Business Community Opposed to '3% Rule'
The government and the ruling party are planning to revise the Commercial Act so that the exercise of voting rights by each major shareholder and affiliate person is limited to 3 percent of issued stocks during audit committee member appointment in a listed company. The Federation of Korean Industries said that most leading South Korean enterprises’ management rights would be jeopardized once the law is changed so and this is because of foreign investors’ overwhelming dominance in terms of voting rights. The business community is calling for the government not to adopt the 3 percent rule.
“In the case of Samsung Electronics, major shareholders, affiliate persons and friendly shareholders can exercise 8.55 percent of voting rights under the current law and the figure rises to 17.76 percent according to the amendment,” the federation explained, adding, “The latter is much lower than foreign institutional investors’ 27.61 percent.”
In fact, the limitation on major shareholders’ voting rights has existed in the law without causing controversy. The issue, however, has come to the surface as the amendment contains separate audit committee member appointment. Once the bill is passed, even a TSMC executive, for example, can become a member of the audit committee of Samsung Electronics.
According to the federation, a similar outcome is predicted in most top market cap companies. “After the bill is passed, the figure is 9.32 percent versus 24.87 percent in SK Hynix, 5.98 percent versus 31.06 percent in Naver, and 16.84 percent versus 8.60 percent in LG Chem,” it said, adding, “Of the top five, Samsung Biologics is the only one where major shareholders, affiliate persons and friendly shareholders can outnumber foreigners, 10.38 percent versus 5.67 percent to be specific.”
The ruling party and the business community have discussed the issue on a lot of different occasions. The community is claiming that their management rights can be protected only after the 3 percent rule is eliminated or the percentage is adjusted to at least 10 percent or 20 percent.