Investor feedback on regulatory and corporate governance reform: key takeaways from Hong Kong & Singapore
Foreign investors had limited understanding of ruling party& CG reform road map
Deep distrust that has accumulated in global financial community over past 20 years will require significant efforts from the new government to overcome
Attempt to re-list of LG Electronics India should be halted immediately
We provide three-step solution to resolve LG Chem NAV discount
Hyundai Motor should liquidate or securitize Samseong-dong commercial building project to fund investment in mobility and AI
Samsung Electronics BoD should consider equity spin-offs similar to Samsung Bio: Semiconductors (ex-foundry), foundry, and consumer
For holding companies suffering severe NAV discounts, shareholders should vote against incumbent independent directors up for reappointment at AGM
In early August, we engaged with numerous Asia-based investors in Hong Kong and Singapore. The meetings were crucial, as communication on the Lee administration's corporate governance reforms had been unclear and inconsistent to overseas investors. We felt that the level of foreign interest in Korea was the highest since 1999–2000 when the country achieved a sharp recovery post-Asian crisis.
Ironically, while interest from investors was high, our meetings were a sobering reality check. Given the previous Yoon administration’s reversal on the Commercial Act amendment and the abrupt ban on short-selling, we expected some distrust — but not this much. Korea has lost substantial credibility due to 20 years of broken promises by its government and corporations. The “wall of distrust” we encountered exceeded expectations. Even if the National Assembly pushes through a series of governance reform bills, this deep skepticism will require joint, long-term public-private efforts to overcome.
With new leadership now in place at the Financial Services Commission (FSC) and Financial Supervisory Service (FSS), they must urgently and transparently communicate the governance reform roadmap to global investors. Time is of the essence as Asia’s corporate governance race is rapidly accelerating. Asian companies are now genuinely striving to boost their market capitalization and improve equity valuations by enacting stronger shareholder-friendly policies. Over the past decade, we have seen Japan, Taiwan, India, Singapore, and even China to embrace these reforms. A prime example is India’s SEBI (Securities and Exchange Board of India) that adopted the “majority of the minority (MoM)” principle to protect minority shareholders.
Still, most global investors remain deeply skeptical of Korea’s corporate governance reform initiatives. Even if further Commercial Act amendments are passed in late August, they question whether Korean companies will truly respect minority shareholders’ rights.
Korean companies with dual listing issues should review Tencent’s distribution in specie a few years ago. In December 2021, Tencent distributed 460 million JD.com A-shares (worth US$16bn) to its shareholders via a special dividend, cutting its stake from 17% to 2%. Similarly, in 2018, Tencent distributed Tencent Music (TME) ADRs directly to parent shareholders after its U.S. listing. This model, however, requires complementary tax reforms in Korea, as such distributions are currently subject to taxation.
Presented below is a Q&A section addressing nine key issues from the HK/Singapore investor meetings. The central concern was not simply policy, but whether Korean companies themselves would fundamentally change their behavior.
Q1: What is the credibility of the Lee administration's commitment to governance reform, and who are the key decision-makers driving the roadmap?
A1: The current administration appears to be genuinely committed to corporate governance reform, a process requiring time and persistence. Based on our experience and interactions with MPs, we could confidently say the ruling party has done extensive legislative groundwork in advance. The ruling Democratic Party’s KOSPI 5000 Task Force is leading the legislative process at the Assembly, while the Presidential Office is coordinating the overall pace. The KOSPI 5000 Special Committee, which includes former attorneys like MP Oh Ki-hyung, boasts a high degree of proficiency in law and capital markets. Since last year, the Committee has held in-depth discussions on every single bill that’s in the pipeline. We believe that critical bills such as the discovery system and the relaxation or abolition of criminal breach-of-trust liability are scheduled for the first half of next year. While some global investors perceived the July 3 Commercial Act reform with a major surprise, it was, in fact, the first of several carefully sequenced laws. By year-end, we expect complementary reforms to the Commercial Act and amendments to the Capital Market Act to follow.
Policy visibility is pretty good. Most of the legislative proposals being pursued by the KOSPI 5000 Committee were already highlighted in the Democratic Party’s May 28 presidential policy pledges. Under the section titled “Protecting Minority Shareholder Rights through Better Corporate Governance,” the manifesto outlines six commitments — duty of loyalty to shareholders, independent directors, cumulative voting, and expanded separate audit committee elections.
Reforms scheduled for the September regular National Assembly session will target “Ending Self Dealing by Controlling Shareholders Exploiting Capital Transactions.” These proposals include mandating treasury share cancellation, requiring tender offers to share control premiums in M&A, applying fair prices to capital transactions, allocating new shares to parent shareholders during spin-off IPOs, and introducing merger auditors.
