[Desk Column] What Matters More Than Differential Voting Rights

[Asia Economy Reporter Jeon Pil-su] It was lost to the U.S. because of dual-class voting rights. It is simply a case of a U.S. company listing in the U.S.

The announcement of Coupang's listing on the New York Stock Exchange (NYSE) has stirred not only the securities industry but also the political sphere. The NYSE is known for having disclosure regulations that are stricter than those in Korea. The penalties for violating these regulations are harsh beyond comparison with domestic standards. For example, the CEO of Enron, a global energy company, was sentenced to 24 years and 4 months in prison for accounting fraud, and the auditing firm Arthur Andersen was dissolved.

Despite these burdens, Coupang’s move to the U.S. is widely analyzed by the securities industry and related sectors as being primarily due to dual-class voting rights. Coupang plans to list two types of common stock, Class A and Class B, with Kim Beom-seok, Chairman of Coupang’s Board, holding Class B shares that carry 29 votes per share.

Dual-class voting rights protect founders from losing control due to dilution of ownership when raising capital. Coupang has raised trillions of won from investors such as the SoftBank Vision Fund. In this process, Chairman Kim’s ownership percentage has likely dropped significantly compared to the early days of the company. When going public and raising funds through an IPO, the ownership percentage decreases further. However, having shares with 29 votes each means there is no need to worry about losing control.

The first reason behind the dual-class voting rights and the NYSE listing is likely the fact that while the U.S. offers such privileges to attract companies, Korea instead stifles entrepreneurs with various restrictive regulations. This is probably the underlying sentiment. On the 15th, Ha Tae-kyung, a member of the People Power Party, stated on Facebook, “Coupang listed on the U.S. stock market because there is a threat of management takeover if it lists on the Korean stock market,” adding, “Dual-class voting rights that grant 29 votes per share to founders exist in the U.S. but not in Korea.” This can be seen in the same context.

This argument appears somewhat persuasive. Not only the conservative opposition but also the government is currently promoting a plan to grant up to 10 votes per share for unlisted venture company founders and CEOs. However, there was discomfort with the view that dual-class voting rights were the primary reason for Coupang’s move to New York. Kwon Chil-seung, Minister of SMEs and Startups, responded to such concerns by saying, “It is a U.S. company listing in the U.S.,” and “Having multiple voting rights (dual-class voting rights) does not necessarily make listing easier, nor does the absence of them mean listing is impossible.”

In fact, it is not Coupang itself but Coupang LLC, a U.S. Delaware-based company that owns 100% of Coupang’s shares, that is listing on the NYSE. The company in which SoftBank invested nearly 4 trillion won is also Coupang LLC. Founder Kim has been publicly stating his intention to list on the U.S. stock market for over 10 years.

From a founder’s perspective, dual-class voting rights are certainly attractive. However, for institutional investors and other shareholders, voting rights are correspondingly limited. It is said that unless one is an exceptional founder, insisting on dual-class voting rights makes it difficult to attract investment.

Coupang is still not profitable. Its accumulated deficit approaches 4 trillion won. Yet it has received several trillion won in investment and was granted dual-class voting rights with 29 votes per share. This means its future value has been highly evaluated. It is the result of building a new business model in Korea, where doing business is difficult. The important point is not the dual-class voting rights themselves but whether the company and entrepreneur are worthy of receiving such rights. The concerns of politicians and market participants should focus not on self-interested, exhausting political disputes but on how to create such companies and attract them to the domestic market.