In the wake of the Samsung Group and Elliott Management clash, it would be wise for Korean business groups to reform their corporate governance structures, because most of them are currently vulnerable to interference. Many are using cross shareholding schemes that can also fall prey to foreign vulture funds at any time. “At least a couple of subsidiaries have to be subject to hostile M&As for sound corporate governance,” an expert maintained. A government official echoed the sentiment by saying, “The logic doesn’t make sense any longer that the management rights of conglomerates should be protected in any case.”
According to industry sources, the Samsung Group is currently reviewing the incident from scratch, regardless of the result of the recent shareholders’ meeting in favor of itself, in order to figure out the background of the American hedge fund’s blitz and how to prevent it from repeating itself in the future. “This is a chance for us to look into our governance structure,” one of its executive members said, adding, “We are checking the necessity of measures such as disparate voting rights.”
Korean conglomerates’ cross-shareholding structures date back to the former Park Chung-hee government, when they focused on compressed growth. These days, third-generation owners are inheriting the companies while foreign hedge fund eye them, and experts are asking them to think of better governance structures. According to market research firm CEO Score, foreign shares outnumber those in favor of major stockholders in 13 out of the 186 listed subsidiaries of the top 30 Korean business groups.
Solutions that are called for include shareholder-friendly policies, as well as mechanisms such as the poison pill and disparate voting rights. According to Bloomberg, Korea is at the bottom among 51 leading economies when it comes to average dividend payout ratios. Also required are discussions as to special governance structures like owner-driven management, because this type of management has shown high levels of effectiveness and rigidity at the same time.