The Minjoo Party, which is the opposition but largest party in the National Assembly of South Korea, is planning to handle a commercial law revision bill in the extraordinary session of this month. The Korea Chamber of Commerce & Industry (KCCI) is opposed to the opposition party’s plan, claiming that the amendment for restricting the rights of large shareholders in large companies contains some stipulations that can damage the basic principle of market economy.
According to the amendment, new treasury stock distribution is to be banned or a corporate tax is to be imposed in the event of distribution in the case of conversion to a holding company following spin-off. After the passage of the amendment, it is impossible for Samsung Electronics, which recently declared that it would adopt a holding company structure, to carry out the existing type of spin-off that leads to an increase in the shareholding ratio of large shareholders by means of treasury stocks. This means the company’s governance structure reform it is currently working on can be hindered for some time. As of early last month, the owners of the company had 4.91% of it and the ratio was 18.45% when all the shares of Samsung Group subsidiaries were added. Without 12.8% treasury stocks being included in new stock issuance in the case of spin-off, Samsung Electronics has a hard time satisfying the requirement for the conversion, that is, at least 20% for a listed company and at least 40% for a non-listed company.
At present, South Korean conglomerates such as Samsung Group, Hyundai Motor Group and Hanwha Group are in need of intermediate financial holding companies for holding company structure adoption but their governance reform has come to a halt for the opposition from the opposition party. Those groups are also against the opposition party’s plan for limiting the voting rights of large shareholders and affiliates to 3% in the case of inside director and audit committee member selection.
The groups’ concerns are on the rise with the opposition party very adamant in spite of the KCCI’s objection. The KCCI suggested an active use of the Stewardship Code brought in late last year as an alternative to the amendment. The Stewardship Code is a set of voluntary guidelines for encouraging major institutional investors, such as asset management firms and pension funds, to exercise their voting rights in a more active way. Still, none of them has joined the code yet.