[Editorial] In Ichan’s Sights

Korea Tobacco and Ginseng (KT&G) was selected as the best company in corporate governance by the Korea Exchange for the last two years. Kang Cheol-kyu, the chairman of the Fair Trade Commission, spoke very highly of the company’s transparency and fairness.

KT&G is now being threatened by Carl Icahn, nicknamed a “corporate raider,” over corporate control. It has become the target of a hostile takeover and is making a fumbling attempt to defend its corporate control.

The fundamental reason why SK Corporation was embroiled in Sovereign’s attempt to purchase it, and why KT&G has become a target these days is that their stock prices are undervalued because of inefficient management. And as the capital market has opened up, distinguishing where capital comes from is meaningless. Accordingly, people may not need to be upset over the possibility that domestic conglomerates might be taken over by foreign capital. The possibility of a hostile takeover bid can promote “management for shareholders,” so it is wrong for inefficiently run firms to request excessive safeguards.

Because American-style corporate governance, which emphasizes shareholders’ rights, was introduced right after the financial crisis, domestic companies’ defensive measures have disappeared. That is a problem. Attacks on corporate control are easy, but defense has become difficult. It is reverse discrimination to give acquisition opportunities only to foreign capital.

Companies affected get hit hard. An SK Corp. official said, “We only focused on defending our corporate control, leaving our business behind after having become a takeover target.” A side effect when corporate control is threatened is that the management increases shareholders’ dividends and places more importance on bringing short-term results.

The government has moved forward with policies on conglomerates such as the division between possession and management, the extension of an outside director system, the restriction on stake owned by the same person, and the regulation of industrial capital flowing into financial business with support from some civic groups. But the corporate governance the government and civic groups have requested cannot address everything. After reshaping transparent ownership structure and corporate governance rather than transparent management and efficient management, conflicts occurred between the government and conglomerates. The government should lift regulations such as the improvement of corporate governance so that companies and the market can handle problems on their own.