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Help companies defend their management rights

Published: 26 Feb. 2024, 20:32

The government announced the long-awaited “corporate value-up program” to help ease “Korea Discount” for companies’ stocks. The program was focused on allowing the autonomy of the corporate sector. For instance, listed companies are required to make public their annual plan to raise their corporate value on their own and release their investment indices — such as the price-to-book ratio and the price earning ratio — within a certain period of time. The government also plans to create a “Korea Value-up Index” by listing top-performing companies on the Korea Exchange and induce their investments in the exchange-traded fund.

President Yoon Suk Yeol’s promise last month to help solve the problem of undervalued stocks of companies was a good signal for the stock market after it raised shareholders’ expectations for increased dividends and companies’ hopes for the expansion of buyback and cancellation of their shares. Despite concerns about the “populist move” before the April 10 parliamentary elections, the president’s announcement fueled hopes for enhancing the level of our stock market.

Despite the announcement of the value-up program on Monday, the Kospi mysteriously fell 0.77 percent. And yet, the program carries significance as a number of local companies funded their investments through the stock market yet failed to raise their corporate value only to serve their major shareholders’ interests.

Raising corporate value and improving the reputation of our stock market cannot be done overnight. As Financial Services Commission chair Lim Joo-hyun said, it is a mid- to long-term goal. In this sense, a relative lack of draconian measures can be appreciated — particularly given the apparent side effects from a strict ban on short-selling only to boost stock prices, for instance.

The conditions for the reinforcement of shareholder-friendliness to prop up corporate value are already set, as the market cap compared to the GDP surpassed 116.2 percent at the end of last year. In line with the emphasis on corporate autonomy, the government must remove various types of constraints on companies so that they can move forward on their own. As companies cannot gladly cancel their stocks to defend their management rights, the government needs to consider the introduction of differential voting rights or a poison pill designed for a company’s defense against a hostile takeover attempt.

The government must prepare protections for local companies against hedge funds and revamp the inheritance tax system to ease their pain, as well as remove stifling regulations.