[Exclusive] Yang Hyang-ja Proposes Supplement to '3% Rule' Against "Reverse Discrimination"... 'From Aggregate to Individual, 1-Year Mandatory Holding'

Individual 3% Stake Without Aggregating Major Shareholders and Special Related Parties
Mandatory Holding Period Considering Most Overseas Speculative Capital as 'Short-Term'

Yang Hyang-ja, Member of the Democratic Party of Korea./Photo by Kang Jin-hyeong aymsdream@

[Asia Economy Reporter Park Cheol-eung] Yang Hyang-ja, a Supreme Council member of the Democratic Party of Korea, proposed a revision to the '3% rule,' the biggest issue in the 'Economic 3 Laws.' She suggested electing audit committee members separately but, considering the opinions of the business community, not to 'aggregate' the shares of the largest shareholders and their special related parties for restrictions, but to grant voting rights of 3% each on an 'individual' basis. She also proposed setting a one-year mandatory stock holding period to prevent unfair management intervention by overseas speculative capital.

On the 21st, Yang said in a phone interview with Asia Economy, "After thoroughly listening to the corporate side, collecting data, and analyzing the situation, I prepared some revision and supplementation measures for the Fair Economy 3 Laws, including the 3% rule, and conveyed my opinions to the party's Policy Committee," adding, "The figure of 3% is maintained, but the largest shareholders and special related parties would not have their shares aggregated and would be allowed to exercise voting rights of 3% each."

She continued, "Since most overseas speculative capital moves with 'short-term trading,' I also proposed setting a one-year mandatory stock holding period for exercising voting rights. If such supplementary measures are reflected, they would be acceptable to the business community." After the Supreme Council meeting that day, Yang also told reporters, "Either do not elect audit committee members separately, or do not aggregate the shares of the largest shareholders and special related parties?one of the two must be done."

For example, in the case of Samsung Electronics, the shares of the largest shareholders and special related parties amount to about 21%, including Chairman Lee Kun-hee (4.18%), Samsung Life Insurance (8.51%), Samsung C&T Corporation (5.01%), and Vice Chairman Lee Jae-yong (0.7%). According to the government's amendment to the Commercial Act, if audit committee members are elected separately, only 3% of voting rights can be exercised. If Yang's proposal is adopted, allowing 3% voting rights individually, the voting power would be much greater than the government's plan. Also, according to the 'Activist Revolution' report published by global investment bank JP Morgan in 2015, about 70% of hedge funds do not hold stocks for more than one year.

Yang has been the most active in reflecting corporate concerns within the Democratic Party about technology leakage caused by the 3% rule. There is a view that it could lead to reverse discrimination against domestic major shareholders. Yang said, "There are 10,000 technologies in a mobile phone, and if even one goes wrong, it becomes unusable," adding, "While maintaining the framework of the Fair Economy 3 Laws, I proposed passing the bill with some revisions to prevent reverse discrimination against domestic major shareholders. This is far from measures to facilitate minority shareholders' exercise of voting rights." Before becoming a politician, Yang worked as an executive director in the Flash Development Office of Samsung Electronics' Memory Business Division.

The People Power Party also agrees in principle with the Economic 3 Laws but insists on preparing supplementary measures to prevent risks such as information or technology leakage. The Democratic Party has been conducting opinion gathering and analysis through the 'Fair Economy 3 Laws Task Force (TF)' and its think tank, the Democratic Research Institute, and plans to decide on supplementary measures through public hearings in the future. Hong Ik-pyo, head of the Democratic Research Institute, said in a phone interview, "We analyzed concerns and facts related to the Fair Economy 3 Laws and delivered them to the party leader and the Policy Committee," adding, "As of now, I understand that the government's plan has not changed much. We will continue to gather opinions and consult with relevant ministries before the Policy Committee and Supreme Council make a decision."