Governance Forum: "Business Community Must Apologize for Long-Term Management Failures... Capital Market Reset Essential"

The Korea Corporate Governance Forum on June 18 called on Korea's leading companies, including Samsung, Hyundai Motor, SK, and LG, to publicly apologize to shareholders, stating that their 'long-term management' performance has been poor. The Forum also argued that the amendment of the Commercial Act, which the business community opposes, would lead to a virtuous cycle of increased corporate value, rising stock prices, and a recovery in economic sentiment.

In a statement released on this day, the Governance Forum said, "Business circles and economic organizations claim that if the Commercial Act amendment passes, management activities will be hampered due to concerns about shareholders, making it difficult to pursue long-term management looking 10 years ahead. This is an exaggeration. The owners of a company are its shareholders, and it is natural to be mindful of them," the Forum stated.

The Forum continued, "Looking at the poor business performance and stock prices of Korean companies in recent years, it is unclear what advantages their so-called long-term strategies have brought. Are they not simply blaming external factors for their management failures?"

The Forum also criticized, "The results of the long-term management touted by the business community are disastrous." Reflecting deteriorating fundamentals, Korea's weighting in the Morgan Stanley Capital International (MSCI) Emerging Markets Index fell from 16% in 2013 to 9% at the end of last year, about half that of Taiwan and India. The Forum stressed that to catch up with these countries, which rank second and third in the emerging markets index, "governance reform, painful corporate restructuring, and reform are necessary," and "improving capital efficiency is urgent."

Regarding the introduction of dual-class shares and poison pills, which the business community argues are needed to defend against activist threats to management control, the Forum dismissed these measures as "completely unnecessary." The Forum countered, "Was there any activist movement targeting the seven major U.S. big tech companies? Not at all. The reason is that these top-tier U.S. companies always prioritize shareholder interests and make every effort to maintain high stock prices and high valuations." The Forum added, "If our listed companies also pursue independent boards, cumulative voting, share buybacks and cancellations, and stop listing subsidiaries to improve governance, stock prices and valuations will rise sharply, as seen this month."

The Forum also pointed out the poor management performance of major conglomerates one by one. "It is disheartening to compare the market capitalization of Korea's leading companies with that of global industry leaders. The 'long-term management strategies' of group chairmen and CEOs have involved massive resource inputs based on flawed industry outlooks, haphazard capital allocation and funding, and poor execution, resulting in extremely disappointing outcomes," the Forum criticized.

Regarding Samsung Electronics, the Forum stated, "Its market capitalization is one-tenth that of Apple and one-fourth that of TSMC. Just ten years ago, Samsung Electronics' market cap was twice that of TSMC." The Forum continued, "The chairman and management of Samsung Electronics failed to recognize Apple's evolution from a hardware company to a service-oriented company. They completely missed the artificial intelligence (AI) trend, widening the gap with TSMC even further."

For Hyundai Motor Group, the Forum noted that more than KRW 20 trillion, or two-fifths of its market capitalization, is tied up in the 'Global Business Complex' (GBC) development project in Gangnam-gu, Seoul, which has become a factor in the stock's discount. "This is unthinkable for leading global companies," the Forum said. "The reason Hyundai Motor Group's market cap is only one-fourth that of China's BYD can be found in its bloated balance sheet. There are far too many idle assets unrelated to its core business," the Forum criticized.

Additionally, the Forum stated that most of SK Group's diversification efforts over the past several years have failed, leaving only debt. "The controlling shareholders, management, and board of SK Group should apologize to shareholders for the excessive debt that is suppressing corporate value," the Forum urged.

The Forum also cited the long-term management failures and need for financial restructuring among LG Group's major affiliates. The group's net profit turned from KRW 9 trillion in 2021 to a net loss of KRW 300 billion in 2024. "LG Energy Solution's market capitalization is now less than one-third that of CATL. They underestimated the superior performance of low-cost Chinese LEP batteries and were overconfident in their own NCM battery technology," the Forum criticized.

The Forum called for reflection, stating, "Business circles and economic organizations oppose the Commercial Act amendment and the ruling party's push for corporate governance reform, citing concerns about hampered management activities and difficulties in establishing long-term strategies, but the long-term management performance of these companies has been abysmal." The Forum continued, "In some groups and listed companies, unverified family members have dominated as controlling shareholders and made unilateral decisions," emphasizing, "It is time to 'reset' Korea's capital market by making boards independent and protecting shareholder interests."