The Right Regulatory Tool—or Simply the Strongest One?
The ruling
Democratic Party is pushing to write South Korea's dual-listing ban directly
into the Capital Markets Act, barely weeks after a Financial Services
Commission and Korea Exchange guideline on the same issue took effect. This
post asks whether legislating detailed standards this quickly is the right
sequence, and argues that a heavier board of directors and a busier board
secretariat are not the same thing as stronger, more substantive oversight.
Rather than reaching first for the strictest possible regulatory tool, this is
ultimately a question of board culture — one that deserves more time and more
careful design.
Reference
article: [Exclusive] Ruling Party Moves to Nail
Down a 'Dual-Listing Ban' in Law... Push to Amend the Capital Markets Act
The Democratic
Party has moved to restrict the dual listing of subsidiaries directly through
legislation. Under the proposal, the board of a parent company pursuing a
subsidiary listing would be required to assess the impact on shareholders and
prepare protective measures, and when a subsidiary created through a spin-off
is listed, the wishes of the parent company's shareholders would have to be
reflected. In other words, what has so far been handled through the Korea
Exchange's listing-review standards — the so-called "split listing"
restrictions — would now be elevated to the level of statute. This discussion
is taking place in the National Assembly barely any time after the dual-listing
guideline announced by the Financial Services Commission and the Korea Exchange
on July 6 took effect.
I share the
underlying concern that the equity value of ordinary shareholders in parent
companies has repeatedly been eroded. When a core business is spun off and
listed as a subsidiary, and the controlling shareholder retains control over
that subsidiary while ordinary shareholders of the parent absorb the resulting
share-price decline, that structure clearly needs to be fixed. But as a lawyer,
I want to raise a few points about whether the way to fix it must be dense,
statute-level regulation.
Why Does It Have to Be Law From the Start?
The guideline
prepared by the Financial Services Commission and the Korea Exchange has been
in effect for barely two weeks. A staged approach is entirely available: keep
the detailed standards in guideline form, watch for a while as boards build a
practice of voluntarily complying with them, and only then decide whether
legislation is warranted. It is also not something to dismiss lightly that
fixing detailed standards into statute right now would leave much less room to
adjust those standards flexibly in response to future market conditions or the
particular circumstances of individual companies. Just because a policy goal is
correct does not mean the strongest possible instrument is always the right way
to achieve it.
The Paradox: A Heavier Board, a Busier Secretariat
Imposing on
the board a duty to assess dual listings and prepare protective measures will,
in practice, considerably increase the board's workload. That raises a concern
worth naming. Outside directors who expected relatively light board duties may
push the discussion toward simply asking inside directors not to pursue a
subsidiary listing at all, rather than taking on a burdensome review process.
Alternatively, the opposite may happen: the board secretariat may end up
preparing everything the outside directors are supposed to substantively
review, leaving the outside directors to give it no more than a formal glance.
In neither case is it easy to say that the board's substantive oversight
function has actually been strengthened — and there is a real risk that the
main result is simply a much heavier workload for the board secretariat.
In the End, a Question of Culture
Reconsidering
the purpose behind directors' fiduciary duty to shareholders, I understand its
essence to be that directors, when voting on an agenda item, should broadly
consider the interests of minority shareholders and not only those of the
controlling shareholder. But when a statute spells out procedures and standards
in minute detail, there is a risk that directors will do no more than formally
comply with what the statute specifies. That would actually move further away
from the substantive consideration of minority shareholder interests that the
fiduciary duty was originally meant to secure. I see this, at bottom, as a
question of corporate culture in how boards operate. There are limits to trying
to solve the entire problem through statutory regulation alone, without first
thinking through how to build a board culture that genuinely takes minority
shareholder interests into account.
A Moment That Calls for More Refined Regulation
None of this is
meant to deny the need for legal safeguards to protect ordinary shareholders.
Rather, before locking detailed standards uniformly into statute, I believe it
is worth watching how the guideline performs a little longer and thinking,
alongside that, about how to improve board culture.
