The Starting Point for Changing "Shell Governance"... Introducing Minimum Free-Float Ratio [K-Food G Report] ⑨

Resolving Dual Listings Requires Minimum Free Float Regulation
Benefits for Value-Up Leaders,
Stricter Regulations for Laggards

Editor's NoteThe global "K-Food" boom has elevated the status of Korean food companies, yet their outdated governance structures remain largely unchanged. While global brand trust is steadily rising, critics argue that management systems are still stuck in old practices, with insufficient efforts to regain investor confidence. In line with the revised Commercial Act, Asia Economy has assessed the governance of the top 20 listed food companies by market capitalization. Over a five-part series, we will analyze both quantitative and qualitative data across 10 categories-including dividend policy, treasury stock policy, dual listing structures, and board composition-and outline areas for improvement.

Every May, Omaha, Nebraska in the United States becomes a pilgrimage site for global investors. This is because of the Berkshire Hathaway shareholders' meeting, led by Warren Buffett, the world's largest investment firm. The meeting is far more than a simple accounting report. It is a festival that features five hours of Q&A, subsidiary exhibitions and product sales, a marathon, and a picnic. This is why it has earned the nickname "Woodstock for Capitalists."

British consumer goods company Unilever also puts significant effort into communicating with its shareholders. Seven weeks before the annual general meeting, it sends out a notice so that shareholders can review the agenda in advance. It also maintains a "Shareholder Meeting Archive" on its website, transparently disclosing agendas and voting results by year.

In contrast, shareholder meetings at Korean food and beverage companies are markedly different. Q&A sessions between management and shareholders are largely perfunctory, and uncomfortable questions are often avoided. Notices of meetings are sent only two weeks in advance, as permitted by law, and in many cases, public disclosures are not even made until ten days before the meeting. Recently, institutional investors such as the National Pension Service and some minority shareholders have raised their voices through voting and litigation, but the impact has been limited. Last year, there were only about three derivative lawsuits annually. A governance expert commented, "Even when management decisions harm shareholders, the lack of an active litigation system makes redress difficult. Shareholder meetings need to become a real decision-making body that management fears, and a culture in which shareholder voices are institutionally protected is necessary."

With the implementation of the revised Commercial Act, which focuses on improving corporate governance, change has become inevitable for Korean food and beverage companies. As they are still criticized for having "shell governance" regarding shareholder rights and board independence, there is growing consensus that companies must move beyond merely fulfilling disclosure requirements and instead recognize shareholders as partners in management, transitioning toward a virtuous cycle that creates long-term value.

Resolving Dual Listings... The Need for Minimum Free Float Regulation

In particular, as a solution to the chronic issue of dual listings among Korean listed food companies, it has been pointed out that listing maintenance requirements need to be revised,and that institutional improvements are urgently needed to expand "Value-Up Incentives" under the revised Commercial Act.

Among the top 20 food and beverage companies by market capitalization in Korea, 11 maintain a "dual listing" structure, with both the holding company and the operating company listed. The domestic dual listing rate stands at 18.4%, which is far higher than the United States (0.35%), Taiwan (3.18%), and China (1.98%). It is also more than four times higher than Japan's 4.38%. Japan is working to further reduce this rate through its "Value-Up" policy.

As a result, Korea is also considering making a "minimum free float ratio" a legal listing requirement. If such a regulation is introduced, both holding companies and affiliates would find it difficult to meet the listing requirements, potentially leading to share sales and the resolution of dual listings. For example, if a rule is established requiring "at least 25% free float," and a holding company owns more than 75% of a subsidiary, the holding company would be compelled to either sell some of its shares or give up the listing to comply with the standard.

Lee Junseo, a professor of Business Administration at Dongguk University, said, "Japan also used to have many dual listings of parent and subsidiary companies, but by legislating a minimum free float ratio, it imposed disadvantages on companies with high strategic shareholdings, ultimately encouraging them to sell subsidiary shares or delist." He added, "If Korea also calculates and codifies an appropriate free float ratio, it can mitigate the infringement of minority shareholder rights caused by dual listings."

Benefits for Value-Up Leaders, Regulations for Laggards

There are also calls to further improve the director appointment system to better check controlling shareholders. In Korea, director terms are three years with no limit on consecutive terms, making it difficult to check controlling shareholders. In the United States and Europe, the entire board is reappointed at the annual general meeting each year, and directors who do not sincerely answer shareholder questions often fail to be reappointed. In Germany, the law guarantees labor representatives' participation on the board.

There have also been proposals to grant shareholders' meetings the authority to approve executive compensation and internal transactions among affiliates. Kim Woochan, a professor at Korea University and director of the Center for Economic Reform, stated, "In other countries, executive compensation is approved at shareholders' meetings, but in Korea, it is often decided by the board or the CEO themselves. To prevent the controlling family from receiving large sums from various affiliates and channeling business to companies in which they hold large stakes through internal transactions, prior shareholder approval is necessary."

Above all, experts suggest that a "two-track strategy" is needed: providing tangible tax benefits-such as corporate tax reductions, tax credits, and local tax relief-for companies with excellent governance, while strengthening regulations for those that fall short. For example, companies that implement long-term dividend policies or achieve shareholder return through treasury share cancellation or buybacks could receive lower corporate tax rates or expanded tax credits for investment and R&D expenses, with annual value-up performance evaluations and commendations. To support this institutionally, the establishment of a "Corporate Governance Reform Committee" that integrates accounting, disclosure, governance, and audit oversight functions is also being considered. The UK's Financial Reporting Council (FRC) is cited as a key reference model for such an integrated supervisory body.

A law school professor commented, "From a company's perspective, governance reform may be seen as leading to management rigidity, so it is essential to provide corresponding incentives. While it is difficult to set uniform standards, practical measures such as long-term tax benefits should be put in place to encourage corporate participation from a long-term perspective."