The broader manifesto also promises stronger shareholder returns, MSCI Developed Market Index inclusion, and judicial transparency via an introduction of a discovery system.
Q2: What are the risks of governance reform?
A2: Upside risks include:
- • A rise in activist campaigns;
- • Leadership change at the National Pension Service (NPS); and
- • Reactivation of the Value-Up program with enforcement.
Global investors strongly resonated with these points.
There was consensus among investors that both domestic and international shareholder activism can help Korea’s corporate governance reform. This trend mirrors the one seen in Japan over the past decade. In a market where controlling shareholder self-dealing is rampant and valuations are depressed as a result, activism has proven to be a positive force, consistently enhancing operating performance, shareholder returns, and governance.
When comparing Japan’s GPIF to Korea’s NPS, foreign investors expressed disappointment in NPS CEO Kim Tae-hyun’s ineffective leadership. He’s likely to be replaced soon, and there’s hope that a reform-minded figure will take over. If NPS strengthens its stewardship code and allocates capital to activist funds, governance reform could accelerate.
Incoming FSS Governor Lee Chan-jin is also expected to advocate for stronger voting rights among institutional investors. As for the Value-Up Program, the prior attempt under President Yoon fizzled out but was well-intentioned. The May 2024 guidelines were solid — but major firms like Samsung Electronics ignored them, and the initiative lacked commitment from the Financial Services Commission (FSC) and the Korea Exchange (KRX). The Lee administration is reportedly interested in reviving the initiative, under a new name, likely timed with the legislative push wrapping up between late 2025 and early 2026. Once fiduciary duties are strengthened, corporate boards must acknowledge cost of capital (which is the required rate of return from shareholder perspective) vs. return on capital — and allocate capital accordingly.
Downside risks include:
• Resistance from family-controlled conglomerates;
• Legal uncertainty due to inconsistent court rulings; and
• Lack of a supply of truly independent directors.
While legislative CG reforms are underway, their successful implementation faces considerable challenges. Large Korean chaebols may attempt to weaken key reforms like cumulative voting, possibly by exploiting loopholes such as staggered board terms. They have been lobbying aggressively. Furthermore, the judicial system presents a significant hurdle. Court outcomes in shareholder disputes remain unpredictable due to a lack of sufficient cases and individual judges’ inexperience in dealing with CG cases . On the corporate side, most incumbent independent directors remain loyal to controlling shareholders to secure reappointments, making improvements in board decision-making unlikely in the near term. Much time and effort will be required to cultivate a qualified pool of truly independent directors, as Korea currently lacks a robust director training program.
Q3: Among further revisions to the Commercial Act legislation, what is the most important? The director's duty of loyalty to shareholders is a declarative law that prevents downside risk. However, for us to increase our investment in Korea, we must see tangible evidence of concrete improvements in shareholder value. Will there be voluntary efforts by local companies to enhance shareholder value?
A3: The mandatory cumulative voting system and expansion of separate audit committee elections from one to two directors — likely to pass in the National Assembly by late August — are reforms that can meaningfully strengthen board independence. These measures will help check self-dealing by controlling shareholders and may lift equity valuation levels.
Currently, Chaebol chairperson holds minimal direct stakes in affiliates but still handpicks entire board members. Meanwhile, minority shareholders, who hold nearly 60%, cannot even nominate directors. The second Commercial Act amendment changes this equation: together with the strengthened 3% rule, the ability for minority shareholders to elect two audit committee members independently will be raised significantly. KOSPI 200 companies on average have 7~8 directors, with audit committees typically composed of 3 members. The audit committee is the most important sub-committee of the board in dealing with CG issues. Under the majority-rule, one member demanding an investigation can be overridden by two dissenting directors — who often remain loyal to the controlling shareholder that nominated them. If two of three audit committee members are independently elected, the committee may regain its intended function.
Another critical CG reform is the principle of mandatory treasury share cancellation, which directly enhances shareholder value. The amendment bill led by MP Kim Nam-geun on July 9 requires large companies to cancel treasury shares within one year of the repurchase, with exceptions for equity compensation, etc. Importantly, the bill applies retroactively to treasury shares already held by listed companies, which would boost shareholder value and help resolve the “Korea Discount.” Given the resistance from controlling families of listed companies, strong political will from the ruling party and government is essential to ensure this reform is fully implemented. Its passage would be a decisive step toward restoring market confidence and a crucial catalyst for higher equity valuations.
For the first one to two years post-CG reform, most family-controlled listed firms (excluding financial holding companies, KT, POSCO, etc.) may adhere to legal requirements but not yet take proactive measures to enhance shareholder value. However, market pressure will serve as a powerful catalyst for change. The recent announcement of HMM's W2 trillion treasury share retirement, for instance, is a positive sign.
