[Opinion] Controversy Over Differential Voting Rights

Jinyoung Shin, President of the Korea Corporate Governance Service and Professor at Yonsei University School of Business

The most controversial aspect of Coupang's IPO news is the dual-class voting rights granted to Chairman Kim Beom-seok of the board. Coupang's shares are divided into two types: Class A common shares, which grant one voting right per share, and Class B shares, which grant 29 voting rights per share. All Class B shares are owned by Chairman Kim Beom-seok. Upon the announcement, not only domestic media and business circles but also political sectors raised their voices, arguing that since Coupang, a Korean company, listed on the U.S. stock market due to dual-class voting rights, South Korea should promptly allow dual-class voting rights as well. To get straight to the point, even if dual-class voting rights were permitted domestically, the likelihood of Coupang listing on the Korean stock market is almost zero.

Korea's Coupang is a wholly owned subsidiary of Coupang LLC, which is registered as a corporation in Delaware, USA, and this IPO is actually the listing of Coupang LLC. It is known that almost all of the approximately 5 trillion won in funds, including the $3 billion invested by SoftBank, chaired by Masayoshi Son, were raised from overseas institutional investors. Additionally, Coupang's accumulated losses amount to about 4 trillion won, making domestic listing difficult under the current financial conditions. In conclusion, the decision to list on the U.S. stock market, where investors can receive a higher corporate valuation, facilitate easier capital recovery post-IPO, and resolve potential disputes with management more smoothly, is a rational choice from an investor's perspective.

Dual-class voting rights is a system that grants certain shares more voting rights compared to others. Many foreign companies, especially IT companies like Facebook and Google, have founders or their families securing control over the company through dual-class voting rights.

However, abroad, opposition to dual-class voting rights is growing, mainly among institutional investors and regulatory authorities. State Street has urged the SEC to ban dual-class voting rights entirely, and international proxy advisory firms ISS and BlackRock also maintain strong opposition. S&P Dow Jones announced that it will exclude companies with dual-class voting rights from the S&P 1500 index in the future.

Recently, as competition among stock exchanges to attract listed companies intensifies, exchanges in Hong Kong and Singapore have allowed dual-class voting rights, sparking controversy over this system in the Asian region as well. South Korea is also expected to partially allow dual-class voting rights starting this year. According to a government bill pending in the National Assembly, dual voting rights of two to ten votes per share will be permitted only for unlisted venture companies. If the founder's stake falls below 30% due to large-scale investment attraction, multiple voting rights shares can be issued for up to ten years.

While companies welcome this, concerns are also growing. Above all, it is necessary to carefully consider the criticism that existing companies might use this system to strengthen management control or for inheritance purposes. The dual-class voting rights granted to Chairman Kim are akin to existing shareholders giving a vote of confidence in his management. Although he has secured absolute management rights, considering that if Coupang's management faces difficulties and additional funding is needed, support must be obtained from existing investors including Chairman Masayoshi Son, it can be said that investors have practical means to check Chairman Kim. Coupang's case is a special one, and I hope that this will not be used as a basis to push for the full introduction of dual-class voting rights.

Shin Jin-young, President of the Korea Corporate Governance Service & Professor of Business Administration at Yonsei University