[Editorial] Protective Measures

Kang Cheol-kyu, the chairman of the Fair Trade Commission (FTC), said yesterday, “We need special measures for hostile foreign bids for core national industries or leading domestic companies.” He also pointed out the need to respond to speculative capital seeking to boost shares to sell out them with profits against any Korean company.

But his remarks are making people wonder why he said that only two days before the end of his term as the chairman of FTC after having been on the job for three years. Moreover, it is his “policy for corporate governance” that has in part fuelled foreign speculative capital and corporate raiders to come to Korea.

Chairman Kang has pushed companies to disperse stocks and separate ownership and management as if they are essential elements of exemplary corporate governance. There is no single right answer for corporate governance anywhere in the world. But he created the so-called “governance index” in December, 2003 and used it unilaterally as the standard in deciding whether a firm should be subject to regulation that limits the total amount of shareholding in other domestic companies. Last month, he even argued, “KT&G’s management and governance will be strengthened in the process of rising to the challenge [from Carl Ichan].”

But what is happening in reality? KT&G’s management rights are in crisis as it faces a takeover offer from Ichan, a U.S. corporate raider. The Federation of Korean Industries is worried that the 58 listed local companies in which overseas investors hold more shares than major domestic shareholders are highly likely to be the target of hostile takeovers.

It has been analyzed that there is no country where local companies are as exposed to hostile takeovers from overseas than Korea. The Asia Wall Street Journal warned that POSCO, the world’s fifth largest steelmaker, could be the next target (of corporate raiders) following KT&G.

Chairman Lee ku-taek of POSCO said recently, “Looking at the crisis of KT&G, a company with strong corporate governance, I have spent sleepless nights because I was worried that POSCO may face a hostile takeover.” In other words, the threat of hostile takeover is lurking everywhere, but there is no good way to respond to it.

What did corporate leaders think when chairman Kang talked of measures to protect domestic firms from hostile takeovers? He may sleep sound after having said that, but many business leaders will suffer sleepless nights.