Startups need protection from hostile takeovers
Fair Trade Commission Chairman Kim Sang-jo said Wednesday the government might consider allowing small businesses and venture startups to issue dual class shares.
A dual class stock is the issuing of shares with distinct voting rights by one company. It offers one type of share to the public, and the other kind, with more voting rights, to company founders and their family members, and executives to help the former maintain a majority control of the company.
The government wants to encourage small high-tech firms to make initial public offerings on the KOSDAQ market more actively. By doing so, these startups can raise funds free from concerns about hostile takeovers by larger, cash-rich companies.
Kim's remark was enough to draw the business community's attention. It was the government's first positive response to strenuous demands from businesses to introduce a dual voting structure to defend their management control. Most advanced countries are also adopting the system to let startups focus on long-term operations undeterred by short-term performance.
Such being the case, it is inappropriate for big businesses and pro-chaebol commentators to call for applying the system to family-controlled conglomerates, too. These guardians of large enterprises cite such giants as Google and Alibaba listed on the New York Stock Exchange as examples of the system's beneficiaries. They say the Seoul government should also protect large companies' management control from foreign capital and hedge funds, in a thinly-veiled "patriotism marketing."
Yes, the U.S. and Japan have maintained the dual class ownership. It is also true Google and Alibaba benefitted from it when they were startups, but not after they grew big. These countries permit dual class stock issuance only at the time of IPOs, not retroactively apply it to existing giants, such as Samsung and Hyundai.
Google and Alibaba have not adhered to the status quo content with the protection device but grown through innovation and transparent operations. They are different from Korean chaebol, whose owners are bent on dominating the cobweb of affiliates through circular shareholding and handing over management control to their offspring.
Accepting chaebol's demands will end up aggravating their governance structures and perpetuating the "Korea discount."
Fair Trade Commission Chairman Kim Sang-jo said Wednesday the government might consider allowing small businesses and venture startups to issue dual class shares.
A dual class stock is the issuing of shares with distinct voting rights by one company. It offers one type of share to the public, and the other kind, with more voting rights, to company founders and their family members, and executives to help the former maintain a majority control of the company.
The government wants to encourage small high-tech firms to make initial public offerings on the KOSDAQ market more actively. By doing so, these startups can raise funds free from concerns about hostile takeovers by larger, cash-rich companies.
Kim's remark was enough to draw the business community's attention. It was the government's first positive response to strenuous demands from businesses to introduce a dual voting structure to defend their management control. Most advanced countries are also adopting the system to let startups focus on long-term operations undeterred by short-term performance.
Such being the case, it is inappropriate for big businesses and pro-chaebol commentators to call for applying the system to family-controlled conglomerates, too. These guardians of large enterprises cite such giants as Google and Alibaba listed on the New York Stock Exchange as examples of the system's beneficiaries. They say the Seoul government should also protect large companies' management control from foreign capital and hedge funds, in a thinly-veiled "patriotism marketing."
Yes, the U.S. and Japan have maintained the dual class ownership. It is also true Google and Alibaba benefitted from it when they were startups, but not after they grew big. These countries permit dual class stock issuance only at the time of IPOs, not retroactively apply it to existing giants, such as Samsung and Hyundai.
Google and Alibaba have not adhered to the status quo content with the protection device but grown through innovation and transparent operations. They are different from Korean chaebol, whose owners are bent on dominating the cobweb of affiliates through circular shareholding and handing over management control to their offspring.
Accepting chaebol's demands will end up aggravating their governance structures and perpetuating the "Korea discount."
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