With South Korean companies, including Hyundai Motor Group, facing more management intervention from foreign activist hedge funds in the process of pushing for governance reform, listed firms are raising their voices to call for measures to protect their management rights.
The Korea Listed Companies Association and the KOSDAQ Listed Companies Association held a press conference at the Korea Exchange's main office in Yeouido, Seoul, on May 16 to urge the government to introduce management right protection systems.
They called for measures to deter activist hedge funds from meddling in local companies' rightful exercising of managerial rights.
They said the government needs to ensure the stability of domestic firms’ management rights by introducing dual-class shares and poison pills that are used in advanced foreign countries.
Their move was prompted by U.S. activist fund Elliott’s opposition to Hyundai Motor Group’s proposal to revamp its governance structure. Elliott’s call for shareholders of Hyundai Mobis to vote against the reform plan enlisted support from two major U.S. proxy advisers, the Institutional Shareholder Services and Glass Lewis.
The two associations pointed to a similar case in the past where Dubai-based Sovereign Asset Management attacked SK Group in 2003.
Jung Koo-yong, head of the Korea Listed Companies Association, said, “The ongoing attack against Hyundai Motor Group is particularly shocking, as even authorities regarded its overhaul efforts as desirable. It reminds us of the Sovereign Asset Management's assault against SK Group. It is critical to introduce such measures as dual-class shares and poison pills that would help Korean companies defend their managerial rights.”
A dual-class share system gives major shareholders more voting rights. It is used in the U.S. and Japan. Poison pills are designed to allow shareholders the right to buy new shares quickly at a discount so that they can defend against hostile takeover attempts.
Jung said, “South Korea’s laws related to merger and acquisition (M&A) are unfavorable to defenders of managerial cotrol compared to any other country in the world and institutionally unfair. So, the government needs to make offense and defense balance in M&A laws by introducing dual-class shares and poison pills.”
The two associations also urged the government to abolish the recently introduced restrictions on major shareholder’s voting rights, which caused controversy at general stockholders’ meetings of listed companies earlier this year.
Jung said, “Restricting major shareholder’s voting rights to 3 percent when selecting auditors is a regulation that doesn’t exist anywhere else in the world. So it should be abolished as soon as possible.”
He added that the voting rights of shareholders who could not be considered minority shareholders according to social norms should also be restricted in the same way to prevent major shareholders from suffering reverse discrimination.”