Q4: Which major Chaebols show the most progress and which remain the most backward on governance?
A4: Among the top five Chaebols, Hyundai Motor Group stands out positively. Board composition at Hyundai Motor and Kia reflects genuine effort. Chairman ES Chung likely gained many lessons about shareholder rights and governance during his proxy fight with Elliott Management in 2018~19. On the other extreme, Lotte Group is the worst, though it barely has foreign institutional ownership. But investors widely agreed to our view that LG Group is the most indifferent to governance improvement among the big four.
Global investors voiced dissatisfaction with the Koo family’s handling of LG affiliates. Recently, LG Electronics announced renewed plans to list its India subsidiary locally in India, after shelving it earlier due to lack of traction. Roadshows targeting Hong Kong and Singapore investors were planned for August. This appears to be a deliberate attempt to sidestep domestic shareholder protection obligations under amended corporate law by exploiting regulatory blind spots abroad. For investors, it signals disregard from Chairman Koo toward shareholders of LG Corp. and LG Electronics. Such overseas dual listings, especially of highly profitable subsidiaries like LG Electronics India (annual revenue of W4trn, net profit margins near 10%), directly undermine parent equity valuations. If listed at a market cap of US$9bn (W12trn), LG Electronics India would be valued on par with its parent — raising the question: why sell such a crown jewel? LG Chairman Koo and LG Electronics CEO Cho must reflect on why LG Electronics’ share price has fallen 19% over the past year and 13% over the past five years.
Q5: Among the bluechips, LG Chem is the most disappointing. The value of its 82% stake in LG Energy Solution (LGES), with a market capitalization of W90 trillion, is more than three times larger than LG Chem's own market cap of W20 trillion. Is there a way to resolve the LG Chem NAV discount caused by dual parent-subsidiary listing?
A5: The first step toward governance reform is for Vice Chairman and CEO Shin to resign. He, along with LG Group Chairman Koo, bears responsibility for the split-off, listing of LGES and lack of preparation for losses in the petrochemical division. Shin has served as CEO since 2019. During his 6.5-year tenure, LG Chem’s common shares have fallen 23%, with a 60% collapse over the last five years.
In Q2 earnings call, LG Chem signaled possible stake sale in LGES. With free cash flow deficits mounting and net debt surging, management appears cornered. In June, LG Chem issued U$1bn EB backed by 4.12mn LGES shares. We argue management should consider non-core divestitures and structural fixes instead. LG Chem shareholder has already suffered significant damage due to the simultaneous parent-subsidiary listings.
Is there no proactive solution to address the persistent NAV discount? We strongly recommend that the LG Chem board consider the following three-step strategy.
1. Tender offer: LG Chem launches a tender offer for its own shares, paying LGES shares instead of cash (This would create corporate tax liabilities based on the difference between book value and market value of distributed LGES shares)
2. Spin-off reorganization: Spin off LG Chem into Advanced materials holding company and Petrochemicals holding company. LGES shares would be booked under Advanced materials holding company (Transaction is tax-free as a qualified spin-off)
3. Merger: Merge Advanced materials holding company with LGES (Also tax-free as a qualified merger)
While unfamiliar in Korea, such transactions are consistent with the FSC’s 2022 policy guidelines for improving parent company minority shareholder rights in spin-off IPOs. The roadmap resembles SK Innovation’s 2023 initiative (that did not materialize) — launching a share buyback, then distributing SK On shares (instead of cash) to tendering shareholders. If LG Chem used over 20% of its LGES stake for such a program, the NAV discount would shrink dramatically, boosting both stock price and market cap. With higher equity valuation, the company could comfortably raise equity capital (if needed) on favorable terms. Wouldn’t it be a clear win-win?
Q6: Hyundai Motor’s stock remains disappointing. While there have been minor governance improvement efforts, there has been no fundamental change. The circular shareholding structure of Hyundai Motor Group is problematic. If Chairman ES Chung completes the succession of shares from his father, will he resolve this structure?
A6: Hyundai Motor common shares have fallen 10% in the past year and risen only 14% in three years (a mere 4% CAGR). At PER 5x and PBR 0.5x, valuations are low compared with global peers despite strong products and robust profitability. The issue is a bloated balance sheet with no effort to optimize capital. While Hyundai’s board composition is one of the better ones among chaebols, independent directors must take a stronger stand.
The group’s 2014 acquisition of KEPCO’s HS site in Samseong-dong cost over W10 trillion, with total investment (including financing costs) now exceeding W20 trillion. Due to design changes and permit delays, the GBC development remains stalled. It is important to either divest or securitize the land bank to secure cash and refocus on the core automotive business. Liquidation or securitizing the land could unlock W20 trillion — equivalent to 36% of Hyundai Motor’s current market cap including preferred shares. If over W10 trillion in cash were raised, one-third should be used to retire undervalued preferred shares, and the rest invested into autonomous driving projects.
