(Bloomberg) -- South Korea’s regulators issued guidelines on how companies can increase shareholder returns and improve corporate governance, taking another step toward boosting depressed valuations in the nation’s $1.8 trillion stock market.

As part of the “Corporate Value-up Program” announced in February, listed firms can take steps such as setting mid-to-long term targets for return on equity as well as some non-financial indicators, the Financial Services Commission said in a statement on Thursday.

Companies that are ready to announce their goals and execution plans can unveil the details starting later this month, the FSC said, adding that board of directors are advised to actively supervise their value-enhancement plans.

The voluntary program is a key plank of the nation’s efforts to fix the so-called “Korea Discount” that’s resulted from local companies trading at a much lower valuation than overseas peers for years. At the heart of the issue is the prevalence of family-controlled businesses, or chaebols, that can wield outsized power through complex cross-shareholdings, thereby sidelining minority shareholders.

The campaign, which takes a cue from Japanese corporate reforms, helped lure massive foreign inflows to local equities earlier this year and spurred rallies in banks and automakers.

“The guidelines are not the end but the beginning of the Corporate Value-up,” said Kim Soyoung, vice chairman at the FSC. He urged listed companies to “actively participate” in establishing and executing the program.

Companies can assess their current businesses, select major indicators for measuring corporate value, and specify concrete plans to deliver their targets, the FSC said in a 35-page handbook detailing the guidelines. Investors can access companies’ plans via the local stock exchange’s corporate disclosure system. 

In order to incentivize more companies to participate in the scheme, President Yoon Suk Yeol’s government said it will offer tax benefits to those that take steps to enhance shareholder returns. The authorities brought forward the release of the program’s detailed guidelines before the opposition party’s victory in the parliamentary elections last month, likely reflecting concerns that the reform agenda may lose momentum. 

The benchmark Kospi shed 0.2% in afternoon trade Thursday, while the MSCI Asia Pacific Index rose 0.9%.     

“The template itself looks very solid with a lot of details,” said Namu Rhee, chairman of the Korean Corporate Governance Forum. “But execution is very important. The glass is half full.”

(Adds more details from the guidelines and an analyst’s comments)

©2024 Bloomberg L.P.