[Editorial] “Managerial Control Crisis” Leads to Economic Crisis

Why enforce revision of the Fair Trade Law that strengthens restrictions on large corporations? The Fair Trade Law revision, including cutting the voting rights of chaebol financial units in non-financial affiliates and the ceiling on equity investment by large business groups, is described as market reform by the government and the ruling party. However, the important matter is the impact that “reform” will have on the national economy. A company cannot contribute to the national wealth while thrown into a more aggravated situation to defend itself against takeover threats from foreign capital.

Cutting the voting rights is no different from telling businesses not to be obsessed with managerial control and causing further insecurity over managerial control by foreign investors. The restrictions on the total amount of shareholding are equivalent to calling for increased investment and limiting the investment. To tell companies not to be concerned about takeover threats from foreign investors is even more outrageous than to say to the government, “Leave, because you have lost people’s support.” Deputy Minister of Finance and Economy Lee Hun-jai on the one hand says, “Korean businesses have to be prepared for hostile M&As by hot foreign money,” but on the other hand does not prevent the revision of Fair Trade Law and makes inconsistent remarks, saying, “We will actively capitalize on the pension fund.”

Among the top 200 listed companies, one out of five is concerned about hostile M&As by foreign capital. Eleven out of 31 companies whose turnovers record more than two trillion won expressed their anxiety over this issue. Some estimates go as far as to indicate that the cost of managerial control defense equals 10 times the investment in technology development. The Fair Trade Commission has reportedly said, “Having met with foreign investors, they were not interested in M&As.” But then, who first gives the warning and then venture for M&As?

It is nothing but empty talk to aggravate the institutional and social environment for businesses by forcing them to lose resources, effort, and time on protecting themselves from takeover threats by foreign investors and attempt for increased growth potential and economic recovery. Reverse discrimination, that is, solely tightening restrictions on domestic companies, will accelerate the drain of national wealth. The en masse dominance of domestic companies’ managerial control by foreign speculative capital is likely to put even economic policy management under the hands of foreign capital interests.

Even now in Japan, where foreign investors account for no more than 17 percent of the stock market, the government stands up for its companies to further defend their managerial control with stronger instruments. The United States, Europe, and other major players in the world are also supporting domestic companies’ protection of their managerial control with laws and institutional frameworks. This is why we cannot but be concerned about the wrong revision of the Fair Trade Law. Now is the time to make haste in devising landmark countermeasures for corporate defense of managerial control.