Experts at the Asian Finance Association conference identified dual listing as the cause of Korea's stock market discount on May 3. Kim Hyung-gyun of Cha Partners, Lim Sung-yoon of Dalton Korea, and Lee Chang-hwan of Align Partners stated dual listing lets controlling shareholders with 30-40% stakes maximize control while reducing minority shareholder influence. Korea's 2008 reform blocked new dual listings, but existing structures create conflicts between controlling and minority shareholders, the panel said at Seoul National University.
Experts Identify Dual Listing as Korea Discount Root Cause
Kim Hyung-gyun of Cha Partners stated that many Japanese companies delisted overseas subsidiaries after the 2008 global financial crisis to improve operational efficiency, but kept Korean subsidiaries listed. Kim said he asked Hitachi directly about this decision but received no answer, noting that Korean regulations and legal protections for minority shareholders remain weak.
Lim Sung-yoon of Dalton Korea stated that dual listing cases in Korea typically occur between conglomerates' affiliated companies where owner families maintain unusually high control. Lim said dual listing structures maximize the control of controlling shareholders who hold 30-40% stakes while minimizing the influence of minority shareholders who hold the majority of shares, creating severe conflicts of interest.
Panel Recommends Majority of Minority Voting and Mandatory Tender Offers
Lim Sung-yoon stated that Majority of Minority (MoM) voting is essential to resolve dual listing. MoM requires majority approval from general shareholders excluding interested controlling shareholders and related parties for major agenda items including mergers, spin-offs, and share exchanges where conflicts of interest exist between controlling and general shareholders. Lim said introducing a system that excludes voting rights of controlling shareholder families in conflicting transactions would provide fairer opportunities to minority shareholders.
Lim stated that the government must provide clearer incentives and penalties to resolve existing dual listings, noting that Japan achieved visible changes and reform progress through such measures. Lim said the government should focus on dismantling existing dual listing structures if it truly wants to improve corporate governance and stock markets.
Kim Hyung-gyun stated that mandatory tender offer systems are necessary, similar to the US requirement to purchase all general shareholder stakes during acquisitions and mergers. Kim said mandatory tender offers would significantly reduce dual listing problems because companies must acquire entire company stakes, but criticized the government's consideration of a compromise at 50%+1 share as insufficient to fundamentally solve dual listing issues.
Lee Chang-hwan Explains Bear Hug Mechanism in US Markets
Kim Woo-chan of Korea University Business School, who moderated the discussion, raised bear hug (hostile takeover proposals) as a topic. Kim explained that bear hugs involve tender offers at prices much higher than market prices, stating that if a target company's board truly considers company and shareholder interests, it cannot reject such proposals.
Lee Chang-hwan of Align Partners explained his experience at Kohlberg Kravis Roberts (KKR). Lee stated that North American funds would purchase about 5% of undervalued listed company shares, then approach the board saying "your company is trading at 6 times EBITDA, we want to buy the entire company at 10 times." Lee said that while Korean conglomerate boards would laugh off such proposals, US boards immediately begin procedures upon receiving such offers.
Lee stated that US boards must immediately hire advisors to determine proposal fairness according to fiduciary duty to shareholders. If the proposal is accepted and the acquisition proceeds, the company delists from the market. Lee emphasized that this creates a structure where undervalued companies receive fair value and exit the market, resolving market discounts and increasing efficiency. The Financial Services Commission announced in March that it would legislate M&A disclosure system improvements requiring boards to publicly disclose official opinions on hostile M&A proposals. The Democratic Party is also discussing M&A disclosure system reforms through Capital Markets Act amendments.
Experts Criticize Proxy Advisory Firms for Mechanical Recommendations
Experts questioned the role of domestic proxy advisory firms. Some critics suggested that proxy advisory firms like ISS intentionally exploited Korea's weak regulatory environment through "regulatory arbitrage" by recommending decisions unfavorable to minority shareholders, such as opposing cumulative voting systems.
Lee Chang-hwan and Lim Sung-yoon both rejected this view. Lee stated that Korean proxy advisory firms' actions resulted from foreign institutional clients' lack of interest in the Korean market rather than deliberate profit maximization strategies. Lee said foreign shareholders express great bewilderment when directly meeting about Korean advisory firms' opposition recommendations.
Lee explained that foreign institutions provide insufficient budgets for detailed Korean market governance analysis, so advisory firms apply only mechanical criteria to minimize report costs. Lee stated that structural limitations force three analysts to review 2,000 Korean companies in just two weeks, noting this cost-cutting approach completely ignores minority shareholders.
Lim Sung-yoon stated that foreign advisory firms lack understanding of the Korean market. Lim said foreign institutions rely entirely on ISS reports because Korea represents too small a portion of their total portfolios, but advisory firms do not deeply understand Korea's unique chaebol control structures and the Korea Discount essence. Lim emphasized that activist shareholders must visit foreign investors to properly explain Korean market realities.
Kim Hyung-gyun Calls for National Pension Service Voting Rights Reform
Kim Hyung-gyun emphasized the National Pension Service's important role as a major domestic market player. Kim criticized that asset managers receiving National Pension Service funds lack voting rights. Kim stated that delegated managers are corporate analysis experts without authority, while the Fund Management Headquarters and Stewardship Committee holding voting rights consist of non-investment experts and stakeholders including professors, labor union nominees, and employer association nominees, operating like a black box. Kim argued that the system should improve to allow delegated activist funds and professional managers to exercise voting rights responsibly.
FAQ
What did experts identify as the cause of Korea's stock market discount on May 3?
Experts at the Asian Finance Association conference identified dual listing as the fundamental cause of Korea's stock market discount. Kim Hyung-gyun of Cha Partners, Lim Sung-yoon of Dalton Korea, and Lee Chang-hwan of Align Partners stated that dual listing structures allow controlling shareholders with 30-40% stakes to maximize control while minimizing minority shareholder influence, creating severe conflicts of interest.
What policy reforms did Lim Sung-yoon recommend to resolve dual listing?
Lim Sung-yoon stated that Majority of Minority (MoM) voting is essential, which requires majority approval from general shareholders excluding controlling shareholders for major conflicting transactions. Lim also stated the government must provide clearer incentives and penalties to dismantle existing dual listing structures, noting Japan achieved reform progress through such measures.
How did Lee Chang-hwan describe bear hug mechanisms in US markets?
Lee Chang-hwan explained that US private equity funds purchase about 5% of undervalued company shares, then propose buying the entire company at prices much higher than market multiples. Lee stated that US boards immediately hire advisors to evaluate such proposals according to fiduciary duty, creating a structure where undervalued companies receive fair value and exit the market, resolving discounts and increasing efficiency.
