[Viewpoint] Responding to the 'Three Corporate Regulation Laws': Delisting Is the Answer

Choi Joon-sun, Honorary Professor at Sungkyunkwan University School of Law

Lee Nak-yeon, the leader of the ruling Democratic Party of Korea, declared on the 6th that he would not delay the passage of the 'Three Corporate Regulation Laws.' The Blue House stated the next day, on the 7th, that "there has been enough discussion so far." Kim Jong-in, the emergency committee chairman of the People Power Party who supports the passage of the Three Corporate Regulation Laws, said on the 22nd of last month to Ahn Cheol-soo, leader of the People’s Party who opposes the bill, "It seems you do not fully understand what a free market economy is." This scene is exactly the same as when Kim retorted to Lee Han-gu, then floor leader of the Saenuri Party, who called economic democratization "unclear" on September 5, 2012, by saying it was "an unreasonable statement." Lee passed the civil service exam, studied at Boston University in the U.S., and earned a Ph.D. in economics from Kansas State University. As the Order Economics Society stated on the 6th, many Korean economists do not agree with Kim’s view on economic democratization.

There is a sure way to avoid the Three Corporate Regulation Laws: delisting (상폐). The amendment to the Commercial Act grants the National Pension Service and funds the license to attack listed companies, so unlisted companies are less affected. In the Japanese stock market, 15 companies have spent trillions of won this year to buy shares of their subsidiaries and delist them. They dislike external forces interfering in management. Whenever their interests conflict with funds disguised as minority shareholders, the companies suffer from unreasonable attacks by the funds, increasing corporate fatigue and delaying decision-making.

Japanese company law does not impose a 3% voting rights limit on auditor appointments. It also does not ease the requirements for minority shareholders to exercise their rights in listed companies. Compared to Korea, it is a corporate paradise, yet delisting is attempted. The listing of subsidiaries is pointed out as potentially threatening overall management rights. This risk is greater in Korea, which has a holding company system. The management dispute between Hanjin KAL and Korean Air is a representative case. In March last year, Hanjin KAL, the holding company of the Hanjin Group, was attacked by the private equity firm KCGI, and its market capitalization was only 1.6154 trillion won. Attacking Hanjin KAL shakes 25 affiliates, including Korean Air, with a market cap of 5.9841 trillion won. The three-party coalition including KCGI has not stopped its attacks yet.

Those calling for the passage of the Three Corporate Regulation Laws argue that since the public’s money is invested in companies, interference is necessary. The problem is that the right to interfere in management is not proportional to the investment ratio. Normally, if one invests a small amount, interference rights should be granted accordingly, but the law grants more than that under the name of minority shareholder rights. Politicians continuously insist on granting more rights. Some even say that listed companies are 'public goods' of society.

The answer to avoid such troubles is to delist. In reality, once listed, companies are only supervised by the Financial Services Commission and the Financial Supervisory Service, and the benefits gained are minimal. If many good companies are listed, expanding investment options, it helps ordinary people save money. That is why former President Park Chung-hee forced the listing of large Korean companies in 1972. However, if politicians continue to harass companies like this, delisting seems to be the only option.

There are successful companies that are not listed. One is Booyoung Group. Booyoung Co., Ltd. ranks first in donations relative to sales among Korea’s top 500 companies. Its social contribution activities are countless, having already contributed a cumulative 860 billion won. It built 220,000 rental apartments for low-income families through rental housing projects, which are unprofitable and not undertaken by other construction companies except Korea Land & Housing Corporation (LH). It established Woojung Bookstore and published many valuable books, including the historical record 'Gwangbok 1775 Days,' which chronicles the turbulent period from liberation to the eve of the Korean War. Lee Joong-geun, chairman of Booyoung and a native of Suncheon, Jeollanam-do, acquired Changshin University in Changwon, Gyeongsangnam-do, and provides scholarships for all freshmen for one year.