The outperformance has been driven to a small extent by flows into KVI-linked exchange-traded funds (ETFs), but it mainly reflects a positive correlation between strong corporate governance and higher investment returns. This correlation lies at the heart of the investment opportunity in South Korea, in our view, and underscores the importance of active stewardship.
Reforms Carry Legal Weight
The reforms are significant because they aim to change a key structural feature of the South Korean economy and share market. Since the 1950s, the country’s economy has been dominated by chaebols—large, family-owned conglomerates characterized by cross-shareholdings, low return on equity and conflicts between controlling and minority shareholders. They are widely regarded as causing the “Korea Discount,” or the lower valuations at which Korean shares typically trade relative to global peers.
Inspired partly by similar initiatives in Japan, the South Korean government in early 2024 launched the Corporate Value-Up Program to promote improvements in capital efficiency, higher shareholder returns and stronger governance. The KVI and associated ETFs were market-led projects to help drive the reforms.
Importantly, the campaign gained legal weight in 2025 when the government amended the Commercial Act to make clear that directors had a fiduciary duty toward all shareholders—a measure aimed at strengthening the position of minority owners. In February 2026, the government tightened the screws, amending corporate tax laws to require that high-dividend companies disclose Value-Up plans to continue receiving tax benefits.
The use of hard law goes a step further than Japan, which relies on a voluntary Corporate Governance Code. The effects of the Value-Up program are beginning to show. According to J.P. Morgan, the average total payout ratio of South Korea’s banking sector is expected to improve from 36% in 2023 to more than 50% by 2026, evidence that efforts to optimize capital allocation are under way.
The Power of Research-Based Proxy Voting
The Value-Up movement and proxy voting complement each other by being, respectively, market-wide and issuer-specific. Investors can reinforce the reform momentum by using targeted proxy voting to reward progress, reinforce expectations and signal concerns directly to management teams.
Proxy voting is most effective, in our view, when partnered with deep research and consistent methodology. Our global voting approach maintains country-specific standards for board independence, executive pay, audit practices and capital allocation. For significant holdings, investment analysts help incorporate company-specific fundamental insights to enable more constructive voting strategies. Research-based proxy voting does not mean voting for the sake of voting; we regard it as an active management tool.
The value of this approach can be seen from our track record of proxy voting in South Korea and the correlation between our support of management (an indicator of governance quality) and companies’ share-price performance. To show this, we grouped companies into equal-weighted baskets based on the number of proposals where we voted against management (VAM) and averaged their stock returns for the subsequent year. Zero-VAM companies—those most aligned with our governance expectations—went on to outperform their peers by more than 200 basis points a year on average (Display).
