:1,000 for listed companies with assets more than W100 billion) of the total number of issued shares of a listed company for more than six months. When requested by a shareholder, the company must publicly open the specifics of the agenda at the convocation letter. As long as the proposed agenda does not violate the law or articles of incorporation, the company must include such proposals as agendas for the general shareholders’ meeting.

May shareholders nominate directors for election to the board and use the company’s proxy or shareholder circular infrastructure, at the company’s expense, to do so?

Shareholders can nominate directors for election to the board. However, there are no legal grounds for shareholders to use the company’s proxy or shareholder circular infrastructure at the company’s expense. Companies generally do not bear the costs arising out of shareholders exercising their rights to elect and nominate directors.

May shareholders call a special shareholders’ meeting? What are the requirements? May shareholders act by written consent in lieu of a meeting?

The Commercial Act provides minority shareholders the right to request convocation of a shareholders’ meeting. According to Articles 366(1) and 542-6(1) of the act, shareholders who hold no less than 3% of the total number of issued shares may request convocation of an extraordinary general meeting of shareholders. For publicly listed companies, any person who has continued to hold stocks equivalent to no fewer than 15:1,000 of the total number of issued shares of the company for more than six months may exercise the above shareholders' right.

Minority shareholders may submit to the board of directors a document or electronic document stating the subject matter of and the reasons for the convocation. When the board concludes them to be justifiable, it will decide to hold a shareholders’ meeting, but when it is deemed unjustifiable, the board may disregard a shareholder’s request.

When the board does not take prompt measures in response to shareholder’s request, the shareholder may convene such a meeting with the court’s permission.

A shareholder may delegate their right to vote at the general shareholders’ meeting to the proxy solicitor by writing a document proving the proxy’s power of representation at the general shareholders’ meeting.

Litigation

What are the main types of litigation shareholders in your jurisdiction may initiate against corporations and directors? May shareholders bring derivative actions on behalf of the corporation or class actions on behalf of all shareholders? Are there methods of obtaining access to company information?

In order to impose liability on directors, shareholders with the requisite amount of shares may file a preliminary suit to injunct directors for misconduct and file a suit to remove a director where there are reasonable grounds.

Shareholders may, on behalf of the company, file a lawsuit against directors for damages. However, class actions are possible only on certain claims stated in the Securities-Related Class Action Act. Shareholders may not file a class action on behalf of other shareholders.

Shareholders with the requisite amount of shares may request:

  • a copy of the shareholders’ register for inspection;
  • board-meeting minutes;
  • accounting books;
  • the appointment of an inspector to survey the company’s business and financial status; and
  • the appointment of an inspector for the general shareholders’ meeting.