K-pop label SM taps activist investor as board member
Jun-Ho Cha and Ji-Eun Ha
Jan 20, 2023 (Gmt+09:00)
K-pop behemoth SM Entertainment Co. said on Jan. 20 it has decided to tap Lee Chang-hwan, the CEO of local activist fund Align Partners Capital Management, as a board member in a bid to improve its corporate governance.
It will mark the first case for an activist investor to become a board member of a South Korean company that has a principal shareholder. SM Entertainment founder and ex-chief producer Lee Soo-man is the largest shareholder with 18.46% ownership; he was excluded in the decision-making process for SM's governance restructuring, sources said.
The K-pop label will set up a committee to oversee its business contracts with outside companies. Last year, SM canceled business contracts with Like Production, a boutique firm wholly owned by founder Lee, as Align called for the termination of transactions between the two companies.
FOUNDER LEE'S INFLUENCE TO DIMINISH
SM will also introduce a multi-producing system, encouraging more music professionals to be listed on its K-pop stars' music production credits. The music label has heavily depended on founder Lee for most of its entertainment products.
The K-pop pioneer also said it will return a minimum of 20% of its net income to shareholders for the next three years. SM, which made a debut on the junior bourse Kosdaq in 2000, started dividend payouts last year with a total of 4.7 billion won ($3.8 million), or 200 won per share.
Align said it won't file a shareholder derivative suit against the boardroom of SM and will cooperate with the board to enhance the K-pop label’s corporate governance and shareholder value.
The activist fund, founded in 2021 by CEO Lee who had managed private equity at KKR & Co., holds just around a 1% stake in SM. Align has mustered individual stakeholders to join its proxy contest against the K-pop label to create a transparent governance structure.
Among SM's key shareholders are National Pension Service (NPS) with 8.96% and KB Asset Management Co. with 5.12%. Market watchers say key shareholders are unlikely to support founder Lee in maintaining the current governance structure.
SM's stock rose 8.2% to close at 83,100 won on Friday.
The last case that an activist investor became a Korean company's board member took place in 2006, when New York hedge fund Steel Partners chief Warren Lichtenstein was elected as tobacco maker KT&G Corp.'s outside director. Unlike SM, the cigarette company doesn't have a principal shareholder -- the largest stakeholder is NPS with an 8.03% ownership, and much of its stake is held by foreign institutional investors.
Updated with the case of KT&G
Write to Jun-Ho Cha and Ji-Eun Ha at chacha@hankyung.com Jihyun Kim edited this article.