[The Editors' Verdict] What the Kyobo-Affinity ICC Arbitration Ruling Left Behind

Donggi Lee, Professor at Seoul National University Graduate School of Business

The ICC arbitration ruling triggered by the Affinity Consortium (Affinity Equity Partners, IMM PE, Baring PE, Singapore Investment Corporation)'s exercise of the put option has ended in a de facto victory for Shin Chang-jae, Chairman of Kyobo Life Insurance.

Chairman Shin Chang-jae has protected both practical benefits and the company's management rights. The immediate burden of having to purchase the put option, as well as the burden of raising a large sum of money for this purpose, has been temporarily resolved.

On the other hand, the Affinity Consortium's plan to receive over 2 trillion won in put option exercise payments through ICC arbitration appears to have been thwarted. Although the put option rights were recognized, the Affinity Consortium has lost the practical means to enforce them, making it difficult to recover their investment.

Furthermore, with the Affinity Consortium and related personnel from the accounting firm that performed the services being indicted by the prosecution for violating the Certified Public Accountant Act, and criminal trials underway, the put option issue has escalated into a matter concerning the trustworthiness of accounting firms regarding objective valuation.

While civil lawsuits have often arisen during private equity funds' exit processes to recover investments, cases escalating into criminal incidents are almost unprecedented. The accounting industry is reportedly sensing a reluctance to perform valuation work for unlisted companies, indicating significant ripple effects on the capital and financial markets.

If the prosecution's indictment, which views the Affinity Consortium members and affiliated accountants as intentionally inflating Kyobo Life Insurance's fair market value per share, is true, private equity funds attempted to exercise put options based on overvalued figures, thereby causing corporate crises due to management uncertainty.

The shareholder dispute between Chairman Shin Chang-jae and the Affinity Consortium was not a case of management rights threatened by poor management.

Despite consistently excellent performance, the crisis arose from a conflict between the private equity fund's pursuit of short-term profits and the owner-manager's pursuit of long-term value.

It is reported that from the IPO promotion stage, regulatory uncertainties made it difficult to determine the scale of capital expansion, leading the board to postpone the IPO, and conflicts arose with financial investors, the private equity funds, who focused on recovering their investments rather than the company's profits.

Recently, with ESG (Environmental, Social, and Governance) management becoming a hot topic, management focused on long-term stakeholder value rather than short-term shareholder profits is being emphasized. Furthermore, coexistence rather than a zero-sum game among stakeholders is being valued.

Under the grand goal of enhancing long-term corporate value, owner-managers and private equity investors should become partners for mutual growth. It is hoped that this ICC arbitration ruling will help some private equity funds shed the stigma of pursuing excessively short-term profits and become responsible stakeholders supporting the long-term growth of companies.

The founding family of Kyobo Life Insurance has built a good external image as a company with a strong compliance spirit, having paid the largest inheritance tax in the past and supported the independence movement as a national company. It is a significant social and economic loss that this leading domestic company, which has grown alongside South Korea's economic development and established a stable position, is now embroiled in confusion due to private equity funds and management uncertainty crises.

It is now time to leave behind the exhausting disputes with private equity funds and quietly walk the path of 'humanistic management.' For Kyobo Life Insurance, this is the golden time to enhance corporate value from a long-term perspective and seek future growth engines. We look forward to Kyobo Life Insurance shaking off the management uncertainties that have weighed heavily on its shoulders and tightening the reins of development and innovation.

Lee Dong-gi, Professor, Graduate School of Business, Seoul National University