Korea needs activist investors
The New York stock market is not likely to cool down easily. The market is breaking records day after day. The Dow Jones index went up by more than 7 percent this year after soaring nearly 30 percent last year. Skeptics that said it was about time for it to fall after surging for five consecutive years have been proven wrong for now.
Among the various reasons the stock market rose, it is hard to deny that mergers and acquisitions boosted it. Mergers of companies often failed later on, but news of M&As bring up stock prices in the short term, pleasing stockholders greatly.
The Korean stock market and companies are far away from the M&A trend, but not because companies don’t have the funds to pursue them or don’t feel the need to. I asked a Wall Street lawyer specializing in M&A about this, who responded, “The Korean stock market lacks the activist shareholders who move the companies.”
The shareholders in the U.S. stock market are not gentle. They act when stock prices fall, but also when they don’t go up as much as expected. Activist investors twist the arms of management. They openly ask to expand dividends and demand the sale or M&As of certain businesses. Last October, eBay decided to split with PayPal because of pressures by activist investors like Carl Icahn (pictured above). CEO John Donahoe said in a newspaper interview that the company decided to follow Icahn’s strategy.
In the Korean stock market, not many investors demand companies to pursue drastic innovation and reinvent themselves in order to boost stock prices. Even the National Pension Service, the biggest investor in the Korean stock market, remains quiet. Not many companies prioritize the interests of shareholders. Korean companies pay theirs only one third of the dividends that Taiwanese companies offer.
Hands-on investors are controversial. Even in the United States, they are criticized for excessive involvement in management. But it is undeniable that they check on companies to make sure they don’t settle. When competition becomes fiercer, companies can easily fall behind if they don’t take action because of uncertainty.
It is not just companies that need more aggressive decision-making. A country could find itself in trouble if it discusses reform without reaching a conclusion. That’s how the Korean economy fell during the Asian financial crisis. In 1997, the international financial circle ridiculed Korea as a society of all talk, no action. Investors pulled their money out when necessary reforms were not implemented on time.
Coincidentally, the latest troubles of the Korean economy evoke a strong sense of deja vu. China and Japan’s quantitative easing is threatening. The economic revitalization plan, civil servants’ pension plan revision and other reform bills are not being processed in a timely manner. What kind of activist shareholders do we need to push the National Assembly work harder?
*The author is the New York correspondent of the JoongAng Ilbo. JoongAng Ilbo, Nov. 25, Page 34
by LEE SANG-RYEOL