hankyoreh

In presenting an plan to promote facility investment yesterday, the government announced that it would be introducing a “poison pill” system to defend the management rights of major stockholders. The gist of this is that such stockholders would acquire new shares at a low price to defend their management rights in the event of a hostile merger and acquisition attempt.

The poison pill system is a device dominated by market economy principles, sending massive amounts of economic profit to individual conglomerate heads. If a majority holder in a company worth one trillion won in total market value had a 20% share, that holder would be able to acquire an additional 10% share at around a tenth of the market price in order to defend management rights. The existing small stockholders see their shares decrease proportionally, while the major stockholders can easily increase their shares with little money. In terms of money, they can acquire stocks worth 100 billion won at a cost of 10 billion won, so they can sit back and enjoy a tenfold windfall.

The government is claiming that companies cannot invest because they are busy buying up their own shares in order to defend their management rights. This does not jibe with the reality. Companies are buying up their own shares in preparation for a future increase in stock prices after the financial crisis brought them crashing down. This conforms with a stockholder’s profit. It isn’t for lack of money, either. The cash assets of the 10 major groups amounted to some 46.7 trillion won as of late March. The reason they are not investing is because the economic outlook is unclear. Indeed, Kumho Asiana and Doosan bulked up, acquiring big companies when the economy was doing well, but they are finding themselves restructuring again in the aftermath of the financial crisis. Under the present circumstances, it is natural for companies to be circumspect about investment.

When the economy develops and a company’s scale grows, the shares of major stockholders are bound to decrease over time. The way to defend management rights at such times is by gaining the trust of smaller stockholders through good management. Indeed, most U.S. companies maintain management rights in this way, not by depending on the poison pill system.

Let us turn things around: what conglomerate head would have any fear at all of smaller stockholders if existing major stockholders can defend their management rights at any time by acquiring stocks at a low price? They have no concern that their management rights might be taken away, so they are free to manage as they please. In the end, this only strengthens the situation of imperial-style management by conglomerate heads that has been pointed to time and time again as a major problem area.

Companies are not the property of the conglomerate heads alone. It is absurd to have a policy of guaranteeing a conglomerate head’s management rights even when it means violating the rights of regular stockholders. This even flies in the face of the market economy principles that the Lee Myung-bak administration has been emphasizing.

Please direct questions or comments to [englishhani@hani.co.kr]