Briefing at Seoul Myeongdong Bank Hall on the 28th
"Judged as very serious... Conclude as quickly as possible"
"Reasonable" on shareholder protection principles under the Capital Markets Act
Lee Bok-hyun, Governor of the Financial Supervisory Service, is entering the Bankers' Hall in Myeong-dong, Seoul, on the 28th to attend a meeting between the FSS Governor and the chairpersons of bank holding company boards. Photo by Heo Young-han
On the 28th, Lee Bok-hyun, Governor of the Financial Supervisory Service (FSS), revealed that he discovered accounting issues such as unrecognized impairment losses related to environmental pollution concerns in Yeongpung, which is currently involved in a management rights dispute with Korea Zinc.
Governor Lee held a briefing at the Bankers Hall in Myeong-dong, Seoul, in the afternoon and stated, "We have transitioned to an audit this week and have begun on-site investigations," emphasizing, "We view this very seriously and are preparing to reach a conclusion on the negative accounting treatments as swiftly as possible."
The FSS began an accounting review last month targeting Korea Zinc and Yeongpung to examine suspicions such as provisions for liabilities or impairment of investment securities raised during the tender offer process. If issues are detected during the accounting review, it will escalate to an audit investigation.
Regarding MBK Partners, a private equity fund aiding Yeongpung, he said, "In the past, such acquisitions did not raise issues due to the separation of financial and industrial capital," adding, "Now, we believe it is necessary to consider the side effects caused by financial capital's control over industrial capital."
Governor Lee also mentioned, "When financial capital that needs to wind down its business within 5 to 10 years gains control over our industrial capital, for example, without considering maintaining the overall business scale, they might sell off major business units, which could harm shareholder value from a mid- to long-term perspective. This is a topic we need to contemplate more deeply."
He further stressed, "Regarding market order disruption, our goal and principle are to establish market trust and order, not to side with any party," and reiterated, "We will respond to market order disruption with a zero-tolerance policy."
On discussions about legal amendments for shareholder protection principles, Governor Lee changed his stance, saying, "At this stage, establishing shareholder protection principles through amendments to the Capital Markets Act seems a more reasonable approach than introducing directors' fiduciary duties under the Commercial Act." Previously, he had advocated for expanding the fiduciary duty of corporate directors from the 'company' to the 'shareholders' under the Commercial Act.
He explained, "The issues stem from mergers and physical spin-offs of listed companies. Currently, there are about 2,400 listed companies, and it is reasonable to establish a regulatory framework for these listed companies," adding, "If the Commercial Act is amended, it would apply to over one million corporations, which raises some doubts about its appropriateness."
For example, through amendments to the Capital Markets Act, mechanisms would be created to guarantee fair valuation in mergers, spin-offs, or comprehensive stock exchanges. Obligations to retain data would also be imposed to prove the appropriateness of information disclosure and valuation retrospectively. Additionally, in the case of physical spin-offs, devices would be established to allow parent company shareholders to share in listing gains.
Governor Lee said, "Personally, I have held numerous expert meetings, dialogues with investors, collaboration with experts, and discussions with financial professionals," and added, "Please consider that these concerns are all reflected in what I have just shared."
The government recently shifted its approach through party-government consultations, moving away from expanding directors' fiduciary duties under the Commercial Act from the company to shareholders, toward establishing special provisions for shareholder protection principles in cases of mergers of listed companies via amendments to the Capital Markets Act.
Governor Lee also remarked, "Given the severe economic situation and the difficulties faced by stakeholders, I believe it is better to proceed with tailored amendments to the Capital Markets Act rather than engage in overly exhausting debates."
However, he also stated, "It is better for companies to communicate with shareholders, appoint directors who can represent shareholder rights, and engage in dialogue together," adding, "I view negatively any forced measures imposed by law without resolving stakeholder interests."
He continued, "Instead, companies should strive to ensure that shareholders' voices are well reflected in general meetings and board meetings," and explained, "For example, by disclosing agenda items in advance or providing shareholder registers at appropriate times, substantive shareholder rights can be reflected in general meetings or board meetings, which can prevent excessive legislation."
Governor Lee also publicly raised his voice to Han Dong-hoon, leader of the People Power Party, saying, "Honestly, I hope the ruling party leader does not ignore this topic and takes a direct interest in it."
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