Korea Corporate Governance Forum criticized the Financial Services Commission's (FSC) dual listing guidelines on the 6th, demanding the adoption of a Majority of Minority (MoM) voting system. Forum Chairman Lee Nam-woo and Auditor Shim Hye-seop issued a statement calling for immediate revisions to the guidelines, arguing that while the FSC's decision to restrict dual listings in principle and impose shareholder protection duties on parent companies represents progress, the current framework could deepen market polarization if implemented as announced. The Forum had previously opposed the 3% rule on the 15th of last month, stating that MoM voting is the only viable alternative for parent company shareholder consent. Korea's dual listing ratio stands at 11.2% according to FSC figures—over 200 times higher than the US rate of 0.05%—with the Forum's own calculations showing a 22.34% overlap ratio for conglomerate-affiliated listed companies relative to total market capitalization.
Forum Opposes 3% Rule for Restricting Minority Shareholder Voting Rights
The Forum identified the FSC's requirement for shareholder consent under the Commercial Act's 3% rule as a core problem in the guidelines. The statement argued that dual listings represent a typical situation where controlling shareholders and minority shareholders have conflicting interests, making minority shareholder protection critical. However, under the current guidelines, minority shareholders who are supposed to be protected face voting rights limited to 3%.
The Forum identified the National Pension Service as the biggest victim of this restriction. The National Pension Service, which holds over 3% stakes in numerous listed companies, would suffer the greatest losses from the 3% voting cap, with these losses ultimately affecting all citizens, according to the statement.
The Forum also criticized the 3% rule for fragmenting minority shareholders. In situations where conflicts arise with controlling shareholders, losses to minority shareholders are distributed across all minority shareholders, creating collective action problems and free-rider issues. The statement argued that the system should be designed to increase the benefit relative to monitoring costs by centering on shareholders holding 3% or more stakes. Instead, the guidelines work in reverse—even if some shareholders increase their stakes above 3% to bear monitoring costs themselves, they cannot influence voting outcomes.
The Forum also rejected the FSC's dismissal of MoM voting based on shareholder equality principles, calling this reasoning contradictory. The 3% rule itself represents an exception to shareholder equality principles, and by uniformly restricting voting rights even for shareholders without conflicts of interest, it imposes broader equality restrictions than MoM voting, which only excludes interested parties. The statement added that MoM voting is a universal system adopted by the US and many other countries to protect shareholders' proportional interests.
Forum Demands Electronic Voting Mandate and Stricter Special Committee Standards
The Forum identified several additional problems in the guidelines' detailed provisions. While acknowledging that requiring approval by one-quarter of total issued shares regardless of electronic voting adoption is reasonable, the statement noted this creates incentives for controlling shareholders to avoid implementing electronic voting altogether and instead selectively solicit proxies only from supporting shareholders. Meanwhile, monitoring costs for opposing shareholders would actually increase. Since electronic voting is an essential tool for reducing monitoring costs, the Forum argued that electronic voting should be mandatory when minority shareholder consent procedures are required.
The Forum also criticized excessive differentiation and subdivision of procedures, which increases possibilities for avoidance and exceptions. The statement argued that distinguishing between dual listings through spin-offs and other methods allows companies to circumvent shareholder protection efforts through asset transfers or capital contributions. The relaxed standards for dual listings of acquired companies were also deemed problematic, since acquisitions similarly involve parent company fund outflows and create conflict-of-interest situations. Given that minority shareholders are extremely unlikely to oppose situations beneficial to parent company minority shareholders, the Forum recommended avoiding overly technical system designs and protecting parent company minority shareholders with consistent standards.
Regarding special committee composition requirements, the Forum criticized the FSC's standards—allowing independent directors to chair committees or requiring independent directors and external experts to comprise two-thirds or more of members—as merely formal requirements. Considering that most companies have controlling shareholders and that independent director appointments are themselves determined by controlling shareholders, the statement emphasized that all committee members should in principle be independent directors. The Forum also stressed that external experts appointed by companies, despite meeting formal qualifications, have high potential for abuse, requiring strict examination of independent directors' substantive independence on a case-by-case basis.
Forum Warns Dual Listing Guidelines May Worsen Market Polarization
The Forum expressed concerns that implementing the guidelines as written could severely worsen domestic market polarization. Korea's dual listing ratio of 11.2% according to FSC figures already ranks first globally and exceeds the US rate (0.05%) by over 200 times. The Forum's own calculations based on Fair Trade Commission-designated conglomerate-affiliated listed companies show that the overlap ratio relative to total group market capitalization reaches 22.34%.
The statement argued that most dual-listed parent company stock prices trade at massive discounts relative to their holdings in listed subsidiaries and affiliates, and that the existence of such discounts itself proves parent company minority shareholders are not sufficiently protected.
The Forum specifically noted that recent market polarization involves capital concentrating only in certain semiconductor and AI-related operating companies, most of which are grandchild companies with no additional dual listing concerns under Fair Trade Act requirements for great-grandchild company shareholdings. Consequently, if the guidelines fail to sufficiently protect shareholders of holding companies, intermediate holding companies, and parent companies with subsidiaries that could potentially be dual-listed, they could instead create side effects that deepen polarization. The Forum reiterated its demand for immediate revisions including MoM voting adoption.
FAQ
What did Korea Corporate Governance Forum criticize on the 6th?
Korea Corporate Governance Forum criticized the FSC's dual listing guidelines on the 6th, demanding adoption of a Majority of Minority (MoM) voting system. Chairman Lee Nam-woo and Auditor Shim Hye-seop issued a statement calling the current 3% rule framework inadequate for protecting minority shareholders and warning it could deepen market polarization.
Why does the Forum oppose the 3% voting rule for dual listings?
The Forum argues the 3% rule restricts voting rights of minority shareholders who should be protected, particularly harming the National Pension Service which holds over 3% stakes in many companies. The statement contends this rule fragments minority shareholders and creates greater restrictions than MoM voting, which only excludes interested parties while allowing all other shareholders proportional voting power.
How does Korea's dual listing ratio compare internationally?
Korea's dual listing ratio stands at 11.2% according to FSC figures, over 200 times higher than the US rate of 0.05%. The Forum's own calculations for Fair Trade Commission-designated conglomerate-affiliated listed companies show a 22.34% overlap ratio relative to total group market capitalization, representing the world's highest concentration of dual listings.
