FSS chief again promotes good faith governance revision to resolve Korea discount

Financial Supervisory Service Gov. Lee Bok-hyun repeated his call for corporate governance reform, while business groups called for changes to the inheritance tax system.

Financial Supervisory Service Gov. Lee Bok-hyun speaks during a seminar on governance reform for the corporate value-up initiative held in western Seoul on Wednesday. [YONHAP]

Financial Supervisory Service (FSS) Gov. Lee Bok-hyun once again called for corporate governance reform to ensure “equitable treatment for all shareholders,” encompassing both controlling and minority shareholders, in order to resolve the so-called Korea discount.

Advocates for corporations, on the other hand, pointed to high inheritance taxes as one of the more fundamental reasons for the chronic undervaluation of domestic stocks, while also arguing that extending board directors' responsibility to "all shareholders" through legislative revision would increase legal risks for businesses.

“Contradiction in corporate governance structures, which was aggravated during the country's rapid economic expansion, is considered the root cause of the Korea discount,” said Lee in his remarks during a seminar on corporate governance reform held in western Seoul on Wednesday.

"In order for the Korean stock market to resolve the discount, we need to improve [corporate governance structures] to align with the global standard, such as the G20/OECD Principles of Corporate Governance.”

While acknowledging that the country's concentrated corporate governance structures drove the fast economic growth of the past, the governor argued that the system is now “holding the capital market back from advancing.”

“The Korea discount will be resolved only when there is strong trust that the interests of both controlling and regular [minority] shareholders would be equally protected.”

The latter half of the year "will be the most optimal time” to lay out constructive solutions, Lee stressed, adding that he is “also waiting for discussions involving inheritance taxes and capital gains taxes to take place, which would further drive the improvement of the capital market.”

The seminar was jointly hosted by the Federation of Korean Industries, the Korea Listed Companies Association (KLCA) and the Kosdaq Listed Companies Association.

The business lobbies, along with five other groups, issued a joint statement on Monday opposing the financial watchdog's drive to revise the Commercial Act to expand the scope of responsibility for corporate board directors under the "good faith" provision.

“There are concerns that the proposed revision to the Commercial Act may hinder the long-term growth of companies and cause confusion in business operations,” said Korea Economic Research Institute President Chung Chul on Wednesday.

Chung also suggested that “we need to discuss how heavy inheritance taxes are encouraging corporate owner families to keep the companies’ share prices at a lower level.”

Jeong Gu-yong, the chairman of the KLCA, argued that “there have been efforts to improve the governance structure for the past 20 years or so, but the stock market continues to remain sluggish,” urging policymakers to pursue legislative reforms to vitalize business operations.

BY SHIN HA-NEE [shin.hanee@joongang.co.kr]