Case in point: Hyundai Motor Group shocked investors last year when it agreed to buy real estate in Seoul for a record 10.6 trillion won, triple the land’s assessed value, for its new headquarters. The deal led group companies to lose billions of dollars of market value and even got the NPS to oppose the reappointment of two external board members. Hyundai Motor has since said it will take measures to improve decision making by taking into account minority shareholders’ rights.
Perceived corporate governance concerns are among the key reasons why Korean stocks typically trade at lower valuations than global peers. For example, the country’s benchmark Kospi index trades at about 11 times projected earnings, compared with a multiple of almost 17 for the MSCI World Index. Investors have criticized the chaebol for weak corporate governance, which is said to depress the country’s stock prices.
More Protection
From the chaebol’s perspective, they’re the victims.
“The more serious problem here is that Korean companies, including conglomerates, aren’t protected from these threats,” said Shin Seuk Hun, head of corporate policy at the Federation of Korean Industries, a lobbying group. “Other countries have regulations in place that can protect companies in such cases, but Korea doesn’t have any. The foreign funds know this.”
Korean conglomerates should brace for more challenges, particularly groups where the founding families have relatively weak ownership structures such as Hyundai Motor, Shin said. Hyundai declined to comment.
Still, Shin acknowledged public opinion on the chaebol has deteriorated over the years and said the government needs to come up with better regulations.
Another way to alleviate concerns could be for investors to be more proactive in weighing in on their investments.
“We are at a very critical point,” said Kim, the professor at Hansung University. “The world has changed and South Korea has changed.”