As for succession, even if ES Chung inherits his father’s stake, the current circular structure will likely remain, in our view. However, since ES Chung earned some credibility from his shareholders, he may be able to maintain control with a smaller equity stake post- inheritance. His inheritance tax would be roughly 60%. He could also sell personal stakes in private companies such as Boston Dynamics, to raise cash and increase stake in key listed companies.
Q7: What fundamental solutions exist to enhance Samsung Electronics’ corporate value? Evaluate Chairman JY Lee’s leadership.
A7: Running a diversified conglomerate including Samsung Electronics with W500tr in assets, whose portfolio spans semiconductors, smartphones, consumer electronics and displays, requires strong, decisive leadership. However, JY Lee is widely perceived as lacking a firm grip, often avoiding difficult decisions. This contrasts sharply with his father KH Lee, who was known for his decisive, even ruthless, leadership and good insights. KH Lee also had deep attachment to the semiconductor business. JY Lee, by comparison, reportedly is interested in B2C businesses and prioritizes less on capital-intensive ventures. Samsung's M&A history under JY’s leadership reflects his character and preference. Recent acquisitions — from Harman (2016) to Masimo (2025) and FläktGroup — have consistently focused on consumer products and non-cyclical businesses rather than the capital-intensive businesses like semiconductors.
With foreign holding 51% of common shares, their patience with Samsung’s stock performance has reached a limit, in our view, particularly in light of TSMC’s success. While IT companies should aim to grow at double-digit pace, Samsung Electronic’s shareholder returns have disappointed: -7% over the past year and a meager 4% CAGR over the last five years.
To address this underperformance and restore market confidence, Samsung Electronics’ board requires a major upgrade, beginning with the appointment of foreign independent directors. Furthermore, Samsung Electronics is urged to deploy a portion of its W101 trillion cash to buy back and retire some of its undervalued preferred shares (worth W47 trillion), a move that would directly enhance shareholder value.
More fundamentally, breaking up the company into distinct units is the path to unlocking value and enhancing accountability. Spinning off the foundry business and listing it on NASDAQ (ADR format) would free it from structural conflicts of interest and enable it to pursue growth independently, with a new management team incentivized through generous stock awards.
The most ideal scenario, in our opinion, would mirror the Samsung Biologics spin-off, restructuring Samsung Electronics into three entities:
1. Samsung Semiconductor Holdings (all semiconductor businesses ex -foundry);
2. Foundry Holdings (foundry only, dual-listed in Korea and the U.S.); and
3. Samsung Consumer Holdings (DX division + Harman).
JY Lee could directly manage the consumer holdings company — his area of interest — while both semiconductor and foundry holding companies should be run by professional management teams, with JY Lee simply sitting on the board of both companies. If necessary, hiring foreign CEOs for semi and foundry holding companies should be considered.
Q8: Why is a rational approach to dividend taxation (single rate, long-term investor benefits, etc.) so difficult? Isn’t tax one of the major sources of misalignment between minority and controlling shareholders? What about inheritance tax reform?
A8: Within the ruling party, political views diverge widely on taxation. Tax is a very sensitive issue for politicians. While there is consensus on capital market and CG reforms, some lawmakers oppose applying lower rates to middle- and upper-income investors. They fear it amounts to tax benefits for controlling shareholders — falling into the “tax cuts for the wealthy” frame.
A simplified dividend taxation scheme is needed, coupled with additional benefits for long- term investors (e.g., holding shares for 2~3+ years). Yet even this faces internal friction between party members and the government. Inheritance tax reduction is an even more sensitive issue. Given the political climate, it is unlikely to be tackled under this administration. As a result, the structural misalignment between general and controlling shareholders — exacerbated by tax policy — would remain unresolved.
Q9: Despite a recent rebound, holding companies still trade at steep discounts to NAV. How can this discount be narrowed?
A9: Virtually all Korean holding companies trade below NAV, with LG Corp. and SK Inc. at PBRs under 0.5x. The first step must be mandatory cancellation of treasury shares. Shareholders should also monitor whether directors are honoring their fiduciary duties. For companies with steep NAV discounts, investors should vote against the reappointment of incumbent independent directors (after proper prior notice to the company) at shareholder meetings. The logic is simple: directors are elected to narrow the NAV discount. That is their mandate.
Our Forum requests investors exercise voting rights responsibly at upcoming AGMs (especially March 2026), in the spirit of faithfully following the stewardship code. Just as foreign investors played a pivotal role in improving corporate governance in Japan by raising their voices at shareholder meetings, we hope they duplicate this success in Korea.
