'Money Move' is Not Enough with Just Real Estate to Stock Market Transfers [Reading the World]

The current government's 'money move' policy, aimed at stimulating economic growth by channeling funds from stagnant real estate and bank deposits into the stock market and promising innovative firms, is a welcome initiative. At the Korea Corporate Governance Improvement (KCGI), we believe that fostering a more dynamic capital allocation is essential for unlocking South Korea's economic potential. However, the policy's current focus on 'market-to-market money moves' is only part of the solution.

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However, it is difficult to achieve the full effect of the policy with only 'market-to-market money moves' where capital moves from one market to another.

Our analysis suggests that for true capital efficiency, we must also facilitate 'company-to-company money moves' and 'intra-company money moves.' This means encouraging capital to flow from inefficient companies to more productive ones, and within companies, from underperforming business units to those with higher growth potential. The prevalence of companies hoarding cash, holding non-core assets, or investing haphazardly in unrelated ventures indicates a significant need for internal restructuring and strategic capital deployment.

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The most effective way to solve this problem is for shareholders, who are the owners who supply capital to companies and most desire the efficient use of capital, to directly influence management and bring about business restructuring and shareholder returns.

The primary obstacle to achieving these crucial internal and inter-company capital shifts lies in the limitations placed upon shareholder activism. Despite the KOSPI reaching new heights, a staggering 45% of listed companies still trade below their net asset value (PBR of 1). This undervaluation often stems from inefficient capital management, yet shareholders face numerous hurdles when attempting to influence corporate behavior. These include stringent shareholding requirements for proposing shareholder resolutions, the absence of a 'precatory shareholder proposal' system common in the US, and inadequate time and information for shareholders to adequately assess proposals during general meetings.

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In Korea, to propose a shareholder resolution, one must continuously hold 0.5% of the shares (for listed companies with capital over 100 billion won) for 6 months.

To truly empower shareholders and ensure the success of the 'money move' policy, significant reforms are imperative. We advocate for lowering the thresholds for shareholder proposals, introducing a system for non-binding shareholder resolutions, and improving access to shareholder information, such as including email addresses in shareholder registries and extending the timeframe for general meeting notifications. By enabling robust shareholder engagement, we can drive the necessary corporate restructuring and enhance shareholder returns, ultimately leading to a more efficient and vibrant economy for South Korea.

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The solution has long been available. In addition to the shareholding requirements for shareholder proposals, a monetary requirement should be added, and proposals should be possible if either one is met.