"Fundamental Improvement Discussions Needed for Corporate Perception Shift"
23 Asset Management Firms Share Field Experiences at Meeting
Focus on Controversy Surrounding Doosan Group Corporate Restructuring
Financial Supervisory Service Governor Lee Bok-hyun is delivering opening remarks at the 'Financial Supervisory Service Governor-Asset Management Company CEO Meeting' held on the 8th at the Korea Financial Investment Association in Yeouido, Seoul. Photo by Kang Jin-hyung aymsdream@
On the 8th, Lee Bok-hyun, Governor of the Financial Supervisory Service (FSS), once again mentioned the need to discuss the 'duty of loyalty of directors,' which had been dormant for some time, against the backdrop of recent cases of minority shareholder damage involving the 'Doosan Group corporate restructuring plan.'
At a meeting with CEOs of asset management companies that day, Governor Lee expressed regret that "despite the government's efforts to advance the capital market, cases of corporate management prioritizing controlling shareholders' interests continue to recur," and stated, "I believe it is now necessary to discuss fundamental improvement measures centered on principles regarding the duty of loyalty of directors to bring about a thorough change in corporate awareness."
The duty of loyalty of directors is stipulated in Article 382-3 of the Commercial Act. In the United States and the United Kingdom, the board of directors owes a duty of loyalty to the 'shareholders,' and in Germany, the 'majority shareholder' owes a duty of loyalty to other 'shareholders.' However, in Korea, directors owe a duty of loyalty to the 'company.' Because of this, when the interests of minority shareholders and controlling shareholders conflict, the board tends to make decisions favorable to the controlling shareholders, causing harm to minority shareholders, leading to ongoing calls for legal amendments.
The recent catalyst for the need to amend the Commercial Act was the Doosan Group. The Doosan Group recently announced a business restructuring plan involving the spin-off and merger between Doosan Robotics and Doosan Enerbility, and a comprehensive stock swap between Doosan Bobcat and Doosan Robotics, transferring Doosan Bobcat to become a wholly owned subsidiary of Doosan Robotics. However, controversy arose in the market over the merger ratio. Doosan Robotics shares were allocated at 0.63 shares per one share of Doosan Bobcat, with claims that Doosan Bobcat's corporate value was undervalued. The Korea Corporate Governance Forum, a gathering of asset management companies, commented, "This is a case of maximally abusing the merger ratio provisions under the Capital Markets Act," and argued that the 30-year-old Enforcement Decree of the Capital Markets Act, which allows the exchange of stocks of two affiliated companies with a 183-fold difference in sales on a 1:1 (monetary basis) ratio, should be amended. The FSS also requested Doosan to revise its securities registration statement and to clearly disclose merger synergies, and Doosan submitted a revised registration statement to the FSS on the 8th.
This issue was also pointed out in the National Assembly. Earlier, on the 25th of last month, during a business report to the National Assembly's Political Affairs Committee, Governor Lee responded to a question from Kim Hyun-jung of the Democratic Party regarding the need to amend the Commercial Act by saying, "I think it is time to consider principles rather than regulating individual acts."
Asset management companies also conveyed to the authorities their agreement on the necessity of the duty of loyalty of directors. Kim Min-guk, CEO of VIP Asset Management, who presented that day, argued, "For value-up, it is necessary to introduce directors' shareholder loyalty duties, mandate cumulative voting, expand stewardship codes for asset managers, and abolish the financial investment income tax." Choi Hyuk-jae, head of Franklin Templeton Korea, also said, "To align value-up programs with global standards, it is necessary to expand the scope of directors' duty of loyalty and resolve structural unfairness among shareholders," citing improvements in valuation methods during mergers and stock swaps among listed affiliates as examples.
In written responses submitted in advance by 23 asset management companies to the authorities, Doosan and SK Groups, which have recently taken actions contrary to value-up efforts, were mentioned as cases of minority shareholder damage. During the relay-style speaking opportunities lasting one to two minutes at the meeting, some CEOs urged the necessity of the duty of loyalty of directors. Common keywords included "fair protection of shareholder interests," "protection of common shareholders' value," and "protection of shareholder rights."
A representative of Asset Management Company A said, "It seemed like a session where the authorities both requested and reproached asset management companies regarding voting rights," and added, "There was a consensus that the duty of loyalty of directors must be implemented." Asset Management Company B stated, "Regardless of whether it is public or private, most asset managers recognize the necessity of the duty of loyalty of directors," and expressed expectations that related discussions would gain momentum due to the good example of the Doosan Group.
However, discussions on amending the Commercial Act regarding the duty of loyalty of directors are expected to be difficult to conclude quickly due to sharply conflicting interests. The amendment bill to expand the duty of loyalty of directors was excluded from the capital market advancement measures included in the 'Dynamic Economy Roadmap' announced by the Ministry of Economy and Finance on the 3rd of last month. It is anticipated that close discussions among related ministries, including the Ministry of Justice?which is known to have opposed the amendment?along with the Ministry of Economy and Finance and the Financial Services Commission, will be necessary. The business community is also vocally opposing, saying, "Expanding the duty of loyalty of directors to all shareholders is logically inappropriate."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