August 18th, 2025
Korean Corporate Governance Forum
Chairman, Namuh Rhee
Investor feedback on regulatory and corporate governance reform: key takeaways from Hong Kong & Singapore
Foreign investors had limited understanding of ruling party& CG reform road map
Deep distrust that has accumulated in global financial community over past 20 years will require significant efforts from the new government to overcome
Attempt to re-list of LG Electronics India should be halted immediately
We provide three-step solution to resolve LG Chem NAV discount
Hyundai Motor should liquidate or securitize Samseong-dong commercial building project to fund investment in mobility and AI
Samsung Electronics BoD should consider equity spin-offs similar to Samsung Bio: Semiconductors (ex-foundry), foundry, and consumer
For holding companies suffering severe NAV discounts, shareholders should vote against incumbent independent directors up for reappointment at AGM
In early August, we engaged with numerous Asia-based investors in Hong Kong and Singapore. The meetings were crucial, as communication on the Lee administration's corporate governance reforms had been unclear and inconsistent to overseas investors. We felt that the level of foreign interest in Korea was the highest since 1999–2000 when the country achieved a sharp recovery post-Asian crisis.
Ironically, while interest from investors was high, our meetings were a sobering reality check. Given the previous Yoon administration’s reversal on the Commercial Act amendment and the abrupt ban on short-selling, we expected some distrust — but not this much. Korea has lost substantial credibility due to 20 years of broken promises by its government and corporations. The “wall of distrust” we encountered exceeded expectations. Even if the National Assembly pushes through a series of governance reform bills, this deep skepticism will require joint, long-term public-private efforts to overcome.
With new leadership now in place at the Financial Services Commission (FSC) and Financial Supervisory Service (FSS), they must urgently and transparently communicate the governance reform roadmap to global investors. Time is of the essence as Asia’s corporate governance race is rapidly accelerating. Asian companies are now genuinely striving to boost their market capitalization and improve equity valuations by enacting stronger shareholder-friendly policies. Over the past decade, we have seen Japan, Taiwan, India, Singapore, and even China to embrace these reforms. A prime example is India’s SEBI (Securities and Exchange Board of India) that adopted the “majority of the minority (MoM)” principle to protect minority shareholders.
Still, most global investors remain deeply skeptical of Korea’s corporate governance reform initiatives. Even if further Commercial Act amendments are passed in late August, they question whether Korean companies will truly respect minority shareholders’ rights.
Korean companies with dual listing issues should review Tencent’s distribution in specie a few years ago. In December 2021, Tencent distributed 460 million JD.com A-shares (worth US$16bn) to its shareholders via a special dividend, cutting its stake from 17% to 2%. Similarly, in 2018, Tencent distributed Tencent Music (TME) ADRs directly to parent shareholders after its U.S. listing. This model, however, requires complementary tax reforms in Korea, as such distributions are currently subject to taxation.
Presented below is a Q&A section addressing nine key issues from the HK/Singapore investor meetings. The central concern was not simply policy, but whether Korean companies themselves would fundamentally change their behavior.
Q1: What is the credibility of the Lee administration's commitment to governance reform, and who are the key decision-makers driving the roadmap?
A1: The current administration appears to be genuinely committed to corporate governance reform, a process requiring time and persistence. Based on our experience and interactions with MPs, we could confidently say the ruling party has done extensive legislative groundwork in advance. The ruling Democratic Party’s KOSPI 5000 Task Force is leading the legislative process at the Assembly, while the Presidential Office is coordinating the overall pace. The KOSPI 5000 Special Committee, which includes former attorneys like MP Oh Ki-hyung, boasts a high degree of proficiency in law and capital markets. Since last year, the Committee has held in-depth discussions on every single bill that’s in the pipeline. We believe that critical bills such as the discovery system and the relaxation or abolition of criminal breach-of-trust liability are scheduled for the first half of next year. While some global investors perceived the July 3 Commercial Act reform with a major surprise, it was, in fact, the first of several carefully sequenced laws. By year-end, we expect complementary reforms to the Commercial Act and amendments to the Capital Market Act to follow.
Policy visibility is pretty good. Most of the legislative proposals being pursued by the KOSPI 5000 Committee were already highlighted in the Democratic Party’s May 28 presidential policy pledges. Under the section titled “Protecting Minority Shareholder Rights through Better Corporate Governance,” the manifesto outlines six commitments — duty of loyalty to shareholders, independent directors, cumulative voting, and expanded separate audit committee elections.
Reforms scheduled for the September regular National Assembly session will target “Ending Self Dealing by Controlling Shareholders Exploiting Capital Transactions.” These proposals include mandating treasury share cancellation, requiring tender offers to share control premiums in M&A, applying fair prices to capital transactions, allocating new shares to parent shareholders during spin-off IPOs, and introducing merger auditors.
