The South Korean government on Monday unveiled a plan to help companies enhance shareholder value by addressing the so-called “Korea discount” that has plagued the local markets for years. Markets, however, seem unimpressed.

The Korea discount is a chronic issue in which Korean shares are undervalued compared with their peers in other markets, reflecting smaller-than-expected shareholder returns and poor corporate governance.

Under the “corporate value-up program,” the government plans to offer incentives such as tax benefits to nudge companies listed on the Korean stock market to outline their strategies to boost corporate value and provide related financial metrics to the public through disclosures.

The program includes the establishment of a new corporate "value-up" index designed to help institutional investors make informed investment decisions by identifying companies in the value-up program. Exchange-traded funds tracking the new index will also be listed this year so that retail investors can better access the related companies. In addition, the Korea Exchange will run a dedicated department to support the corporate value-up program.

These are the key details of the corporate value-up program presented by Kim Joo-hyun, head of the Financial Services Commission, at a seminar on Monday. The FSC said a follow-up seminar is slated for May and the final guidelines will be determined in June so that companies can disclose their plans in the second half of this year.

The Korean value-up program appears similar to Japan’s corporate governance push to enhance shareholder returns and boost earnings, which has elevated Tokyo markets to record highs.

But the market reaction, at least so far, is not encouraging. Some of the shares with low price-to-book value, which had risen in the past two months on expectations of the new policy, lost ground on Tuesday and Wednesday.

The main reason for the lackluster response on the market lies in the very nature of the program, according to financial analysts. Unlike other regulatory measures, the corporate value-up program is largely focused on voluntary participation. Details of the tax breaks linked to the program are also disappointing, as companies expected the government to offer decisive tax incentives for share buyback programs or a big cut in corporate taxes.

Companies might also be less than keen to follow guidelines like the disclosure of their value increase plans since there is no compulsory schedule to follow.

Unless the government’s tax breaks and other incentives are significantly generous, companies are unlikely to speed up formulating value-up plans since it is difficult to deal with the thorny corporate problems, particularly those related to corporate governance issues.

The government has not mapped out any ways to address the distorted corporate governance structure at many family-owned conglomerates, or chaebol, where a handful of figures from the founder’s family control a large number of sprawling affiliates.

In theory, the boards of directors are supposed to make consistent efforts to enhance corporate value on behalf of all shareholders, including minority stakeholders. In reality, neither the boards nor minority shareholders have a say in key corporate decisions, due to the outsize control and benefits enjoyed by a small number of controlling shareholders.

Those controlling shareholders at family-controlled conglomerates tend to resist any substantial changes to the regulatory status quo and ignore the views of minority stakeholders regardless of whether such it undermines stock value -- one of the key structural problems to address the Korea discount.

Another perspective to consider is the contrasting corporate performances between Korea and Japan. The Japanese government’s policy to enhance corporate value did have a role in the stellar performance of its stock markets, but the bigger factor was higher earnings reported by Japanese firms, while many Korean companies struggled with lower operating profits last year.

Given the mounting issues, Korean policymakers should map out a long-term plan to truly enhance corporate value since the corporate value-up program is just the first, incomplete step toward proper valuation.