Editorial comment
The column’Echo’, released every Wednesday and Friday, contains the resonant thoughts of editorial board members and editorial board desks.
When Coupang, the largest e-commerce company in Korea, officially promoted listing on the New York Stock Exchange, the founder, Kim Bum-seok, chairman of the board of directors, granted 29 votes per share differential voting rights. The photo is Coupang headquarters located in Songpa-gu, Seoul. /News 1
During the Lunar New Year holidays, when Coupang, the largest e-commerce company in Korea, applied for listing on the New York Stock Exchange,’differential voting rights’ suddenly emerged as a topic. This is because of the report that’the Korean stock market did not allow differential voting, so promising companies were stolen from the New York stock market.’ This turned out to be far from the facts, but it is nice to see that interest in differential voting rights has increased as a result of this. This is because the dispute over differential voting rights reveals the problems of our government’s anachronistic corporate policies.
Differential voting rights are a system that grants more voting rights to stocks held by startups than regular stocks to maintain control of the founder or CEO when listed. In 2004, when Google (now Alphabet) went public, it granted differential voting rights. Since then, more and more cases are being followed by tech companies, and one-fifth of companies listed on the U.S. stock exchange have differential voting rights. Differential voting rights are free from the threat of activist funds targeting the management rights of companies with weak corporate governance and enable founders to actively invest. Morgan Stanley Capital International (MSCI) analyzed the data of listed companies in 2007-17, and found that the stock prices of differential voting companies rose more. The Korean government also announced a policy to allow differential voting for unlisted venture companies as one of the’second venture boom spreading strategies’ in 2019, and the Ministry of Strategy and Finance promised to amend the Venture Business Act to this end.
Conversely, there are many studies that show that the stock prices of companies with differential voting rights are high at the beginning of the listing, but fall faster as time passes. Executives with differential voting rights have few stocks, so it is difficult to escape the temptation to set their own pay higher than paying dividends by boosting corporate performance. The violation of the principle of’one week, one voting right’ is the main cause of obstacles to long-term growth of companies. However, this is the same problem that Korean conglomerates maintain a stronger total control than their equity ratio through pyramidal governance or circular investment. The Fair Trade Commission strives to solve the problem of corporate governance, but the Ministry of Strategy and Finance is in a difficult situation to open a back door to avoid this.
This dilemma arises because our corporate policies are entangled in the view of’shareholder capitalism’. Shareholder capitalism argues that maximizing shareholder profits will ultimately benefit not only companies but also the national economy. We believe that the more the equity ratio and control rights match, the less conflict of interest between shareholders and managers. That is why the principle of’one week, one vote’ becomes important. However, this argument does not reflect the changes of the times. With one corporate shareholder scattered around the world, the majority of shareholders are only interested in the stock price. It is also easy to postpone the treatment of employees and mid- to long-term investments for customers in order to satisfy the short-term profits of shareholders as well as their agents, professional managers.
Efforts to overcome this problem of shareholder capitalism are already popular among global top-tier companies. Emphasize that the top priority of managers is to be responsible for customers, employees, partners, and society rather than shareholders. Differential voting rights can help with this new trend. The Valenbury Group, a respected Swedish company, is a prime example. The New York Times introduced differential voting rights to strengthen media independence.
The corporate environment is changing rapidly, and it is difficult for corporate governance policies to stick to the principle of’one week, one vote’. Let the company decide on differential voting rights. Since a company’s differential voting rights become a discount factor when listing, the market can control the overuse of such decisions. Instead, the government should focus on policies to increase the number of companies that fulfill social responsibilities. Those who are most concerned about the long-term fate of the company are the true owners of the company, and they are the managers, employees, partners, and the society that embraces the company.
Jeong Young-oh Editorial Writer [email protected]
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