`Econ. democratization to hurt stability of managerial control`

More than half of Korea`s listed companies fear that "economic democratization" as widely discussed by politicians will negatively affect the stability of their managerial control, said the Korea Chamber of Commerce and Industry on Monday.

In a survey conducted of 300 listed companies and titled “The Impact of Economic Democratization on Managerial Control,” the chamber found that 56.3 percent said restriction of cross-affiliate stakeholdings being pushed as part of the economic democratization campaign will spawn fears over managerial control. In contrast, 9 percent said the restriction will help them stabilize managerial control, while 34.7 percent said it will have no influence.

The policy picked as having the most negative impact on stabilizing managerial control was the ban on cross-subsidiary circular shareholding (42.6 percent). This was followed by the introduction of a system that restricts the aggregate value of investment in subsidiaries (30.2 percent), strengthened regulation of holding companies (20.7 percent), and a toughened rule banning a company from owning a bank (6.5 percent).

On handling threats to their managerial control, including hostile M&As, 91 percent of the surveyed companies said they could “defend adequately or to some extent.” As for the means to defend control, 85.4 percent picked "acquisition of stakes," which requires massive funds. This meant that they intend to buy the stakes of majority and friendly stakeholders or repurchase their own stocks.

Jeon Soo-bong, a senior research executive of the chamber, said, “Unlike in other countries, measures to defend managerial rights are insufficient in Korea other than the acquisition of stakes,” adding, “If companies find their managerial control is at risk due to economic democratization, they will have to pour a considerable amount of funds to defend their managerial control in a real situation, and thus will have less capacity to invest.”

jhk85@donga.com