"Subsidiary Shareholding Restrictions Cause Discrimination Against Internal Transactions in Holding Companies"
Business Community Calls for Comprehensive Review of Financial and Industrial Separation Regulations
[Asia Economy Reporter Moon Chaeseok] Due to the minimum shareholding ratio regulation applied to holding companies, which causes reverse discrimination compared to non-holding companies in areas such as internal transactions and separation of banking and commerce, there are calls for regulatory relaxation.
The Korea Chamber of Commerce and Industry (KCCI) announced on the 20th that it held a "Fair Competition Forum" at 7:30 a.m. in the EC Room of the Chamber of Commerce building in Jung-gu, Seoul, discussing the topic "The Need for Policy Shift on Holding Companies." Economic panelists attending the forum included Woo Tae-hee, Executive Vice Chairman of KCCI; Lee Hyung-hee, SV Chairman of SK Supex Council; Lee Geun-soo, Executive Director of Samsung Electronics; and Jung Jeong-hwan, Team Leader of SK Supex. Presentations were given by Professor Joo Jin-yeol of Pusan National University Law School, Professor Lee Dong-won of Chungbuk National University Law School, Kim Hyun-jong, Advisor at Kim & Chang Law Firm, Professor Jung Jae-hoon of Ewha Womans University Law School, and Professor Min Se-jin of Dongguk University Department of Economics.
At the forum, there was a unanimous voice that Korea’s holding company regulations are unnecessary "like a stone in a shoe" and are much stricter than global standards. It was argued that outdated fair trade policies created during the high-growth period are now hindering Korean companies in global industrial competition. Unlike Korea, countries such as the United States, the European Union (EU), Japan, and China do not impose prior regulations. In his keynote presentation, Professor Joo Jin-yeol stated, "Holding company regulations originated from fears in the late 19th and early 20th century America that large corporate groups could undermine democracy," adding, "Among major countries today, Korea is the only one regulating holding companies through competition law."
There were also criticisms that the law, introduced solely to regulate chaebols, interferes with corporate group management decisions. Professor Min Se-jin said, "Korea introduced holding company regulations with the intent of chaebol regulation, failing to consider that the choice of corporate group structure is fundamentally a business decision," and added, "While holding company policies have unclear contributions to regulating large corporate groups, they perpetuate concerns about uncertainty and overregulation." Professor Lee Dong-won also stated, "Holding company regulations need to be comprehensively reviewed to align with global standards."
It was pointed out that holding companies face reverse discrimination compared to non-holding companies due to regulations. Particularly, there were many complaints about strict regulations in areas significantly affecting management, such as internal transactions and separation of banking and commerce. A business representative participating as an economic panelist argued, "Since the IMF (International Monetary Fund) foreign exchange crisis, the government has encouraged conversion to holding companies to resolve circular shareholding and simplify ownership structures, but recent amendments to the Fair Trade Act and Commercial Act have exposed holding companies to greater legal risks than non-holding companies, resulting in reverse discrimination."
Under the Fair Trade Act, internal transactions are prohibited for listed and unlisted companies where the controlling family holds 20% or more of shares, and for subsidiaries where these companies hold more than 50% of shares. Holding companies must hold at least 50% of unlisted subsidiaries and 30% of listed subsidiaries. Consequently, there are continuous concerns that holding companies are more exposed to internal transaction regulations than non-holding companies.
Separation of banking and commerce regulations were also criticized. In particular, the complete prohibition of management activities such as owning financial companies and establishing strategic industry funds was pointed out as inconsistent with global standards. Professor Joo Jin-yeol said, "Recent legislation reflects changes in the times, such as allowing internet-only banks and corporate venture capital," and argued, "Today, separation of banking and commerce regulations should be discussed from the perspective of financial efficiency and system stability rather than economic power concentration suppression, and thus should be transferred to the Financial Services Commission." An economic panelist also emphasized, "Given the need for 'corporate-led strategic industry funds' capable of large-scale fundraising to keep domestic industries competitive globally, it is time to comprehensively review separation of banking and commerce regulations, provided it does not violate the legislative intent."
There was also an opinion that the "3% rule," applied when electing audit committee members separately under the Commercial Act, should be revised. The 3% rule limits controlling shareholders or related parties to exercising only 3% of shares in appointing auditors or audit committee members of listed companies. It was created to prevent excessive influence by major shareholders. Exercising voting rights according to actual shareholdings is difficult. Since holding companies must hold 30-50% of subsidiary shares, they suffer more disadvantages than non-holding companies. Additionally, complaints were raised that holding companies face greater risks of multiple derivative lawsuits under the Commercial Act compared to non-holding companies. This was also attributed to the "subsidiary shareholding regulation." Because holding companies are required to hold subsidiary shares, if a subsidiary becomes involved in litigation, the parent holding company inevitably gets dragged into it.
Woo Tae-hee, Executive Vice Chairman of KCCI and moderator of the discussion, said, "Holding company policies were introduced 20 years ago as prior regulations without a process to distinguish the good from the bad, focusing only on domestic competition, and now act as factors restricting rational business choices," emphasizing, "It is necessary to review the necessity of maintaining regulations and drastically ease regulations on business activities that help national economic development and are beneficial for global competition."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
