Corporate governance is one of those topics investors prefer to push into the background as long as markets are rising. Yet the quality of corporate governance is one of the most decisive factors for the long-term valuation of an equity market.
Countries that strengthen the protection of minority shareholders, improve capital allocation, and make governance more transparent are rewarded with higher valuations. Countries that move in the opposite direction ultimately pay a price. At present, two opposing trends are unfolding globally: The United States is systematically dismantling governance structures, while in Asia (including Japan and South Korea) they are being built up.
The so-called Korea discount is the most well-known example. South Korean companies traded for years at a significant discount compared to international peers, largely because the country was dominated by chaebols, opaque family conglomerates that consistently subordinated the interests of minority shareholders to those of controlling families. The existence of cross-shareholdings, the hoarding of treasury shares as a tool of control, and the absence of a genuine fiduciary duty of directors toward all shareholders structurally depressed valuations.
Japan experienced a similar phenomenon. For decades, Japanese companies maintained large cash positions, subsidized unprofitable divisions, and protected incumbent management through cross-shareholdings. As a result, return on equity structurally lagged that of US and European companies.
Transformation in Asia
This is what makes the current developments in Asia so remarkable. Japan has been engaged in governance reforms for some time thanks to Abenomics, but 2025 was the year in which this transformation was implemented in practice. The Tokyo Stock Exchange published lists of companies actively working on capital efficiency and shareholder value. Cross-shareholdings have been halved from more than 60 percent in 1990 to approximately 25 percent. Partly as a result, Japanese return on equity could reach 13 percent by 2030, an ambitious but no longer unrealistic target.
In two months, revisions to Japan’s Corporate Governance Code are expected, which, together with amendments to the Companies Act, should further strengthen the protection of minority shareholders.
South Korea is following in Japan’s footsteps but is going even further in certain areas. The Corporate Value-Up Program, launched in 2024, has quickly gained notable traction. In March 2025, the Commercial Act was amended to explicitly stipulate that directors have a fiduciary duty toward all shareholders, a measure aimed at breaking the chaebol culture. In December last year, parliament lowered the tax rate on dividend income from 45 to 14 to 30 percent, to encourage higher payouts. In February of this year, the government went a step further by requiring companies to publish Value-Up plans as a condition for tax benefits. Parliament also approved a law requiring companies to cancel repurchased shares, eliminating a mechanism that chaebol families used to maintain control with minimal direct stakes. Soon, cumulative voting will become mandatory for large listed companies, giving minority shareholders a more realistic chance of board representation.
The results speak for themselves. The Korea Value-Up Index has risen by more than 130 percent since its introduction in September 2024, foreign investor participation has nearly doubled, and the KOSPI index crossed the 5,500-point threshold for the first time in early 2026. While Japan relies on a voluntary governance code, South Korea is placing greater emphasis on binding legislation.
US in the opposite direction
On the other side of the Pacific, the United States is moving in the opposite direction. During President Trump’s second term, the governance framework is being systematically dismantled. The SEC, now led by Chair Paul Atkins, has abandoned the climate disclosure rule without formally withdrawing it. The Nasdaq board diversity rule, invalidated by the Fifth Circuit in December 2024, is not being replaced. The materiality threshold for shareholder proposals under Rule 14a-8 has been tightened, allowing companies to routinely exclude proposals on climate targets and diversity policies. The power of proxy advisory firms ISS and Glass Lewis is being curtailed through Executive Order 14366, which instructs the SEC to remove ESG and DEI mandates from the voting advisory system. In practice, this means shareholders have fewer tools to hold boards accountable.
Perhaps even more telling is the pause in enforcement of the Foreign Corrupt Practices Act. Through an executive order in February 2025, the Department of Justice was instructed to halt all new FCPA investigations and enforcement actions. The FCPA, the backbone of US anti-corruption enforcement since 1977, has not been repealed but is effectively no longer enforced. Legal experts warn that this undermines compliance awareness within companies and increases broader governance risks, from insider trading to embezzlement. The signal sent by the government is that enforcement is an obstacle to competitiveness rather than a foundation for reliable markets.
Foundation for fundamental revaluation
Corporate governance is not a dull side issue but a direct determinant of the cost of capital, return on equity, and ultimately valuation. When directors are accountable to all shareholders, when cross-shareholdings are dismantled, and when excess capital is returned to owners, the intrinsic value of a company rises structurally. The improvements in Japan and South Korea form the basis for a fundamental revaluation of the relationship between company and shareholder.
Europe occupies a middle position in this story. The Corporate Sustainability Reporting Directive enforces transparency, but the question is whether European regulation leans too heavily on reporting requirements and too little on the core of governance quality and capital allocation.
In a world full of geopolitical uncertainty, trade conflicts, and macroeconomic volatility, governance improvements are one of the few factors companies can control themselves. Japanese and South Korean equities offer revaluation potential that depends less on external conditions and more on internal discipline. US deregulation may reduce compliance costs for companies in the short term, but in the longer term it undermines investor confidence in the institutional quality of the market. And trust is ultimately the most valuable currency in capital markets.
Han Dieperink is chief investment officer at Auréus Vermogensbeheer. He previously served as chief investment officer at Rabobank and Schretlen & Co.