[Economy Pulse] The Final Piece for Strengthening Shareholder Rights

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The authority of general shareholders has grown stronger. Shareholders can now deliberate on general meeting agenda items online. When multiple directors are appointed, voting rights can also be concentrated on a single individual. Most importantly, directors’ duty of loyalty to shareholders has been explicitly stipulated by law, and the cancellation of treasury shares has also become mandatory. Amendments to the Commercial Act aimed at protecting shareholder rights and enhancing corporate governance transparency have been enacted at lightning speed. Discussions that had stalled for a long time have all been concluded within a matter of months.

It seems that we have reached the final stage of strengthening shareholder rights. Once begun, it must be brought to a close. The last pieces of the puzzle are likely the prohibition of dual listings and the mandatory tender offer system. There have been multiple cases where the value of general shareholders was undermined because only the stakes of major shareholders were purchased in dual listings or during acquisitions. For example, when a parent company that is already listed spins off a core business into a subsidiary, lists the subsidiary again, and monopolizes its shares, ordinary shareholders of the parent company are left as owners of a shell company. If a premium is paid to purchase only the controlling shareholders’ stakes during an acquisition, general shareholders become trapped at lower market prices.

Therefore, the financial authorities have decided to prohibit dual listings in principle. Only in exceptional cases-where business independence, management independence, and investor protection are guaranteed-will dual listings be allowed. As for the mandatory tender offer system, there are differing opinions regarding the criteria, price, and scope of application, but there are ongoing efforts to require the purchase of all remaining shares if more than 25% is acquired.

In major countries, dual listings are not a significant issue. In the United States, parent companies typically own 100% of their subsidiaries’ shares, so dual listing cases are rare. In Europe, strong governance regulations keep dual listing frequency low. In Japan, the number of delistings of dual-listed companies is increasing due to capital market reforms that restrict cross-shareholding. Thus, prohibiting dual listings is in line with global trends. However, when exceptions are allowed, the screening criteria for business and management independence must be clarified. The requirements should also be differentiated based on the type of split, such as physical or legal division. Most importantly, investor protection must be ensured. The consent process of general shareholders should be mandatory. Either preferential allocation of new shares in public offerings or the right to demand the purchase of shares must be recognized. The duty of loyalty to shareholders by directors of the parent company is essential. Meanwhile, dual listings aimed at promoting growth or efficiently raising investment through overseas subsidiaries should be considered as exceptions.

The global standard for mandatory tender offers is the European model: when acquiring 30% of shares, a tender offer for all shares at the same price is required. In contrast, the United States does not have a mandatory tender offer system. It would be difficult to introduce the European model directly under Korea's governance structure, which is centered on large business groups. Nor can the U.S. model, which operates under a competitive market system, be adopted. For now, I propose making it mandatory to tender for 50% plus one share of the total shares if more than 25% is acquired, and then gradually expanding the scope of tender offers in the future. Compared to the European model, both the criteria and the scope are set lower, taking into account both corporate and general shareholders’ interests. Exceptions should apply in cases of restructuring or industry realignment.

The truly final piece of the puzzle is preventing artificial share price suppression. Prohibiting dual listings or introducing a mandatory tender offer system is meaningless if share prices remain low. However, the proposal currently being discussed in the National Assembly regarding share price suppression needs to be revised. It is not logical to apply a uniform price-to-book ratio (PBR) of 0.8, given that PBR varies by industry. Due to tax characteristics, incentives may be more effective than penalties. The proposal I have consistently advocated-lowering inheritance and gift tax rates for companies with a PBR above the industry average-seems more rational. Only by combining both the carrot and the stick can policy objectives be achieved.

From the perspective of controlling shareholders, this series of measures to strengthen shareholder rights might be perceived as potential constraints on management activities and growth. However, empowering general shareholders will ultimately enhance transparency and improve governance, leading to increased corporate value. After all, both controlling and general shareholders share the same desire for the company’s success.

Junseo Lee, Professor of Business Administration, Dongguk University

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