Saturday, July 4, 2009
If the interlocking ownership structures that characterize the chaebol system didn’t already make it hard enough for the market for corporate control to operate in Korea, the Ministry of Justice is apparently moving quickly to legalize the use of shareholder rights plans as part of its fight against the economic downturn and provide yet more breathing space for management.
According to today’s Korean Herald:
The government will … introduce the "poison pill system," or the corporate protection measure to curb hostile takeover bids and allow companies to invest their reserve cash in investment activities.
The Korean Times quotes the Minister of Justice as saying:
"The business circle has strongly demanded introduction of measures for managerial rights protection, and the transition committee also demanded considering it. We will push for the introduction of devices that suit global standards after discussion with other ministries.”
Of course, while the domestic Korean business community is thrilled with the “poison pill system” a sample of Korean editorial opinion is less excited about the prospect of building yet more walls to entrench management of Korea’s Chaebol. The Hankyoreh suggests that the answer to Korea’s economic woes might lie in better managers and not more protection for failed managers. The Korea Times is skeptical that more protection of Chaebol control will result in more investment and employment.
To better put the proposed changes in context, it’s worth remembering the Asian Financial Crisis of 1997. Much of the Korean end of that crisis was blamed on poor corporate governance of the Chaebols. Since 1997, Korea has been struggling to find a way forward. Opening up its capital markets and freeing up the market for corporate control has been controversial and not popular locally. Kim’s paper on Corporate Governance in Korea provides a good overview of the issues that are in part motivating the introduction of the “poison pill system.”