FSC - Financial Services Commission of Korea
FSC - Financial Services Commission of Korea
05/02/2024 | Press release | Distributed by Public on 05/01/2024 23:02
Guideline on Corporate Value-up Plan Unveiled to Support Listed Companies' Voluntary Efforts to Boost Corporate Value
The Financial Services Commission (FSC), the Korea Exchange (KRX), Korea Capital Market Institute (KCMI) and relevant organizations held the second seminar on the Corporate Value-up Support Plan on Thursday, May 2. At today's seminar, the draft Guidelines for Corporate Value-up Plan, one of key pillars of the Corporate Value-up Program, was unveiled to gather opinions from various stakeholders.
Congratulatory Remarks by FSC Vice Chairman
FSC Vice Chairman Soyoung Kim delivered congratulatory remarks reaffirming the government's strong will towards capital market reforms. In addition to regulatory reform initiatives in our capital markets that the government has made over the past two years, listed companies' value enhancement efforts will help Korea's stock market tackle Korea discount and rise steadily over mid-to long-term, Vice Chairman said.
Regarding the draft Guidelines on Corporate Value-up Plan unveiled today, Vice Chairman emphasized the importance of such plans, saying that corporate value-up plans will enable listed companies to communicate with shareholders and market participants about a comprehensive picture over the companies' future, and allow investors to better understand companies in which they are going to invest in and make well-informed decision, thereby listed companies will be able to get proper market valuation for their true intrinsic value or expected value.
He added that the corporate value-up program shall be deemed as a long-term initiative. In this regard, the guidelines unveiled today are not the end, but the beginning of our long-term plan, Vice Chairman said. Various incentives and support measures including guidelines, consulting, training, etc, will be provided to encourage active participation of listed companies, and then investors will properly evaluate companies' value enhancement efforts and reflect them into their investment decision. The government and relevant organizations will continue to support companies' corporate value-up efforts with tax incentives, development of the Korea Value-up Index, listing of ETFs tracking the Korea Value-up Index, awards for best practicing companies, etc.
Progress and Future Plans of Corporate Value-up Program
Since the Corporate Value-up Program was announced at the 1stjoint seminar on February 26, the government and relevant authorities have been promoting the initiative and gathering opinions from various stakeholders including businesses and investors.
On March 7, the Corporate Value-up Advisory Group was launched, comprised of 12 experts from the academia, businesses, investors and related institutions. From March to April, the advisory group has been working for setting out the overall direction for the corporate value-up program and providing advice for establishing the draft guidelines on corporate value-up plan. They will continue their advisory works in identifying and spreading the best practices and setting up the criteria for awarding the best practice companies, which will commence from May next year.
On March 14, a seminar for institutional investors on corporate value-up program, chaired by FSC Vice Chairman, was held. At the seminar, participants agreed to reflect key factors of the corporate value-up programs into the stewardship code, paving the way for institutional investors to check whether the companies they are investing in are making corporate value enhancement efforts. As more than 200 institutional investors, including four major pension funds, have signed up for the stewardship code, the corporate value-up program will help to facilitate productive interactions between institutional investors and listed companies.
On April 2, eight incentives in three areas, which will be granted to companies chosen for Corporate Value-up Best Practice Companies Awards (to be awarded from May next year), were announced at the Seminar for Accounting and Audit Sectors on Corporate Value-up Program.
In addition, the government and related organizations have held a series of seminars and IR events with various stakeholders including investors and companies to gather feedback and opinions on the Corporate Value-up Program.
The draft guidelines and manual for the corporate value-up plan released today will be finalized in May after gathering opinions. With the final confirmation of the guidelines, support measures will be initiated including a web portal for the corporate value program being launched, comparison publication of investment indicators, , instruction and training programs for the board of directors and disclosure officials, consulting and English translation services for the SMEs, etc.
Disclosure of corporate value-up plan will begin with companies that are ready to do so. The Korea Exchange plans to hold on-site seminars for regional companies and continue to work to develop the Korea Value-up Index by the third quarter and list ETFs tracking the value-up index by the fourth quarter of this year.
Tax policy reforms will be also announced as soon as reviews are completed, in order to provide tax incentives for companies actively seeking to enhance their corporate value and return more to shareholders.
Key Contents of the Guidelines
The draft guidelines on corporate value-up plan include basic principles and a manual with detailed instruction on the method, examples and reference formats, etc.
The corporate value-up plan is a development strategy which relies on listed companies' voluntary efforts to boost their corporate value. In this regard, the plan has five key features: i) voluntary basis, ii) future-orientation, iii) comprehensiveness, iv) choose and focus, v) responsibility of the board of directors.
