South Korea’s efforts to improve corporate governance and attract international investment are facing renewed challenges as major conglomerates resist pressure to strengthen shareholder returns and simplify corporate structures.

The country’s stock market has recorded a substantial rally this year, with the benchmark index gaining 35% despite a significant correction from its summer highs. At one point, the market had more than doubled. Nevertheless, South Korean equities remain among the cheapest globally, trading at approximately 3.85 times forward earnings compared with 17.64 times for the MSCI World Index.

LSEG data indicate that around 70% of KOSPI-listed companies trade at or below book value.

The persistent valuation gap has raised questions about whether President Lee Jae Myung’s campaign to eliminate the so-called Korea Discount can maintain momentum.

Namuh Rhee, chairman of the Korean Corporate Governance Forum, said financial holding companies were progressing according to their value-up plans, while resistance to governance reforms among large conglomerates had intensified.

Samsung Becomes a Focus of Shareholder Demands

Samsung Electronics has emerged as a central example of the challenges facing the reform agenda.

Despite reporting the largest quarterly operating profit by a technology company in history during the third quarter, Samsung trades at approximately 1.87 times book value. This compares with 7.8 times for Micron, 29 times for Nvidia and 44 times for Apple.

Global investors have called for stronger shareholder returns, simpler corporate structures and strategic changes, including potential divestments from underperforming subsidiaries.

Samsung board chairman Shin Je-yoon met overseas investors ahead of the company’s October earnings announcement, following complaints about its shareholder-return policy from major investors including Capital Group, Artisan and Fidelity.

According to a person familiar with the discussions, investors considered the proposed returns too modest and expressed a preference for share buybacks and cancellations rather than higher dividends.

Samsung said Shin regularly meets major global investors as part of its shareholder engagement efforts and that the company maintains ongoing discussions about shareholder returns and capital allocation.

Shareholder Capital Allocation Under Scrutiny

In August, Samsung declared a record 30 trillion won ($22.35 billion) in dividends. However, it postponed a decision on how to allocate an additional 55 trillion to 75 trillion won earmarked for shareholder returns until January.

The approach contrasts with rival SK Hynix, which announced a $75 billion shareholder-return package last month incorporating dividends, share repurchases and cancellations.

Samsung Electronics and SK Hynix together represent slightly more than half of the KOSPI’s total market capitalization, making their capital-allocation decisions particularly significant for the broader Korean equity market.

Seoul-based Life Asset Management has asked Samsung’s board special committee and Compliance Committee to independently review the decision to defer allocation of the remaining funds.

The asset manager wants the review to examine whether the delay serves shareholders’ interests, whether potential conflicts of interest have been properly addressed and whether the remaining funds could realistically be deployed before year-end.

Legal Changes Encourage Shareholder-Friendly Measures

South Korea’s governance reforms include legislative changes affecting corporate treasury shares.

A law that took effect in March requires companies to cancel treasury shares by September next year. Critics have argued that companies can use these shares as a takeover defence rather than returning capital to shareholders.

The market response has varied across sectors. A gauge of Korean bank shares has gained 15.9% this year, while insurance stocks have advanced 48%.

By comparison, shipbuilding shares have declined 42% and machinery stocks have fallen 30%.

Financial companies have received stronger market recognition for adopting shareholder-friendly measures, while non-financial conglomerates have been slower to embrace similar changes.

Activist Investors Increase Pressure on Samsung Group

Activist investors are seeking to use the government’s reform agenda and amendments to South Korea’s Commercial Law to push for greater accountability and capital returns.

Palliser Capital, led by James Smith, has called for preferred-share repurchases and cancellations to become part of the shareholder-return policies at Samsung and Hyundai Motor.

Another campaign, led by Singapore-based Flashlight Capital, has pressed Samsung Group to improve shareholder returns at security affiliate S-1 Corp.

Although the campaign has largely been rebuffed, S-1 shares gained following the announcement of a 450 billion won share buyback last month.

The developments illustrate the growing role of activist investors in challenging corporate capital-allocation decisions across South Korea’s major business groups.

What Investors Should Watch Next

The effectiveness of South Korea’s governance reforms will depend on whether large conglomerates move beyond formal commitments and implement measurable changes to capital allocation, treasury-share policies and corporate structures.

Samsung’s pending decision on its remaining shareholder-return funds will be particularly important. Investors will also monitor whether activist campaigns lead to additional buybacks, share cancellations or strategic restructuring across major chaebol affiliates.

For the broader market, the ability to narrow the valuation gap with international peers will depend partly on whether governance improvements become consistent across sectors rather than remaining concentrated among financial companies.