[EDITORIALS]End investment controlsKang Bong-kyun, the Uri Party's chief policymaker, recently mentioned the need for scrapping the ceiling on conglomerates’ cross-subsidiary investments. The party leader, Kim Geun-tae, followed suit, urging the government to remove shareholding regulations earlier than scheduled to expand investment and prop up the faltering economy.
Regarding those calls, the Fair Trade Commission chairman, Kwon Oh-seung, said, “The government will deliberate on the abolition after finding a viable alternative. It is hard to block the entangled shareholding structures of large conglomerates with only competition law.” He said some restrictions on internal investments by conglomerates were still necessary.
But critics have raised concerns that the plan currently considered by the fair trade watchdog may bring bigger problems. Removing the shareholding cap at the same time as applying new regulations on prohibiting intra-group investment will limit investment further.
The government explained that through the new policy it aims to prevent the family owners of conglomerates from exercising more control over affiliates than they are supposed to ― by comparing the actual portion of stocks the families hold in the affiliates and their voting rights in those affiliates. But the government should keep in mind that the conglomerates will be reluctant to invest more if that system goes into effect.
The cap on conglomerates’ shareholdings in subsidiaries is a stumbling block to investments by local enterprises and forays into new businesses. The restrictions also contribute to making a number of the nation’s large firms vulnerable to hostile takeover attempts by foreign funds.
As the domestic economy continued to slow down since the Roh administration took office in 2003, the administration hinted that it would scrap the investment ceilings. Now it says it is reviewing plans to put more powerful restrictions on local enterprises in return for the end of the current controls.
It is not right for the government to force a certain type of governance structure when the shareholders have raised no questions. The Fair Trade Commission should get away from its obsession with issues regarding corporate governance. If the body thinks they are that big a problem, it should yield control to the Financial Supervisory Commission to protect minority shareholders. What would be best is scrapping the investment ceiling without any addenda.