{"id":2207341,"date":"2024-12-02T17:00:55","date_gmt":"2024-12-02T08:00:55","guid":{"rendered":"https:\/\/koreapro.org\/?p=2207341"},"modified":"2024-12-03T17:03:15","modified_gmt":"2024-12-03T08:03:15","slug":"south-koreas-bid-to-overhaul-corporate-governance-faces-key-enforcement-hurdles","status":"publish","type":"post","link":"https:\/\/koreapro.org\/2024\/12\/south-koreas-bid-to-overhaul-corporate-governance-faces-key-enforcement-hurdles\/","title":{"rendered":"South Korea\u2019s bid to overhaul corporate governance faces key enforcement hurdles"},"content":{"rendered":"
South Korea\u2019s Financial Services Commission (FSC) has <\/span>proposed amendments<\/span><\/a> to the <\/span>Capital Market Act<\/span><\/a> to improve corporate governance and protect minority shareholders.<\/span><\/p>\n However, questions remain about whether these changes can meaningfully address systemic issues in the country\u2019s chaebol-dominated economy and if they align with international governance standards.<\/span><\/p>\n The proposed reforms, introduced on Monday, aim to enhance transparency in mergers, spinoffs and related transactions through external valuations and minority shareholder access to spinoff initial public offering (IPO) shares.\u00a0<\/span><\/p>\n While they represent a step forward, the proposed amendments leave significant gaps in enforcement, scope and integration with global trends.<\/span><\/p>\n GOVERNANCE UNDER THE MICROSCOPE<\/b><\/p>\n The amendments are designed to improve transparency and fairness in corporate decision-making. Boards of listed companies will be required to disclose detailed statements explaining the purpose, valuation and expected outcomes of mergers, spin-offs and other transactions.<\/span><\/p>\n This provision aims to address <\/span>long-standing grievances<\/span><\/a> about opaque practices that have often left minority shareholders at a disadvantage.<\/span><\/p>\n A key element of the reforms is the shift to market-based valuations, which replace rigid formulas that previously allowed controlling shareholders to <\/span>undervalue assets<\/span><\/a>. Mandatory external evaluations further enhance oversight by introducing an independent perspective, reducing information asymmetry between controlling shareholders and minority investors.<\/span><\/p>\n Another significant provision guarantees minority shareholders access to up to 20% of shares in spinoff IPOs. This measure ensures that smaller investors benefit from the value created during restructuring, addressing concerns about exclusion from corporate growth opportunities.<\/span><\/p>\n Despite these changes, the reforms are narrowly focused, applying only to listed companies and four specific types of transactions: mergers, spinoffs, significant asset transfers and stock exchanges. This limited scope leaves substantial gaps, particularly in unlisted companies and alternative forms of corporate restructuring.<\/span><\/p>\n A BOOST FOR MINORITY SHAREHOLDERS<\/b><\/p>\n The amendments provide important safeguards for minority shareholders, who have historically been sidelined in favor of majority shareholders or controlling families. The guarantee of spinoff IPO shares addresses a major equity issue, enabling minority investors to participate in the financial upside of new business entities.<\/span><\/p>\n These provisions could reduce opposition to spinoffs, streamlining corporate decision-making. They also enhance South Korea\u2019s appeal to foreign investors, particularly those prioritizing governance standards.<\/span><\/p>\n However, the reforms fall short of offering comprehensive protection. For example, <\/span>joint ventures<\/span><\/a> and <\/span>asset transfers<\/span><\/a> are excluded, leaving potential vulnerabilities in transactions where minority shareholders could still be disadvantaged.<\/span><\/p>\n Additionally, the reforms do not address other systemic practices, such as <\/span>cross-shareholding<\/span><\/a> or <\/span>dual-class shares<\/span><\/a>, which remain tools for consolidating control within chaebol companies.\u00a0<\/span><\/p>\n Without tackling these deeper issues, the amendments risk addressing symptoms rather than the root causes of shareholder inequality.<\/span><\/p>\n