If Leader’s Influence is Huge, Unconditional Restriction in Investments

The government has planned to restrict investments on groups with over five trillion won in assets whose leader has influence of the shares which exceeds his/her actual shares.

Also, the group’s reforming head office must open to the public their supplements of their funds and details of its use, which will weaken the leader’s management over it.

The investigation on unfair internal transaction between the subsidiaries will change from previously noticing beforehand to taking effect immediately after finding suspicions.

Fair Trade Commission (FTC) announced yesterday of modifying of the system which limits the total amount of investment, restraining the leader’s influential powers, and improving the rights of the minority shareholders in the “Market Reformation – A Three Year Plan” roadmap.

FTC introduced in the road map the “voting right multiplier” as the new standard for large enterprise policies, which is the degree of detachment between the leader’s actual shares (the right of ownership) and voting right (supremacy right).

If the voting right multiplier is two, it means that the leader and his/her family is exercising about twice the powerful voting right than the actual shares bought by investing cash.

FTC plans to drop the voting right multiplier of the 11 groups (which have over 5 trillion won in assets) which are targets of investment restriction from 6.1 at the latest April 1 to 3 in year 2006.

In order to “graduate” from the investment restriction, the standard has changed from the current “debt ratio under 100 percent” to the voting right multiplier must be below 2, detachment degree between ownership and supremacy under 20 percent, the number of subsidiaries must be under five and is a group without a 3-stage investment, the company which belongs to a holding company, an enterprise which has a concentrated voting system, the whole staff is each a director outside the company and an internal transaction committee is established within the enterprise.

Also, the large enterprise’s detachment degree between the ownership and supremacy and the details of the shares of the leader’s relatives must be announced to the public every year, and electronic voting and documented voting will be introduced to enlarge the opportunities for minority shareholders to exercise their voting rights.

FTC is devising measures to bring open to the public the contents of action of the group’s reforming head office, supplement of expenses and details of its use, and the cost-funding contract of management between the subsidiaries, because the group’s reforming head office is judged to assist the leader’s supremacy.

In addition, the form of investigating into unfair internal transaction will change into taking effect whenever there is suspicion. At the present, the group which is investigated is noticed beforehand the time before it is carried out.

Also, plans to intensify the obligations for unlisted and non-registered subsidiaries to officially notify have been arranged.

This roadmap is a tentative plan and will be finally confirmed around December after it collects opinions from various quarters next month and plans to restrict the voting rights of the holding shares the finance•insurance subsidiaries have are added.

Ki-Jeong Ko koh@donga.com