InterviewKorean corporate governance trapped in Asian financial crisis era, says Dutch pension fund director

Dealers at Hana Bank work in a dealing room at the bank's headquarters in Seoul, Thursday. Yonhap

Korea’s capital market operates under a set of practices that often diverge from global norms.

For example, in 2022, LG Chem spun off its secondary battery business into LG Energy Solution and listed it. The stock price of LG Chem, once nearing 1 million won ($714.9), plummeted by half. Long-term investors who had believed in the future potential of the battery business were left deeply disappointed.

Another case is Kakao’s consecutive initial public offerings of its key subsidiaries — Kakao Games, KakaoBank and Kakao Pay — between 2020 and 2021. This decision led to the parent company’s stock price being halved. Yet, it is regarded as a way to raise capital while allowing the founder to maintain control without diluting ownership.

Similar incidents, with minor variations, have repeatedly occurred in the market and eroded public confidence in long-term investing. Some investors even refer to the Korean capital market as a "history of shareholder betrayal."

"It's a market that gives you a little sense of reward," said Park Yoo-kyung, managing director of emerging markets equities at APG Asset Management, in a recent video interview with The Korea Times. "In Korea, long-term holding is almost impossible."

The figures support this claim. According to the Korean Corporate Governance Forum in 2024, a 100 million won investment in the U.S. stock market 10 years ago would have grown to 340 million won, including dividends and capital gains. In Japan and Taiwan, the same investment would now be worth 280 million won and 260 million won, respectively. But in Korea, it would have reached only 160 million won.

Park Yoo-kyung, managing director of emerging markets equities at APG Asset Management / Courtesy of Park

Park began her financial career in the early 1990s and has been a vocal advocate for capital market reform ever since. She argues that if the KOSPI had tracked Korea’s GDP growth over the past 20 years, it would have surpassed 6,000. As of the third week of May, the index was fluctuating in the 2,600 range.

Stuck in undervaluation, Korea now accounts for just 9.5 percent of the MSCI Emerging Markets Index — falling below the 10 percent threshold that many experts see as a marker of market significance.

Park explained that foreign investors like APG don’t even need to pay attention to the Korean market right now.

"For example, they can hold TSMC in Taiwan as a long-term portfolio investment. In Korea, they just buy stocks like Samsung Electronics and SK hynix when they look cheap — and sell when they slightly tick up," she said. "That kind of short-term play is all this market allows. And honestly, that’s a sad reality."

Many analysts attribute the market’s underperformance to various factors, such as sluggish economic momentum and geopolitical tensions with North Korea.

However, Park believes the ultimate cause is declining investor trust, driven by poor shareholder returns. She emphasized that Korean companies' governance structure remains stuck in the era when the International Monetary Fund intervened during the Asian Financial Crisis in 1997.

"Companies enjoy the reputational benefits of being listed, and the ability to raise capital from the market at any time. But listing comes with obligations to shareholders too — and those, they consistently fail to meet," Park said.

Moreover, there is little proper oversight of actions that infringe on shareholder rights.

She questioned "why foreign and institutional investors would make long-term investments when companies show no regard for shareholder value and act only in their own interests?"

Shareholders register to enter Samsung Electronics' annual general shareholders meeting at a convention center in Suwon, Gyeonggi Province, March 19. Yonhap

This situation didn’t happen by accident. Ironically, the very institutions that once powered Korea’s economic rise — the family-run conglomerates, or chaebols — are now hindering the development of its capital markets.

In a governance structure where ownership and management are not separated, like in Korea, controlling shareholders can have overwhelming influence over decision-making. And few markets in the world are as dominated by family-run businesses as Korea’s.

The top four conglomerates in Korea account for a staggering 40 percent of the country’s GDP — with Samsung alone contributing around 25 percent. For comparison, while global investors consider the Ambani family's influence in India significant, it still amounts to only about 10 percent of India’s national economy.

"When we’re young, we grow up under the care of our parents — protected and supported. Then we become adults, start working, and fulfill our responsibilities, such as paying taxes," Park said. "It’s the same for listed companies."

Mounting frustration over corporations shirking their responsibilities eventually led to a policy-driven push for amendments to the Commercial Act.

At the core of the amendment is a proposal to expand corporate directors’ fiduciary duties — currently applicable only to the company itself — to include shareholders as well.

The discussion has become mired in political conflict. The ruling People Power Party and business leaders strongly oppose the legal measure, claiming it would undermine corporate growth momentum and lead to a surge in indictments of executives for breach of trust.

Park believes companies must not overlook the importance of shareholders.

"This is purely an economic and financial issue — it's about the stock market. It’s not about ideology at all, yet there’s this perception that Korean conglomerates are some kind of sacred ground that must never be touched. That mindset makes reform nearly impossible," she said.

"When you put them all together, shareholders are far greater in number than the companies themselves. We're talking about 15 million people," she said. "You wouldn’t ignore a single customer just because they’re one person buying a car or a product. So why ignore these shareholders?”

To Park, the amendment is the only hope left for Korea.

"What does Korea have left?" she asked. "There’s no meaningful growth. Policy stability is lacking. Even its core industries, like semiconductors, are on edge. There’s no dynamic new player pushing forward with momentum. Diplomacy is also in a tough spot."

"If we move from this undervalued state to one of fair valuation, stock prices will inevitably rise. Even without growth, achieving fair valuation alone would be enough for the market at this time. That’s what this reform is about,” she added.