The broader manifesto also promises stronger shareholder returns, MSCI Developed Market Index inclusion, and judicial transparency via an introduction of a discovery system.
Q2: What are the risks of governance reform?
A2: Upside risks include:
Global investors strongly resonated with these points.
There was consensus among investors that both domestic and international shareholder activism can help Korea’s corporate governance reform. This trend mirrors the one seen in Japan over the past decade. In a market where controlling shareholder self-dealing is rampant and valuations are depressed as a result, activism has proven to be a positive force, consistently enhancing operating performance, shareholder returns, and governance.
When comparing Japan’s GPIF to Korea’s NPS, foreign investors expressed disappointment in NPS CEO Kim Tae-hyun’s ineffective leadership. He’s likely to be replaced soon, and there’s hope that a reform-minded figure will take over. If NPS strengthens its stewardship code and allocates capital to activist funds, governance reform could accelerate.
Incoming FSS Governor Lee Chan-jin is also expected to advocate for stronger voting rights among institutional investors. As for the Value-Up Program, the prior attempt under President Yoon fizzled out but was well-intentioned. The May 2024 guidelines were solid — but major firms like Samsung Electronics ignored them, and the initiative lacked commitment from the Financial Services Commission (FSC) and the Korea Exchange (KRX). The Lee administration is reportedly interested in reviving the initiative, under a new name, likely timed with the legislative push wrapping up between late 2025 and early 2026. Once fiduciary duties are strengthened, corporate boards must acknowledge cost of capital (which is the required rate of return from shareholder perspective) vs. return on capital — and allocate capital accordingly.
Downside risks include:
• Resistance from family-controlled conglomerates;
• Legal uncertainty due to inconsistent court rulings; and
• Lack of a supply of truly independent directors.
While legislative CG reforms are underway, their successful implementation faces considerable challenges. Large Korean chaebols may attempt to weaken key reforms like cumulative voting, possibly by exploiting loopholes such as staggered board terms. They have been lobbying aggressively. Furthermore, the judicial system presents a significant hurdle. Court outcomes in shareholder disputes remain unpredictable due to a lack of sufficient cases and individual judges’ inexperience in dealing with CG cases . On the corporate side, most incumbent independent directors remain loyal to controlling shareholders to secure reappointments, making improvements in board decision-making unlikely in the near term. Much time and effort will be required to cultivate a qualified pool of truly independent directors, as Korea currently lacks a robust director training program.
Q3: Among further revisions to the Commercial Act legislation, what is the most important? The director's duty of loyalty to shareholders is a declarative law that prevents downside risk. However, for us to increase our investment in Korea, we must see tangible evidence of concrete improvements in shareholder value. Will there be voluntary efforts by local companies to enhance shareholder value?
A3: The mandatory cumulative voting system and expansion of separate audit committee elections from one to two directors — likely to pass in the National Assembly by late August — are reforms that can meaningfully strengthen board independence. These measures will help check self-dealing by controlling shareholders and may lift equity valuation levels.
Currently, Chaebol chairperson holds minimal direct stakes in affiliates but still handpicks entire board members. Meanwhile, minority shareholders, who hold nearly 60%, cannot even nominate directors. The second Commercial Act amendment changes this equation: together with the strengthened 3% rule, the ability for minority shareholders to elect two audit committee members independently will be raised significantly. KOSPI 200 companies on average have 7~8 directors, with audit committees typically composed of 3 members. The audit committee is the most important sub-committee of the board in dealing with CG issues. Under the majority-rule, one member demanding an investigation can be overridden by two dissenting directors — who often remain loyal to the controlling shareholder that nominated them. If two of three audit committee members are independently elected, the committee may regain its intended function.
Another critical CG reform is the principle of mandatory treasury share cancellation, which directly enhances shareholder value. The amendment bill led by MP Kim Nam-geun on July 9 requires large companies to cancel treasury shares within one year of the repurchase, with exceptions for equity compensation, etc. Importantly, the bill applies retroactively to treasury shares already held by listed companies, which would boost shareholder value and help resolve the “Korea Discount.” Given the resistance from controlling families of listed companies, strong political will from the ruling party and government is essential to ensure this reform is fully implemented. Its passage would be a decisive step toward restoring market confidence and a crucial catalyst for higher equity valuations.
For the first one to two years post-CG reform, most family-controlled listed firms (excluding financial holding companies, KT, POSCO, etc.) may adhere to legal requirements but not yet take proactive measures to enhance shareholder value. However, market pressure will serve as a powerful catalyst for change. The recent announcement of HMM's W2 trillion treasury share retirement, for instance, is a positive sign.
Q4: Which major Chaebols show the most progress and which remain the most backward on governance?
