[Editorial Note] Forcing Treasury Share Cancellation Cannot Be a One-Way Approach

Korea Lacks Defense Mechanisms for Management Control
A Design for a Virtuous Cycle in the Capital Market Is Needed

"Surely they won't force us to dispose of treasury shares acquired before the legislation. That would be too much."

After Kim Namgeun, a lawmaker from the Democratic Party of Korea, recently proposed a bill mandating the cancellation of treasury shares, there has been significant backlash from the business community, arguing that it undermines corporate autonomy. The proposed bill requires companies to cancel any treasury shares exceeding 10% of their total shares, aiming to restrict the use of treasury shares for management control or stock price management.

The stated purpose of the bill is to "enhance shareholder value." From the perspective that rising stock prices benefit shareholders, this can be seen as a positive move. However, from another viewpoint, it becomes a measure that restricts companies' strategic flexibility. An executive at a listed company holding more than 20% in treasury shares emphasized, "Treasury shares are not just a means of returning value to shareholders, but an asset that functions as a tool for management response when necessary." Even if the requirement to cancel newly acquired treasury shares after the legislation is understandable, demanding the blanket cancellation of shares previously acquired for various purposes is being criticized as excessive regulation.

The business community is concerned that, under current law, treasury shares have no voting rights and cannot receive dividends, but if they lose their function as a tool for defending management control in strategic mergers and acquisitions or hostile takeovers, companies will be left without options. Once treasury shares are canceled, those choices disappear. If the law mandates the blanket cancellation of treasury shares without considering the purpose, timing, and context of their acquisition, it will become difficult for companies to establish effective financial strategies.

In the Korean capital market, other management defense mechanisms used in other countries-such as poison pills (granting new stock purchase rights), golden shares (special voting rights), and dual-class shares-are virtually unavailable. The business community argues that Korean companies have barely maintained balance by defending their stakes through treasury shares. If the cancellation of treasury shares becomes mandatory by law, companies will inevitably need alternative defense mechanisms.

The fundamental premise of policy should be "balance." If institutionalizing the cancellation of treasury shares is intended to benefit shareholders, then measures to protect management control must also be established. Creating institutional safeguards to prevent the abuse of treasury shares and imposing a blanket cancellation are two entirely different approaches that can lead to very different outcomes. While exceptions are mentioned, there are concerns that the procedures will become overly complicated. From the corporate perspective, this increases the burden and could ultimately reduce the benefits available to employees or long-term shareholders.

For policy and legislation to be built on the trust of the market and companies, more public consultation and practical assessment are needed. What is required now is not simply structural reform, but a design for a "virtuous cycle" across the entire capital market. One-way policymaking is not the answer.