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DP's planned treasury stock cancelation mandate sparks corporate alarm

Published: 25 Nov. 2025, 19:33 Updated: 25 Nov. 2025, 20:03

Han Jeoung-ae, chair of the Policy Planning Committee of the Democratic Party, speaks at a meeting held at the National Assembly in western Seoul on Nov. 6. [NEWS1]

Businesses are up in arms over the ruling Democratic Party's plan to pass a third round of amendments to Korea’s Commercial Act that would mandate the cancellation of treasury stock within one year, a move that companies say could severely weaken their ability to fend off hostile takeovers and reduce corporate flexibility.

Corporations fret that mandatory buyback cancellations would strip them of a key defense against speculative investors.

“Holding treasury stock isn’t just a benefit to major shareholders,” said Choi June-sun, professor emeritus at Sungkyunkwan University and former president of the Korean Commercial Law Association. “It protects the company, shareholders and employees from short-term speculative capital that damages firms and destroys jobs. Without alternatives such as dual-class shares or the so-called poison pill provisions, management disputes will only increase.” Poison pills are a shareholder rights plan that allows existing shareholders to buy more stock at a steep discount in the face of a hostile bidder.

“Forced cancellation of treasury stock is far more direct and damaging than the previous two rounds of Commercial Act revisions," added Choi.

Until 2011, Korean law required companies to follow specific rules when canceling treasury shares. That changed with an amendment that gave boards more discretion, unless the company's bylaws dictated otherwise. “Back then, poison pills were rejected, and the use of treasury stock became the primary way to defend management rights,” said Jeong Woo-yong, policy vice chairman of the Korea Listed Companies Association. “This new amendment includes none of those legislative safeguards."

The ruling party claims the bill will boost share prices and support its vision for a “Kospi 5,000,” but many experts argue the effect will be short-lived. The Korea Chamber of Commerce and Industry pointed to foreign studies showing that after a company acquires its own stock, short-term returns over one to five days outpace the market by 1 to 3.8 percentage points, while long-term returns over six months to a year are 11 to 47 percentage points higher. “Forcing cancellations would effectively eliminate this long-term mechanism,” the chamber said.

“Once treasury stock is canceled, the impact is used up immediately,” said Shin Hyun-han, business professor at Yonsei University. “By contrast, stock buybacks create sustained demand in the market and defend against downward price pressure — they are a long-term strategy. Mandating cancellations would destroy that stability.”

The figures for Kospi and Kosdaq markets are shown at a digital screen of the Hana Bank dealing room in Jung District, central Seoul, on Nov. 25. [YONHAP]

Treasury stock has also been used for a wide range of purposes, including restructuring, financing and employee compensation. Critics say the amendment would severely limit those functions. While the bill makes exceptions for employee compensation and balance sheet improvement, it still requires shareholder approval, by ordinary resolution, at the annual general meeting for any treasury stock management plan. “Requiring a board decision to be put to a vote every year just isn’t realistic,” said an executive at a listed company.

The measure is seen as unusually heavy-handed, even when compared to other countries. The United States (both New York and Delaware jurisdictions), Britain and Japan all leave decisions about treasury stock to corporate discretion. Only Germany requires that treasury stock exceeding 10 percent of capital be canceled or disposed of within three years. There is no known system anywhere else that requires all treasury stock to be canceled within one year, as Korea’s bill mandates. In fact, a third-quarter report from the U.S. Securities and Exchange Commission showed that major firms hold significant amounts of treasury stock: AIG, 71.4 percent; Goldman Sachs, 66.5 percent; IBM, 59.2 percent; McDonald’s, 57.1 percent; and Corning, 55.1 percent.

The business community is also growing weary of what it sees as overregulation. Despite frequent outreach by the ruling party and the president, business leaders say their concerns are not reflected in policy. In a new survey by the Korea Enterprises Federation, 73 percent of Korean firms said the government’s comprehensive labor safety measures are “ineffective and focused too heavily on punishment and sanctions.”

"They repeatedly ask us to attend meetings, almost as if to 'say' that they heeded opposing opinions," said one business insider who requested anonymity. “They always say they’ll fix the law later if there are side effects, but by then it’s already too late.”

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
BY KIM SU-MIN [[email protected]]