Although shareholder activists lost a battle yesterday with the re-election of convicted fraudster Chey Tae-won as chairman of Korean oil refiner SK Corp, they have every incentive to keep fighting the war. In their sights is the Korea discount. This is the tendency of shares in Korean companies to trade at prices 25 per cent or more below comparable stocks in other markets. The discount reflects poor corporate governance, and is especially prevalent among the chaebol, or family-run conglomerates. SK Corp is a good example. Mr Chey, the nephew of SK Corp's founder, owns only about 1 per cent of the company's stock. But a complex web of cross-holdings among SK Corp's affiliates, together with a widespread belief in the Chey family's right to run the company, allows him to exert management control. For many investors - Korean as well as foreign - corporate governance anomalies like this ring alarm bells. They argue it is wrong to allow controlling families with only small ownership stakes to get their hands on company cash flows. They believe it is too much of a temptation to misconduct, as family members have every incentive to run the company for their own benefit, but little interest in raising shareholder value. The strategy of activist investors such as Sovereign Asset Management, the private capital fund which led the attempt to oust Mr Chey, is to search out just such cases. They look for companies in sound businesses but whose stock price performance is handicapped by egregious management. They buy sizable stakes, then lobby hard for improvements in corporate governance. The idea is that as management standards rise, the discount at which the stock trades will narrow, earning the activists a handsome return. Although Sovereign has now twice failed to depose Mr Chey, its pressure has forced SK Corp to become a lot more transparent and responsive to shareholders. The improvement has been reflected in the firm's share price. In the two years since Sovereign acquired its 15 per cent stake, SK Corp's stock has risen 576 per cent. With such big gains to be made even in defeat, campaigners like Sovereign are going to keep on battling.