"New Industries Bound by Regulations Have Significantly Decreased Since the 2000s"

Professor Song Won-geun: "Excessive Government Regulation Ties the Hands and Feet of Companies"

[Asia Economy Reporter Changhwan Lee] It has been revealed that due to excessive government regulations, the entry of large corporations into new industries has significantly decreased compared to the past since the 2000s.

Song Won-geun, a visiting professor at Yonsei University, presented on the topic of "Corporate Governance, Internal Transaction Regulation Policies, and Corporate Performance" at the 5th Industrial Development Forum held at COEX, Seoul, on the morning of the 10th. He stated that Korean large corporations boldly entered high value-added new industries in the past based on the advantages of owner management, but since the 2000s, new industry entry has sharply declined due to government regulations.

According to Professor Song, in the 1960s, following the government's export-led industrialization, large corporations newly entered labor-intensive light industries such as textiles, footwear, and furniture. In the 1970s, under the heavy and chemical industry promotion policy, they entered petrochemicals, automobiles, and shipbuilding. In the 1980s, they moved into advanced manufacturing sectors such as semiconductors, and in the 1990s, they challenged new fields like IT, aerospace, and railway vehicles.

However, since the 2000s, although companies like Naver have grown thanks to the global IT industry boom, it is difficult to find new industry entries from existing large corporate groups, he evaluated.

This is analyzed to be because, after the 1998 International Monetary Fund (IMF) foreign exchange crisis, the government significantly restructured corporate governance by opening capital markets, strengthening board systems, enhancing minority shareholder rights, increasing controlling shareholder responsibilities, and weakening their powers to prevent reckless borrowing management by some large corporations.

Professor Song explained, "Excessive business diversification and borrowing management for new industry entry just before the foreign exchange crisis were among the causes that led to the IMF management system. The government implemented reforms related to corporate governance in accordance with IMF recommendations at that time."

The impact of changes in government corporate governance policies on corporate performance appeared in various ways. First, the borrowing management pattern of large corporations disappeared, showing improved profitability and stability. However, as the proportion of foreign investors seeking short-term profits increased, dividend payout ratios surged sharply, while research and development (R&D) and facility investments for long-term growth were curtailed.

Professor Song expressed concern that the government's recent push for corporate governance reforms to strengthen shareholder rights, such as the proposed amendments to the Commercial Act, could further block the already shrinking new industry entry by large corporations and lead to sluggish investment. He emphasized that excessive regulation could reduce the economic performance of companies, so careful consideration is necessary.

Professor Song pointed out that the core issue of the proposed Commercial Act amendment is that it enables a loophole in director appointments through the separate election of audit committee members.

He argued, "Director appointments should be made through voting rights at the shareholders' meeting to reflect shareholder voting rights as much as possible, but under the amendment, audit committee members do not need to be appointed by the board of directors. The controlling shareholder's voting rights are reflected only 3% in appointing the key executive audit committee members, seriously undermining the fundamental principle of a stock company (principle of self-responsibility)."

As a result, Professor Song emphasized that the legal amendment will further weaken the controlling shareholder's authority and cause the advantages of owner management, such as large-scale investment and bold new industry entry, to disappear even more.

This content was produced with the assistance of AI translation services.