[VIEWPOINT]Regulations hurt local firms

Sovereign Asset Management Limited has resumed its attack on SK Corporation. The second-largest stockholder Sovereign challenged the largest stockholder, SK Corp., at the regular meeting of stockholders this year when they separately nominated a whole new board of directors. Now they are asking for a stockholders’ meeting to revise the articles of association and deprive president Choi Tae-won his right to be an executive.
As a fight between the two stockholders seem to be looming ahead, the prices of SK Corp stocks recorded new highs. Foreigners especially have started buying, amassing more than 61 percent of the shares, and Sovereign, which put in up to 1.5 trillion ($1.34 billion) won at around 7,000 won per stock, attained a huge estimated marginal profit of 1 trillion won after just one year and a half.
SK Group originally came from the textiles and trade specialist company Sun Kyung, which is now known as SK Networks. Sun Kyung took over the biggest oil company in the country, Yoo Kong, in 1980 (now known as SK Corp) and used the rich capital power of Yoo Kong to take over Korea Mobile Communications in 1994 (now known as SK Telecom).
The unstable possession structure of a small fish catching a bigger fish worsened in 1998 after SK Group President Choi Jong-hyun died, leaving the burden of an inheritance tax.
The unstable possession structure of SK Group became a major target of attack from civic groups that spearhead small shareholders’ movements, and SK Telecom suffered bitter insult up until Tiger Fund left with a huge investment profit.
Then at the beginning of last year, SK Global was caught in an accounting scandal, and SK Group President Chey Tae-won was arrested as a result, receiving a guilty verdict in the first trial.
The stock prices of SK Group’s affiliates had collapsed altogether as a result of mistrust in the market resulting from the account rigging scandal. Sovereign emerged as the second-largest shareholder by buying up 14.9 percent of SK Corporation shares at a cheap price, saying it would play a leading role in reforming the corporate governance of Korean companies.
SK Corporation is the biggest domestic oil company with a stable profit and is also a holding company that has a 20 percent share of SK Telecom, the strongest company in mobile communications. SK Corporation and SK Telecom maintain a monopolistic position domestically and gain great profits even during dull business seasons, and so they are major investments for foreign funds.
Foreign funds prefer cash dividends from SK Corp.’s profits rather than venturing into new businesses. In addition, foreign funds such as Sovereign seem to want to dispose their SK Telecom stocks and realize the actual profits.
SK Group President Chey can only be good to other foreign funds, catering to their needs, in order to create friendly allies who will stand on his side against Sovereign’s possible hostile takeover. But this will probably cause a great financial loss.
The preferred stock of SK Corp., which does not have voting rights, suddenly rose 152 percent in the last two months, and this situation is a little suspicious. The company bought the preferred stock without any relation to management rights, and destroyed it, causing prices to rise drastically. If this was a request from foreign funds, someone is profiting greatly from it.
The basic rules of a business corporation are that stockholders’ rights are equal, each stockholder exercises voting rights according to the number of stocks he or she has, and that management rights are decided by the majority. Just as foreign stockholders should not be discriminated against, domestic stockholders should not be discriminated against either.
Regulations restricting the total amount of investment in affiliates and the voting rights of financial companies amount to thick-headed policies that give foreign funds chances to make huge profits.
The reason that the second-largest stockholder, Sovereign, repeatedly attempts to take over the management rights of the largest shareholder, who can make only limited investments in affiliates, is that it tries to take the advantage of the reflective benefit from the investment restrictions.
The age of high-speed development, when big business corporations quickly expanded in various fields, won’t happen again. The system of collective legal actions by small shareholders will come into effect next year, and, as were shown in the cases of Samsung Motors and LG Card, the wrong investments can result in even the removal of the personal assets of a group president, who personally has no stocks.
There are no corporations that will take the risk of investing in businesses that have no chance of success. The restrictive investment policy needs to be re-examined, keeping in mind that the lack of investment and new employment has to do with the despair of entrepreneurs who say that they no longer want to be the largest stockholder.

* The writer is a professor of business administration at Korea University. Translation by the JoongAng Daily staff.

by Lee Man-woo