9 out of 10 Listed Companies Hold Treasury Shares... Mandatory Cancellation Infringes on Management Rights Defense

FNC, Analysis of Treasury Stock Utilization Trends Among Top 100 Listed Companies by Sales

Among 10 listed companies, 8 to 9 hold treasury shares, and there are concerns that mandating their cancellation could deprive companies of a means to defend their management rights.

On the 29th, the Federation of Korean Industries (FKI) analyzed the trends of treasury shares over the past five years among the top 100 listed companies by sales and found that 86 companies hold treasury shares amounting to 31.5747 trillion KRW. Expanding the survey to the entire KOSPI, the treasury shares held by companies reach 52.2638 trillion KRW. Since the 2011 amendment to the Commercial Act allowed the acquisition of treasury shares within the scope of distributable profits, companies have strategically utilized treasury shares for various purposes such as boosting stock prices and enhancing shareholder value.

However, recently, voices have emerged calling for mandatory cancellation of treasury shares to resolve the Korea discount in the stock market. The Financial Services Commission also announced in its January work report that it plans to strengthen regulations on treasury shares. The FKI anticipated that enforcing mandatory cancellation of treasury shares through amendments to the Capital Markets Act could lead to considerable side effects.

First, it argued that if companies respond to changes in treasury share policies or regulatory tightening by flooding the stock market with large volumes of treasury shares, minority shareholders could suffer significant damage. It also viewed the issue of conflict with the general Commercial Act as substantial. The 2011 amendment to the Commercial Act entrusted companies with the acquisition and disposal of treasury shares within the scope of distributable profits, but if the Capital Markets Act or its subordinate legislation (enforcement decree) includes provisions mandating cancellation, conflicts between laws or violations of superior laws by subordinate legislation could arise. According to the FKI, even looking at overseas legislative examples, it is difficult to find cases where the cancellation of treasury shares is legally mandated.

It also stated that corporate management rights could be threatened. Efficient defense mechanisms such as 'poison pills (rights to subscribe for new shares)' or 'dual-class voting rights' available in major foreign countries are not permitted for domestic companies, so treasury shares have served as almost the only defense tool for Korean companies. In this situation, if the cancellation of treasury shares is enforced, threats to management rights from foreign speculative capital could become more frequent.

Choo Kwang-ho, head of the Economic and Industrial Headquarters at FKI, said, “The acquisition and disposal of treasury shares is not only about enhancing shareholder value but also one of the few means to defend against hostile mergers and acquisitions (M&A). Forcing the cancellation of treasury shares is likely to cause more harm than good. Since companies are already actively implementing shareholder return policies such as expanding dividends and canceling treasury shares, consistent treasury share policies that reflect corporate realities must be maintained.”

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