A4: Among the top five Chaebols, Hyundai Motor Group stands out positively. Board composition at Hyundai Motor and Kia reflects genuine effort. Chairman ES Chung likely gained many lessons about shareholder rights and governance during his proxy fight with Elliott Management in 2018~19. On the other extreme, Lotte Group is the worst, though it barely has foreign institutional ownership. But investors widely agreed to our view that LG Group is the most indifferent to governance improvement among the big four.
Global investors voiced dissatisfaction with the Koo family’s handling of LG affiliates. Recently, LG Electronics announced renewed plans to list its India subsidiary locally in India, after shelving it earlier due to lack of traction. Roadshows targeting Hong Kong and Singapore investors were planned for August. This appears to be a deliberate attempt to sidestep domestic shareholder protection obligations under amended corporate law by exploiting regulatory blind spots abroad. For investors, it signals disregard from Chairman Koo toward shareholders of LG Corp. and LG Electronics. Such overseas dual listings, especially of highly profitable subsidiaries like LG Electronics India (annual revenue of W4trn, net profit margins near 10%), directly undermine parent equity valuations. If listed at a market cap of US$9bn (W12trn), LG Electronics India would be valued on par with its parent — raising the question: why sell such a crown jewel? LG Chairman Koo and LG Electronics CEO Cho must reflect on why LG Electronics’ share price has fallen 19% over the past year and 13% over the past five years.
Q5: Among the bluechips, LG Chem is the most disappointing. The value of its 82% stake in LG Energy Solution (LGES), with a market capitalization of W90 trillion, is more than three times larger than LG Chem's own market cap of W20 trillion. Is there a way to resolve the LG Chem NAV discount caused by dual parent-subsidiary listing?
A5: The first step toward governance reform is for Vice Chairman and CEO Shin to resign. He, along with LG Group Chairman Koo, bears responsibility for the split-off, listing of LGES and lack of preparation for losses in the petrochemical division. Shin has served as CEO since 2019. During his 6.5-year tenure, LG Chem’s common shares have fallen 23%, with a 60% collapse over the last five years.
In Q2 earnings call, LG Chem signaled possible stake sale in LGES. With free cash flow deficits mounting and net debt surging, management appears cornered. In June, LG Chem issued U$1bn EB backed by 4.12mn LGES shares. We argue management should consider non-core divestitures and structural fixes instead. LG Chem shareholder has already suffered significant damage due to the simultaneous parent-subsidiary listings.
Is there no proactive solution to address the persistent NAV discount? We strongly recommend that the LG Chem board consider the following three-step strategy.
1. Tender offer: LG Chem launches a tender offer for its own shares, paying LGES shares instead of cash (This would create corporate tax liabilities based on the difference between book value and market value of distributed LGES shares)
2. Spin-off reorganization: Spin off LG Chem into Advanced materials holding company and Petrochemicals holding company. LGES shares would be booked under Advanced materials holding company (Transaction is tax-free as a qualified spin-off)
3. Merger: Merge Advanced materials holding company with LGES (Also tax-free as a qualified merger)
While unfamiliar in Korea, such transactions are consistent with the FSC’s 2022 policy guidelines for improving parent company minority shareholder rights in spin-off IPOs. The roadmap resembles SK Innovation’s 2023 initiative (that did not materialize) — launching a share buyback, then distributing SK On shares (instead of cash) to tendering shareholders. If LG Chem used over 20% of its LGES stake for such a program, the NAV discount would shrink dramatically, boosting both stock price and market cap. With higher equity valuation, the company could comfortably raise equity capital (if needed) on favorable terms. Wouldn’t it be a clear win-win?
Q6: Hyundai Motor’s stock remains disappointing. While there have been minor governance improvement efforts, there has been no fundamental change. The circular shareholding structure of Hyundai Motor Group is problematic. If Chairman ES Chung completes the succession of shares from his father, will he resolve this structure?
A6: Hyundai Motor common shares have fallen 10% in the past year and risen only 14% in three years (a mere 4% CAGR). At PER 5x and PBR 0.5x, valuations are low compared with global peers despite strong products and robust profitability. The issue is a bloated balance sheet with no effort to optimize capital. While Hyundai’s board composition is one of the better ones among chaebols, independent directors must take a stronger stand.
The group’s 2014 acquisition of KEPCO’s HS site in Samseong-dong cost over W10 trillion, with total investment (including financing costs) now exceeding W20 trillion. Due to design changes and permit delays, the GBC development remains stalled. It is important to either divest or securitize the land bank to secure cash and refocus on the core automotive business. Liquidation or securitizing the land could unlock W20 trillion — equivalent to 36% of Hyundai Motor’s current market cap including preferred shares. If over W10 trillion in cash were raised, one-third should be used to retire undervalued preferred shares, and the rest invested into autonomous driving projects.
