[Shareholder Capitalism]⑤ The Final Piece Is the Disclosure System: "Outcome-Only Disclosures That Exclude Shareholders Must Be Overhauled"

Opaque Disclosures in M&A Proposals Deepen Information Asymmetry
Political and Government Circles Move to Discuss Structural Overhaul of the Disclosure System
"Not Regulation, But Building Infrastructure to Enhance Market Trust"

Editor's NoteAs the revised Commercial Act comes into effect, Korea's capital market is reaching a new turning point with the rise of 'shareholder capitalism.' The institutional changes brought about by the new law are expected to significantly impact corporate governance and capital market practices. Over the course of five articles, we will examine the changes driven by the revised Commercial Act, responses to these changes, and the institutional challenges that lie ahead for establishing shareholder capitalism.

① The Era of the Revised Commercial Act Begins...Key Topics for March Shareholders' Meetings
② "This Is the Last Chance"...Companies Go All Out to Defend Control Amid Commercial Act Revisions
③ 'Stock Price Suppression Prevention Act' Gains Momentum...Experts Say "Inheritance and Gift Tax Reform Is Key"
④ "Ultimately, Institutions Must Act": The Reality of Stewardship Codes
⑤ The Final Piece Is the Disclosure System: "Outcome-Only Disclosures That Exclude Shareholders Must Be Overhauled"

The ultimate determinant of whether shareholder capitalism truly functions is 'information.' Unless sufficient information is released about the processes behind major corporate decisions, shareholder rights will remain largely symbolic. However, the current domestic disclosure system is criticized for being 'outcome-oriented,' lacking context about the decision-making process. As a result, investors are left without critical evidence to assess corporate value or raise concerns. This has led to growing calls for a structural overhaul of the entire disclosure regime.

Korea Reveals Only Outcomes...Limits to Exercising Shareholder Rights

According to the financial investment industry on March 20, a representative example of opaque disclosure cited in the market is merger and acquisition (M&A) disclosures. In major economies such as the United States, information is made public from the proposal stage of an acquisition. In Korea, however, it is common for even the existence of a proposal not to be disclosed. This means shareholders have no way of knowing whether an acquisition proposal was made, how the board reviewed it, or what decisions were ultimately reached.

Yongwoo Lee, head of the Economics Plus Research Institute, pointed out, "Even if the board ignores or fails to disclose a serious acquisition proposal, there is little legal risk. This results in private transaction practices centered on controlling shareholders and deprives all shareholders of opportunities to realize their interests." Changhwan Lee, CEO of Align Partners, also criticized, "Changes in control of listed companies are major events that greatly affect corporate value and shareholder interests, yet current M&A practices do not align with the board’s fiduciary duty to shareholders. Ordinary shareholders are thoroughly excluded." A representative example is the case of Coway, where, in past M&A transactions, excessively high control premiums were attached solely to the stakes of controlling shareholders, with no public tender offer being made.

The issue is not limited to M&As. Key management decisions that are of interest to shareholders—such as treasury stock disposals, internal transactions, and board resolutions—are also often disclosed only in terms of outcomes. There is criticism that only the results of board resolutions are released, without providing the rationale behind decisions or any details of internal discussions. As a consequence, the system of checks and balances—whereby board decisions are verified by shareholders—does not function properly.

By contrast, advanced markets such as the United States disclose more detailed information, including the decision-making context, supporting and opposing opinions, and fairness opinions. Lee explained, "In advanced countries like the United States and Japan, when a private equity fund or competitor makes a 'serious acquisition proposal' for an undervalued listed company, the board is obligated to thoroughly review it from the perspective of all shareholders and to disclose the process in detail."

Government and Ruling Party Discussions Accelerate...Caution Urged Over Mandatory Disclosure

Recently, both the political community and financial authorities in Korea have been accelerating discussions to improve the disclosure system in line with the implementation of the revised Commercial Act. Given that the revisions emphasize the expansion of shareholder rights, there is a consensus on the need to upgrade the supporting information infrastructure. The idea of requiring mandatory disclosure regarding the fairness of purchase prices in the event of an M&A proposal was mentioned at a meeting on March 18 chaired by President Jaemyung Lee, which focused on stabilizing and normalizing the capital market. Related legislation is also being prepared in the National Assembly.

This can be interpreted as reflecting the perception that, in the absence of sufficient grounds for investors to assess corporate value, the 'Korea Discount'—the persistent undervaluation of Korean stocks—will inevitably continue. Namwoo Lee, Chairman of the Korea Corporate Governance Forum, said, "Simply making it mandatory for boards to disclose M&A proposals would greatly contribute to the efficient allocation of capital and the restoration of market trust."

However, some voices urge caution regarding a blanket mandate. Sewoon Hwang, research fellow at the Korea Capital Market Institute, said, "The underlying direction of providing more information to investors is correct," but added, "Expanding mandatory disclosure is not always the answer. Making everything mandatory could place an excessive burden on companies." He suggested, "If the information is important, there first needs to be a culture of voluntary disclosure to the market. Gradually expanding mandatory disclosure in line with changes in the market environment would be more desirable." In particular, for M&As, the scope and timing of disclosures are key issues, as releasing information during negotiations could affect transaction prices and the likelihood of deals being concluded.

Junghwan Hwang, head of the Sustainability and Disclosure Advisory Center at Kim & Chang, emphasized, "Disclosure must have a clear purpose and criteria of reducing information asymmetry. The U.S. Securities and Exchange Commission (SEC) reviews whether companies have properly disclosed major information when issues arise for investors." He stressed the need for sophisticated design regarding what should be disclosed and to what extent.

Experts unanimously point out that reforming the disclosure system should not be seen as simply tightening regulations, but rather as laying the groundwork for enhancing market trust. An official from the asset management industry said, "Disclosure is the most basic element in the relationship between investors and companies, and any reform must acknowledge that there can be no market without transparency. Ultimately, for shareholder capitalism to work, systems, participants, and information must all be aligned."

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