[Column] Gukjang Is Also in the Galapagos

Before Opposing the Commercial Act Amendment, Companies Must Consider Enhancing Shareholder Value
Large-Scale Surprise Paid-In Capital Increases Show Shareholder Rights Are the Lowest Priority

Recent large-scale paid-in capital increases in the business world came at a peculiar time. Samsung SDI's announcement of a 2 trillion KRW capital increase on the 14th came the day after the National Assembly passed the amendment to the Commercial Act, and Hanwha Aerospace's capital increase, the largest ever at 3.6 trillion KRW, was approved by the board six days later. Both companies claim these were the best decisions to execute timely investments, but the market remains agitated, feeling blindsided.

Samsung SDI shareholders, already suffering from a stock price plunge of over 60% in a year, faced another negative shock, while Hanwha Aerospace shareholders, whose stock price had tripled due to an earnings surprise, were infuriated by the surprise capital increase. As the market wavered, Samsung SDI CEO Choi Joo-sun decided to purchase 190 million KRW worth of company shares, and Hanwha Aerospace CEO Kim Dong-kwan decided to buy 3 billion KRW worth of shares. Subsequently, Hanwha announced it would fully participate in Hanwha Aerospace's capital increase by investing 980.3 billion KRW, but criticism persists.

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Even the heads of financial authorities cannot reach consensus over the pros and cons of the Commercial Act amendment, whose broad and ambiguous nature makes it difficult to accurately predict future side effects. If the amendment is implemented, the business community argues that burdens such as defending management rights and increased board operation costs will rise, and frequent lawsuits could cause missed investment opportunities. This argument has merit. Adding the word 'major shareholder' to the director's duty of loyalty clause (Article 382-3 of the Commercial Act) will not suddenly cause stock prices to soar or bring about a dramatic transformation.

However, the business community's claims remain speculative and prospective, while decisions by companies that place shareholders' rights last are clearly and frequently present right before our eyes. Considering the economic scale and the proportion of individual investors, the poor shareholder protection system and corporate governance in the domestic stock market (Gukjang) have long been waiting at the very end of the line, overshadowed by 'corporate growth.'

Hanwha Aerospace's situation exemplifies this. Aside from Hanwha's investment, the remaining 2.6197 trillion KRW will ultimately be raised from market shareholders. The main actors investing in the company's future value and contributing to growth are the general shareholders. Around the same time, affiliates such as Hanwha Life Insurance, Hanwha General Insurance, and Hanwha Investment & Securities decided on no dividends. It seems shareholders are excluded from the 'trust and loyalty' that Hanwha values so highly.

There is a metaphor calling the Commercial Act amendment a 'Galapagos regulation.' By that logic, the domestic stock market where investors stand is also a Galapagos. As Financial Supervisory Service Governor Lee Bok-hyun said, 80% of U.S.-listed companies are incorporated under Delaware law, which explicitly states that directors' duty of loyalty applies not only to the company but also to shareholders. If the business community intends to oppose the Commercial Act amendment, it should first provide answers on how to protect shareholders' rights, which have been neglected until now.