Governance Forum: "New Administration Must Focus on Resolving the Korea Discount"

On June 4, the Korea Corporate Governance Forum identified the normalization of the underdeveloped capital market?represented by resolving the 'Korea Discount' (the undervaluation of the Korean stock market)?as the top priority for the economic policy of the Lee Jaemyung administration.

In a statement released under the names of Chairman Lee Namwoo and Vice Chairman Chun Junbeom, the Forum said, "At this moment, the normalization of the capital market has a crucial structural significance beyond simply allowing investors to share in corporate achievements and for everyone to become wealthy together through KOSPI 5000." The Governance Forum is a non-profit incorporated association comprised of about 120 domestic and international members, including financial professionals, legal experts, and academics, aiming to advance the capital market through improved corporate governance.

First, the Forum stated, "The outcome of this election is both a stern judgment on the emergency martial law that attempted to undermine democracy and a result that carries expectations and tasks for new leadership." It emphasized, "In this era, the new administration’s primary focus in economic policy should be the normalization of the underdeveloped capital market, as represented by resolving the Korea Discount."

The Forum cited as the first urgent reason for capital market normalization the fact that it is "the only large-scale means of capital raising that can ensure victory in fierce technological competition." It argued that, for technological innovation represented by artificial intelligence (AI), private funds must flow into the capital market in addition to government-led policy funding. The Forum noted, "Over $100 billion (about 140 trillion won) of domestic individual investors’ funds are now in the US capital market, centered on advanced technology companies like Palantir," and pointed out, "Rapidly upgrading the domestic capital market system to advanced country standards and redirecting these funds back home is the fastest and surest way to promote investment in future technologies."

Additionally, the Forum stated, "Sustained stock price increases achieved through capital market normalization will be the most important indicator of restoring national trust in Korea, which has been under strong suspicion since the 12·3 emergency martial law incident." It continued, "Restoring trust in the capital market and rising stock prices will serve as a symbolic figure that can most quickly and reliably demonstrate the resilience of the Korean economy to the world. This is why the new administration should focus early on policies to restore trust in the capital market."

Finally, the Forum suggested that capital market normalization could be a breakthrough for achieving economic stability for both the younger and retired generations in Korea, which has rapidly entered an era of low growth and aging population. The Forum emphasized, "A capital market that grows stably is the best system to solve these issues simultaneously. Through shareholder returns and rising stock prices, the public can share in corporate growth." It added, "There must be a belief that the younger generation can build significant assets through steady installment investments, and the retired generation can use the capital market as a foundation for stable income through dividends or pensions."

However, outdated corporate governance centered on minority controlling shareholders has been identified as a major factor in the Korea Discount and a significant obstacle to the Korean economy. The Forum urged, "The new administration should quickly establish a transparent and efficient corporate governance system, starting with amending the Commercial Act to include directors’ fiduciary duties to shareholders, so that Korean companies?rich in technology and talent?can boldly expand globally on the back of abundant capital."

Last month, ahead of the presidential election, the Forum announced in its commentary "Seven Capital Market Proposals for the New Administration" that, along with the failed amendment to the Commercial Act due to the government’s veto and the National Assembly’s failure to re-approve it, measures such as mandatory treasury share cancellation, the introduction of separate taxation for dividend income, a general ban on dual listings, and the mandatory cumulative voting system are necessary. President Lee Jaemyung has also pledged to push again for an amendment to the Commercial Act to extend directors’ fiduciary duties to shareholders, thereby protecting the rights and interests of general shareholders through improved corporate governance. Previously, the amendment to the Commercial Act, which had passed the National Assembly under the leadership of the opposition party, was ultimately scrapped after a re-vote due to opposition from the business community and the government’s exercise of its veto power.