As for succession, even if ES Chung inherits his father’s stake, the current circular structure will likely remain, in our view. However, since ES Chung earned some credibility from his shareholders, he may be able to maintain control with a smaller equity stake post- inheritance. His inheritance tax would be roughly 60%. He could also sell personal stakes in private companies such as Boston Dynamics, to raise cash and increase stake in key listed companies.
Q7: What fundamental solutions exist to enhance Samsung Electronics’ corporate value? Evaluate Chairman JY Lee’s leadership.
A7: Running a diversified conglomerate including Samsung Electronics with W500tr in assets, whose portfolio spans semiconductors, smartphones, consumer electronics and displays, requires strong, decisive leadership. However, JY Lee is widely perceived as lacking a firm grip, often avoiding difficult decisions. This contrasts sharply with his father KH Lee, who was known for his decisive, even ruthless, leadership and good insights. KH Lee also had deep attachment to the semiconductor business. JY Lee, by comparison, reportedly is interested in B2C businesses and prioritizes less on capital-intensive ventures. Samsung's M&A history under JY’s leadership reflects his character and preference. Recent acquisitions — from Harman (2016) to Masimo (2025) and FläktGroup — have consistently focused on consumer products and non-cyclical businesses rather than the capital-intensive businesses like semiconductors.
With foreign holding 51% of common shares, their patience with Samsung’s stock performance has reached a limit, in our view, particularly in light of TSMC’s success. While IT companies should aim to grow at double-digit pace, Samsung Electronic’s shareholder returns have disappointed: -7% over the past year and a meager 4% CAGR over the last five years.
To address this underperformance and restore market confidence, Samsung Electronics’ board requires a major upgrade, beginning with the appointment of foreign independent directors. Furthermore, Samsung Electronics is urged to deploy a portion of its W101 trillion cash to buy back and retire some of its undervalued preferred shares (worth W47 trillion), a move that would directly enhance shareholder value.
More fundamentally, breaking up the company into distinct units is the path to unlocking value and enhancing accountability. Spinning off the foundry business and listing it on NASDAQ (ADR format) would free it from structural conflicts of interest and enable it to pursue growth independently, with a new management team incentivized through generous stock awards.
The most ideal scenario, in our opinion, would mirror the Samsung Biologics spin-off, restructuring Samsung Electronics into three entities:
1. Samsung Semiconductor Holdings (all semiconductor businesses ex -foundry);
2. Foundry Holdings (foundry only, dual-listed in Korea and the U.S.); and
3. Samsung Consumer Holdings (DX division + Harman).
JY Lee could directly manage the consumer holdings company — his area of interest — while both semiconductor and foundry holding companies should be run by professional management teams, with JY Lee simply sitting on the board of both companies. If necessary, hiring foreign CEOs for semi and foundry holding companies should be considered.
Q8: Why is a rational approach to dividend taxation (single rate, long-term investor benefits, etc.) so difficult? Isn’t tax one of the major sources of misalignment between minority and controlling shareholders? What about inheritance tax reform?
A8: Within the ruling party, political views diverge widely on taxation. Tax is a very sensitive issue for politicians. While there is consensus on capital market and CG reforms, some lawmakers oppose applying lower rates to middle- and upper-income investors. They fear it amounts to tax benefits for controlling shareholders — falling into the “tax cuts for the wealthy” frame.
A simplified dividend taxation scheme is needed, coupled with additional benefits for long- term investors (e.g., holding shares for 2~3+ years). Yet even this faces internal friction between party members and the government. Inheritance tax reduction is an even more sensitive issue. Given the political climate, it is unlikely to be tackled under this administration. As a result, the structural misalignment between general and controlling shareholders — exacerbated by tax policy — would remain unresolved.
Q9: Despite a recent rebound, holding companies still trade at steep discounts to NAV. How can this discount be narrowed?
A9: Virtually all Korean holding companies trade below NAV, with LG Corp. and SK Inc. at PBRs under 0.5x. The first step must be mandatory cancellation of treasury shares. Shareholders should also monitor whether directors are honoring their fiduciary duties. For companies with steep NAV discounts, investors should vote against the reappointment of incumbent independent directors (after proper prior notice to the company) at shareholder meetings. The logic is simple: directors are elected to narrow the NAV discount. That is their mandate.
Our Forum requests investors exercise voting rights responsibly at upcoming AGMs (especially March 2026), in the spirit of faithfully following the stewardship code. Just as foreign investors played a pivotal role in improving corporate governance in Japan by raising their voices at shareholder meetings, we hope they duplicate this success in Korea.
August 18th, 2025
Korean Corporate Governance Forum
Chairman, Namuh Rhee