Governance Forum Voices Concerns Over Dual Listing Guidelines... Calls for Majority of Minority Approval

The Korea Corporate Governance Forum expressed concerns on July 6 regarding the financial authorities' guidelines on dual listings, urging the adoption of the so-called "Majority of Minority (MoM)" approach instead of the "3% rule."

In a statement released on this day, the Forum said, "Banning dual listings in principle and imposing a duty of shareholder protection on the parent company's board of directors is a step forward for protecting ordinary shareholders." However, it argued that "as announced, the guidelines could intensify the polarization of the K-Stock Market, making immediate revisions and improvements necessary." The Governance Forum is a non-profit incorporated association with more than 120 domestic and international members, including financial professionals, legal experts, and academics, aiming to advance the capital market through improved corporate governance.

The dual listing guidelines released to the public that day essentially prohibit dual listings, which have been cited as a major factor in the "Korea Discount." However, in cases where a physical spin-off subsidiary is listed, the guidelines require the consent of ordinary shareholders of the parent company. In this process, shareholder approval is determined by applying the "3% rule," which limits the voting rights of the largest shareholder and related parties to 3%. However, for general subsidiaries, an exception is made so that dual listing is possible without shareholder approval if the company passes the exchange's review.

Regarding this, the Forum stated, "Dual listings are a prime example of conflicting interests between controlling and ordinary shareholders, making the protection of ordinary shareholders particularly important. Under the dual listing guidelines, even the ordinary shareholders who are supposed to be protected could have their voting rights limited to within 3%." The Forum urged reconsideration of the 3% rule and called for the introduction of the MoM approach.

The Forum emphasized that "the biggest loser from the 3% voting rights cap is the National Pension Service, which holds more than 3% stakes in many listed companies. Ultimately, this results in losses for all citizens." The Forum also pointed out, "The 3% rule fragments ordinary shareholders. Under these guidelines, even if some shareholders acquire more than a 3% stake and attempt to bear monitoring costs themselves, their votes would not affect the outcome."

The Forum further argued, "Rejecting approval by a majority of ordinary shareholders on the grounds of the principle of shareholder equality is contradictory. The Majority of Minority (MoM) system is a universal mechanism adopted in many countries, including the United States, to protect the proportional interests of shareholders." The financial authorities responded that they took into account the Ministry of Justice's previous view that it is difficult to recommend MoM, as the shareholder stewardship guidelines suggested that MoM may violate the principle of shareholder equality.

The Forum also pointed out several other issues within the guidelines. It criticized the mandatory use of electronic voting for approval by ordinary shareholders and argued that excessive procedural differentiation increases the possibility that companies can evade the requirements. Regarding special committees, the Forum insisted that formal requirements alone are insufficient and that the actual independence of each independent director must be strictly reviewed on a case-by-case basis.

The Forum stated, "Korea's dual listing ratio is the highest in the world, and the severity of the resulting discount is also serious. The existence of the discount is evidence that ordinary shareholders of parent companies are not adequately protected." The Forum added, "The dual listing guidelines may fail to adequately protect shareholders of holding companies, intermediate holding companies, and parent companies with subsidiaries likely to pursue dual listings, potentially exacerbating K-polarization."

According to the Financial Services Commission, as of the end of last year, the ratio of dual listings in Korea—measured by the market capitalization ratio of cross-shareholdings among listed companies—stood at 11.2%, far exceeding that of the United States (0.05%), China (2.4%), Taiwan (2.7%), and Japan (4.0%).

This content was produced with the assistance of AI translation services.