South Korea's top business lobby on Thursday stressed the need for the introduction of teh so-called poison pill and other defensive measures against shareholders seeking to make changes in the companies in which they own a stake.
The call by the Federation of Korean Industries, the lobby group for the country's family-controlled conglomerates, came following a recent controversy over U.S. hedge fund Elliott Associates' opposition to a merger between two key units of Samsung Group.
"We need to review the one-size-fits-all governance structure of our own that makes it difficult for local companies to defend their managerial control and introduce such management defense tools as poison pills and a dual-class stock system that are permitted in other countries," the FKI said.
Poison pills refer to a tactic designed to allow shareholders the right to buy new shares quickly at a discount so that they can defend against hostile takeover attempts.
The dual-class share system is another similar management defense tool that allows major shareholders to exercise multiple voting rights to preserve their control of a company.
In its own analysis of 83 major companies over the past decades, the FKI said that companies with a high ratio of foreign shareholding tended to lead to more dividends and less investment in facilities.
"The higher the foreign shareholdings were, the more demand there was for dividend payouts regardless of profits, which eventually ended up undercutting companies' facility investment and played a role in hurting their growth potential," the federation said.
The FKI also said that there have been cases in which foreign hedge funds caused controversy over managerial control with an aim to maximize their quick profits, which it claimed eventually undermined the long-term value of the companies involved.
Despite Elliot's opposition and a fierce proxy fight, shareholders of Samsung C&T Corp. approved last week a proposed merger with Cheil Industries Inc., the de facto holding firm of Samsung Group, paving the way for a once-in-a-generation leadership change at South Korea's top conglomerate. (Yonhap)
