“Investments Neglected for Management Rights Defense”

It was found that major domestic companies were unable to make appropriate investments last year because they were busily protecting their management rights.

According to the Financial Supervisory Commission and stock exchange yesterday, the internal (heaviest stock holder, affiliated persons, and treasury stocks) share of the 10 largest groups in terms of assets increased by 0.7 percent compared to 2003 (45.1 percent) to 45.8 percent.

Having experienced three consecutive years of decline in the internal shares since 2000, the pattern reversed due to the foreigners’ management interference and the increased M&A movements last year.

On the other hand, the sum of machines and equipments owned by 535 listed companies as of the end of June last year was 69.1016 trillion won, a 1.8 percent decrease from June 2003 (70.3779 trillion won).

Except for Samsung Group, the sum of machines and equipments owned by the other nine groups decreased 4.5 percent on average over the same period.

While the heaviest stockholder and affiliated persons were gleaning stocks, facility investments decreased.

Chairman Park Hyeon-joo of Mirae Asset commented, “As companies are prioritizing the defense of their management rights, there is a worry that the future growth engine might slow down.”

As of the end of last year, the internal shares of Doosan Group increased 13.4 percent to 65.6 percent. The shares surged due to the listing of Doosan Industrial Development Company and the acquisition of its own stocks.

The internal share of LG Group increased 5.4 percent over the same period to 37.4 percent. The share increased because the heaviest stockholder and affiliated individuals increased their holdings during the branching off process into affiliated firms.

Internal shares of Hanhwa (5.6 percent increase), Samsung (1.3 percent), Hyundai Motor (1.0 percent), and Hanjin (0.9 percent) also increased.

Companies are decreasing their facility investments because of the economic recession, labor disputes, and uncertainty in government policies.

Director Hwang Yoo-no of Hyundai Motor pointed out, “Enterprise-labor relationships lack flexibility compared to that of foreign countries, so it is difficult for active domestic investments.”

The sum of machines and equipments owned by Doosan Group as of the end of June 2004 was 495 billion won, a 14.5 percent decrease from the same time in 2003 (579 billion won).

Over the same period, Lotte and LG Group also decreased their ownership of machines and equipments by nine percent.

Experts point out that the foundation on which companies can stably manage should be found first.

Professor Choi Jun-sun (department of law) asserted, “The government should adopt the ‘Golden Stock’ system, in which one stock can make important decisions so that hostile M&As by foreigners can be blocked.”

President Chung Gwang-sun of the Corporate Governance Service, however, stated, “There also is a positive effect in which corporate governance becomes clear during the defense process of management rights by companies.”

legman@donga.com