(EDITORIAL from The Korea Times on Feb. 9)

dailies-editorials (2)

(EDITORIAL from The Korea Times on Feb. 9)

Proxy adviser or de facto rule-setter?

ISS' seminar in Seoul raises questions over neutrality

A planned seminar in Seoul by Institutional Shareholder Services (ISS) has exposed an uncomfortable truth about modern capital markets: The distance between advice and authority has become dangerously thin. Although ISS portrays the event as a technical briefing on its publicly available voting policies, the setting, timing and sponsorship highlight how proxy advisers increasingly operate as de facto rule-setters, without the obligations that normally accompany such power.

ISS will hold its first Korea-focused seminar on Feb. 12 at IFC Seoul, just as listed companies and investors are preparing for their annual general meetings. These meetings determine the fate of board members, executive pay packages, restructuring plans and shareholder proposals. Hosting a policy seminar at precisely this moment is not neutral in effect, regardless of intent. It places ISS at the center of decision-making during the most consequential period of the corporate calendar.

The event is being organized by Bside Korea, a shareholder engagement platform that has become closely associated with Korea's activist investment ecosystem, and is sponsored by Align Partners, one of the country's most prominent activist funds. Even if no direct influence is exerted, the symbolism matters. When an institution whose recommendations often determine voting outcomes appears under the banner of activist-linked sponsors, perceptions of independence inevitably come under strain.

ISS' influence is not theoretical. With more than 1,700 institutional investors relying on its analysis globally, the firm occupies a unique position in financial markets. In Korea, where foreign investors frequently lack deep familiarity with domestic corporate practices, ISS assessments often substitute for independent judgment. What is labeled "advice" is, in many cases, treated as instruction.

Past episodes illustrate how this influence materializes. ISS opinions have repeatedly shaped investor sentiment at pivotal moments, affecting management credibility and the viability of strategic transactions. Whether in disputes involving legacy conglomerates or in contested governance battles, its recommendations have carried consequences that are comparable to regulatory intervention, yet without any corresponding accountability. Companies live with the results; proxy advisers move on.

ISS' role in Korea has been prominent, as seen in cases involving Hyundai Motor and Hyundai Mobis in 2019. In another case involving Samsung C&T and Cheil Industries, ISS opposed their merger, significantly slowing Lee Jae-yong's bid to inherit control of Samsung Group. More recently, in 2024, Align Partners secured the appointment of two outside directors to JB Financial Group's board. It is now pressing Coway to strengthen its independence from its parent company, Netmarble.

This imbalance has become more pronounced as shareholder activism has intensified. Align Partners and like-minded funds have used governance arguments to effect structural changes at high-profile companies, spanning entertainment, finance and consumer goods. Platforms such as Bside Korea have helped formalize these campaigns, lowering barriers to collective shareholder action. Within this environment, ISS' presence is not merely educational; it is catalytic.

Industry unease stems less from any allegation of misconduct than from the concentration of informal power. A proxy adviser does not invest capital, assume fiduciary duty or answer to voters. Yet its judgments can determine who sits on boards, which strategies survive and which deals collapse. When such an actor engages directly with market participants to "clarify" standards, those standards risk hardening into expectations that few companies can realistically ignore.

ISS has responded by emphasizing its policy-driven model and the absence of financial compensation for its participation. These assurances may be accurate, but they miss the broader point. Structural influence does not require payment, persuasion or intent. It arises from dependency. When investors defer judgment to proxy advisers at scale, the adviser's framework becomes the market's framework.

This raises particular concerns in Korea, where corporate governance has evolved through a distinct blend of concentrated ownership, long-term industrial planning and incremental reform. While governance shortcomings are real and reform is necessary, change has traditionally been mediated through domestic institutions — legislators, regulators and the courts. The quiet substitution of private advisory standards for public rule-making risks bypassing that process altogether.

None of this argues for isolation from global norms. Korean markets are deeply integrated into international capital flows, and engagement with global governance principles is unavoidable. But engagement should be dialogic, not directive. Advice should illuminate choices, not narrow them.

The controversy surrounding the ISS seminar is, therefore, not about one event. It is about whether proxy advisers are drifting from interpreters of governance into becoming its architects. If that boundary continues to erode, markets may find that decisions are no longer shaped by shareholders, boards or regulators, but by entities accountable to none of them.

Advice is meant to inform. When it begins to govern by default, the legitimacy of market outcomes is no longer guaranteed.

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