Voting Rights Given to Chebol Companies over Affiliated Financial Companies

Beginning next year, chebol companies are allowed to exercise voting rights over the shares of their affiliated companies, including insurance company, investment company and mutual funds, within the limit of 30 percent that includes the combination of controlling shareholder with shares in special relation.

The National Policy Committee of the National Assembly held a plenary session yesterday and passed a revised bill on regulation of monopoly as well as fair trade. The vote was 9 for and 2 against.

Chebol companies did not have voting rights over their own financial and insurance companies. However, industrial capital`s limited control over financial capital is to be allowed with the revision of law. Thus, protests from the civic organizations are anticipated since people`s saving and investment funds can be abused by the head of the chaebol company to control the affiliated companies.

According to the revised bill, as for the case of listed and registered corporation companies, affiliated financial and insurance companies can exercise voting rights on matters for decision in the general shareholders` meeting, such as appointment and removal of the officials, change of the article of statue of the company, merger and transfer of business, within the limit of 30 percent that includes the combination of controlling shareholder with shares in special relation.

The National Policy Committee decided to amend the enactment day from April 1st 2002, which is written in the government`s original draft, to the day of declaration of the bill, thus enabling to apply the revised bill from early next year`s general shareholders` meeting.

The revised bill will change the method of regulation by type, such as mutual investment limit, equity investment limit, and debt guarantee limit, instead of eliminating the designation system, which regulated 30 chebol companies according to the asset rank. The detailed standard for regulation will be decided by the enforcement ordinance.

The government is considering a measure that sets up the standard to select a company that will be subject to the regulation of equity investment limit. According to the standard, a company will be subject to the regulation, if its asset amounts to minimum 5 trillion won, and a company will be subject to the regulation of mutual investment limit, debt guarantee limit and public notice on internal trade, if its asset amounts to minimum 2 trillion won.

Along with this, the revised bill decided to apply the equity investment limit system with exceptions to the following cases, such as investment in same business as well as similar business, social overhead capital private investment company or investment in a company to which the government invested maximum 30 percent, investment for the state-run corporation which is scheduled to be privatized, contribution that will return to the state, and investment in foreign investment company to draw foreign funds.

If a company exceeded the equity limit as of April 1st this year and cannot settle the equity by the end of March next year, the company is restrained from exercising voting rights for the unsettled amount of equity. The government also extended the period that acknowledges the exceptional equity investment that is intended to stimulate the structural adjustment from the end of March in 2001 to the end of March in 2003.

Meanwhile, six lawmakers of the Millennium Democratic Party, the Grand National Party`s (GNP) lawmakers Park Joo-Chun, Kim Man-Jae, and Lee Sung-Hun agreed on the bill, whereas the GNP`s Suh Sang-Sup and Kim Boo-Geohm voted against bill on the grounds that the voting rights of the financial company, which is owned by chebol, should be allowed with the precondition of the introduction of collective lawsuit system and concentrated voting system.

Jeong-Hun Kim jnghn@donga.com