The National Pension Service (NPS) recently gave Meritz Financial Group a rare “perfect score” by publicly approving all its shareholder meeting agenda items ahead of the vote.
This decision is particularly noteworthy because the NPS had just announced stricter voting rules aimed at companies that try to sidestep new governance laws. So, why did Meritz pass with flying colors? The answer lies in three key areas.
First, Meritz has been diligent in aligning its corporate governance with South Korea’s amended Commercial Act. For years, the company has adopted pro-shareholder measures like electronic voting and clearly defined the board's duty of loyalty to shareholders. This proactive stance meant it already met the new, tougher standards set by the NPS.
Second, its executive compensation plan was considered reasonable and transparent. The total amount paid to its directors was about 81% of the approved limit, showing a clear link between performance and pay without excessive requests. This kind of fiscal discipline builds trust with large institutional investors like the NPS.
Third, and perhaps most importantly, Meritz has a credible and consistent track record of shareholder returns. It has followed through on its public promise to return over 50% of its net income to shareholders. This commitment was demonstrated through massive share buybacks and cancellations, such as the KRW 1 trillion cancellation and KRW 550 billion buyback announced in 2025.
The causal chain is clear: legal reforms pushing for better governance led to stricter NPS guidelines. Meritz, thanks to its long-term efforts in governance and shareholder returns, was perfectly positioned to meet these standards. The NPS's public approval then served as a powerful signal to the market.
As a result, investors viewed Meritz as having lower governance risk. The stock price jumped nearly 5% on the day of the announcement, reflecting a reduction in its 'Korea Discount'—the term for when Korean companies are valued lower than global peers due to governance concerns.
- Commercial Act: The primary law governing business and corporate activities in South Korea. Recent amendments have focused on strengthening shareholder rights and board responsibilities.
- Stewardship Code: A set of principles for institutional investors, like pension funds, to actively engage with the companies they invest in to improve long-term value for shareholders.
- Korea Discount: A term describing the tendency for South Korean companies to have lower market valuations compared to their international counterparts, often attributed to factors like complex ownership structures, low dividend payouts, and corporate governance issues.