[Insight & Opinion] The Tears of Samsung Electronics Shareholders and the Commercial Act Amendment

Disappointed by the Setback in Capital Market Revitalization
Foreign Investors Exit, Leading to Stock Price Plunge
Strengthening Board's Fiduciary Duty to Shareholders
Commercial Act Amendment Could Revive the Stock Market

In the first half of this year, the author held hope that this year could become a monumental year in the history of South Korea's capital market. At the Korea Exchange opening ceremony, the President promised to amend the Commercial Act to strengthen the fiduciary duties of the board of directors in order to resolve the Korea discount. Subsequently, the Financial Services Commission Chairman and the Deputy Prime Minister for Economy also expressed their commitment to amending the Commercial Act. A government-led value-up program was also implemented. The author was surprised that the economic authorities, who had been passive about revitalizing the capital market in the past, took the lead, but felt a renewed sense of emotion upon realizing that a consensus had been formed that the capital market could no longer be left as it was. This hope was not held by the author alone. Foreign investors, who are particularly sensitive to governance issues in domestic stocks, drove the stock price up to the high 80,000 won range by net buying about 150 million shares of Samsung Electronics stock by July 11.

However, the anticipated movement to amend the Commercial Act did not materialize. The market, which expected the government or ruling party to legislate the amendment in the first half of the year, began to doubt the government's sincerity as no signs appeared even during the hot summer. Now, foreign investors have sold off about 300 million shares of Samsung Electronics stock by the end of November, causing the stock price to plummet. Everyone the author met made the question of what to do with their Samsung Electronics shares a topic of conversation. They expressed anger, sadness, regret, and fear. Despite having studied diligently and fluently analyzing Samsung Electronics using difficult IT terminology, they did not understand why foreign investors were selling their shares so aggressively.

As the year-end approached, the opposition party, unable to wait any longer, reportedly made the amendment to the Commercial Act their party platform and is pushing strongly for it. However, it seems unlikely to be easy. The nightmare of past efforts to amend the Commercial Act or Capital Market Act to resolve governance issues being thwarted and worsened by strong opposition from interest groups representing major shareholders comes to mind. As expected, the presidents of 16 conglomerates issued a statement strongly opposing the amendment. As if waiting for this, economic authorities and ruling party figures have begun to reverse their previously expressed intentions to push for the amendment. It is incomprehensible why this important economic bill is once again becoming a matter of ruling party versus opposition party division.

As always, the first reason they give for opposition is that lawsuits will proliferate, making company management difficult. Does this mean they intend to continue illegal acts that deprive shareholders of their rights even if the Commercial Act is amended? After the amendment, the board of directors will perform its original role of monitoring illegal acts by management on behalf of shareholders, so it is expected that lawsuits will not increase significantly. The second reason is that management rights could be threatened by attacks from foreign speculative capital. If management rights are thought of as some kind of premium that allows major shareholders to skim profits from shareholders, such concerns might be understandable. However, if major shareholders manage the company well and do not neglect shareholder returns, so that the stock price is not significantly undervalued, many shareholders will side with the major shareholders, so there is no reason to worry about this.

It can be stated with certainty that if the amendment to the Commercial Act passes, foreign buying will resume, and the prices of domestic stocks, led by Samsung Electronics, will rise. In the long term, large sums of money will flow into South Korea's capital market, greatly reducing the Korea discount. The revitalization of the capital market will also bring considerable economic stimulus effects. The author appeals to the government and the major shareholders of the 16 conglomerates. It is too painful for the author to continue watching the tears of surrounding shareholders. Wiping away their tears is your duty.

Seojunsik, Professor of Economics, Soongsil University