[VIEWPOINT]Defense best in takeover tries

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[VIEWPOINT]Defense best in takeover tries

There are increasing cases of foreign investment firms threatening the management rights of competent domestic enterprises. A well-known foreign investment fund, Hermes, gained a large marginal profit by posting a false public statement while implying the possibility of a hostile takeover of Samsung Corporation. Before that, SK Corp. was also attacked by a foreign fund, Sovereign Asset Management Ltd., at its last stockholder meeting. Sovereign’s attempt to usurp SK’s management rights is ongoing.
It is only natural for domestic companies to try to protect their management rights in a situation like this, especially when we consider the situation where protection methods decrease with time. It is not only lawful but also necessary for Korean companies to use all management rights permitted under the law.
Yet the Financial Times of London recently reported that Samsung Electronics’ purchase of SK Corp. shares was an inappropriate attempt to form a cartel of jaebeols or business conglomerates. The report indicated Korean big businesses are coming together to exert power over the governance of Korean companies. However, it came out of a misunderstanding of Korean companies’ efforts to defend management rights, and it is feared that the report will portray biased views on the reality.
If a stock market exists, there will be attempts to take over management rights by investors and also efforts to defend them by the companies themselves. While an attempt to take over the management of a company openly through the stock market is allowed, an effort to defend existing management rights is also acknowledged. In other words, offense and defense over management rights is a universal phenomenon.
In the United States, the world’s biggest solution enterprise, Oracle, announced that it would try to take over PeopleSoft. PeopleSoft joined hands with IBM to protect its management rights. It used IBM as a protective friendly power. PeopleSoft even went so far as taking a “poison pill” by intentionally lowering the value of its shares to protect management rights. Oracle did take over PeopleSoft in the end, but nobody raised objections to PeopleSoft’s actions to defend their management rights. Nobody called its actions a moral hazard or an attempt to distort governance. This is because the actions taken by PeopleSoft are viewed as ones legally guaranteed to enterprises.
However, protecting the right of management is seen in a negative light particularly in Korea and especially by the foreign press, and investment funds raise questions.
Korean courts have acknowledged management rights as a property right, and the property rights of both individuals and corporations are guaranteed under the constitution. Therefore, action taken to protect management rights is acknowledged as lawful to protect one’s own property. However, if the management rights protection goes beyond the range of property protection and is misused to concentrate economic power, it can be limited by the law.
The recent buying of SK Corp. shares by Samsung Electronics was an exercise of property rights that had nothing to do with concentration of economic power. Samsung Electronics ended up owning SK Corp. stocks just like Sovereign Asset Management Ltd. became a major shareholder of SK Corp. Moreover, Samsung Electronics did not buy SK shares to join hands with SK as a friendly power. It was out of Samsung’s own management strategy to buy SK shares. Even if Samsung did play the role of a friendly power to protect management rights of SK, it should not be criticized.
The foreign press reports and criticism of foreign funds that Korean conglomerates colluded to distort business governance are inappropriate.
What is even more distressing is that there are no regulations that restrict hostile takeovers of domestic companies by foreign funds. There are even people who say hostile takeovers of big Korean businesses by foreign investment funds will reform our corporate governance and enhance corporate transparency. However, hostile takeovers of promising Korean corporations by unknown foreign investment funds cannot be called a reform of the corporate governance of our businesses.
Every time President Roh Moo-hyun visits an overseas country, he says that our corporations are patriots. However, major Korean corporations are faced with the threat of being taken over by foreign funds. If the government cannot lend a helping hand to them, it should at least not put a blame on their self-help efforts to defend their management rights as if such efforts are immoral acts.

*The writer is a professor of law at Soongsil University. Translation by the JoongAng Daily staff.


by Chun Sam-hyun

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