To support companies to draw up value-up plan tailored to their characteristics and circumstances and help investors better understand and compare such information across companies, the guidelines outlines the contents that need to be included the corporate value-up plan: Company Overview - Current Status Analysis - Goal Setting - Planning - Implementation Evaluation - Communication.
[Company Overview] Under the guidelines, companies are guided to specify basic corporate information including business sectors, major products and services, company history, etc. so that the corporate value-up plan could provide a comprehensive description of the company.
[Current Status Analysis]Companies are recommended to analyze the current status of their business operation in various aspects including market environment, competitive advantages, risks, etc. and then select key indicators, among various financial and non-financial indicators, in line with their mid-to long-term goals to enhance corporate value.
For financial indicators, the guidelines provide a wide range of examples that represent market evaluation (e.g. PBR, PER, etc.), capital efficiency (ROE, ROIC, COE, WACC, etc.), shareholder returns (dividend payout, treasury stock cancellation, TSR, etc.) and growth potential (revenue, profits, asset growth etc.). Non-financial indicators involves corporate governance factors related to protection of the rights and interests of general shareholders, responsibility of the board of directors, independence of auditors, etc, which are also disclosure items under the Corporate Governance Report and matter of interest to market participants including institutional investors. For example, if a company has the issue of chain listing of parent and subsidiary, the company may explain how to protect and strengthen the rights and interest of the parent company's general shareholders. For another example where a company has an issue of controlling shareholders owning an unlisted private company, the company may provide accurate factual grounds to resolve the conflict of interest. Upon selecting the key indicators, the guidelines recommend that companies conduct a time series analysis and compare them with the industry average or those of competitors to accurately figure out their current status.[Goal Setting]In setting mid-to-long-term goals in relation to key indicators, it is recommended that companies set the goals in numerical terms, but they may use alternative methods such as providing qualitative descriptions or presenting target intervals, etc.
Regarding the concerns by companies over possible penalties for unfaithful disclosure if they failed to achieve the goals, the guidelines make it clear that there are exemptions available under the KRX Disclosure Regulations, which will apply to predictions or forecasts in the corporate value-up plan as well. If it is inevitable to revise the goals due to sudden changes in corporate management environment, companies may adjust the goals by making a corrective disclosure.
[Planning]The guidelines suggest that companies need to set out specific plans to achieve the goals, which include investments by business sector, expanding R&D investment, reshuffling business portfolio, shareholder return via treasury stock cancellation and dividend payout, or disposal of assets, etc. In addition, the guidelines recommend that if companies link the compensation scheme for executives to their corporate value-up plan, it will be helpful to emphasize the companies' will to boost corporate value and encourage active participation of executives and employees.
[Implementation Evaluation]As it is recommended that companies disclose their corporate value-up plan regularly on an annual basis, the guidelines ask companies to present what efforts they have made in implementing the plans in between disclosures. In doing so, the guidelines recommend that companies specify qualitative evaluations on what they did well and what needs to be improved, not just listing up what they have put in.
[Communication]The guidelines advise that companies specify the current status, future plans and performance of their communication in regard with corporate value-up plan, given that engagement with shareholders and market participants is essential for companies to get a proper valuation about their intrinsic value. In this context, it is important for companies to develop and implement plans in qualitative terms, describing how to effectively communicate with the market, rather than simply stating quantitative terms such as how many times they have meetings with market participants. For example, effective ways of communication may include English
disclosure for foreign investors, improving the practice in general shareholders' meeting. Creating a formal process to reflect opinions of shareholders and market participants into business management may be one of the options to facilitate a two-way communication..
Who Should Be In Charge of Planning and Supervising Corporate Value-up Plans and How to Disclose the Plans
As it is likely that the corporate value-up plan include companies' business and management plans, it is desirable that the departments responsible for the companies' management strategy or finance take charge of preparing the corporate value-up plan. The board of directors needs to oversee whether the management properly develop and implement its corporate value-up plan. If needed, the board of directors may engage in more actively by having the plan being reported to them, then going through deliberation and approval by the board. If companies specify the dates and agenda of board meetings in their value-up plan, it will help to improve its credibility.As the corporate value-up plan contains a considerable amount of predictions and forecasts, which are subject to corrective disclosure, it should be disclosed through Korea Investors' Network for Disclosure System (KIND) prior to selective notice to a certain groups of individuals or publication on the company's website. It is recommended that the disclosure be made regularly on an annual basis and include English disclosure for foreign investors. Companies may also make an advance notice on their upcoming disclosure - e.g. "Company A is planning to disclose its value-up plan in the X quarter of 20XX."
* Please refer to the attached PDF for details.