A bill to expand the fiduciary duty of corporate directors from just 'the company' to 'the company and shareholders' has passed the National Assembly, raising discussions about the protection of shareholder rights among major listed construction companies. This is because the potential for legal actions, such as lawsuits, has increased when companies act against shareholder interests, such as remaining at excessively low stock prices or not issuing dividends. The industry is focusing on Samsung C&T, which has seen its stock price fall below its liquidation value for over 10 years.
Samsung C&T is essentially playing the role of a holding company at the top of the group's circular governance structure, connecting Samsung Life Insurance, Samsung Electronics, and other affiliates. However, since its merger with Cheil Industries in September 2015, the stock price has remained low for ten years, leading to ongoing suspicions in the financial investment industry that 'the largest shareholder is suppressing the stock price to control the subsidiaries at a low cost.' The so-called 'holding company discount' has been strongly reflected, harming minority shareholders. Currently, the stock price is trading more than 40% lower than it was 10 years ago, and the price-to-book ratio (PBR) is below 1, indicating that the stock price records are worse than its liquidation value. With many minority shareholders accumulating grievances about the stock price, there are also discussions in the industry that Samsung C&T needs to prepare for legal risks due to this amendment to the Commercial Act.
According to the construction and financial investment industries on the 18th, the company most affected by the amendment to the Commercial Act, which strengthens the protection of shareholder rights among major listed construction firms, is Samsung C&T. Samsung C&T, which splits its business into fashion and construction after merging with Cheil Industries, has seen its stock price remain low over the past decade, leading to widespread discontent among minority shareholders. Lee Geon-kyu, CEO of Renaissance Asset Management, noted, 'The holding company discount has not been actively resolved, and the underperformance of the core fashion and construction sectors is causing the low stock price.'
According to financial information firm FnGuide, Samsung C&T's PBR is 0.74, which is below 1. A PBR below 1 indicates that the current stock price is cheaper than if the company sold all its assets and shut down its business. Samsung C&T recorded an operating profit of 2.9833 trillion won last year, which is an increase of 17.9% (454.8 billion won) over the past two years. However, the stock price continues to remain low, preventing many shareholders from benefiting from the profit increase. Kim Gi-joo, CEO of KPI Investment Advisory, stated, 'The holding company discount has led to prolonged undervaluation, and Samsung C&T is in a situation where it cannot utilize the equity of its affiliates, making the investment appeal almost nonexistent.'
In the legal community, some shareholders are raising the possibility of legal actions such as lawsuits, citing the stock price remaining below the liquidation value. Particularly problematic is the content related to liability for damages stipulated in Article 401 of the Commercial Act. Article 401 establishes 'liability to third parties,' stating that a corporate director is jointly responsible for damages if they neglect their duties through intentional or gross negligence.
Until now, courts have applied an exception excluding shareholders when interpreting this part. They have deemed that directors are not required to compensate shareholders for damages. However, since the Commercial Act has been amended to specify fiduciary duties toward shareholders, there is a possibility that courts may interpret this to require directors to compensate when they infringe on shareholder interests.
Kim Soo-hee, a lawyer at Ahn Shim Law Firm, stated, 'Although the amendment to the Commercial Act is abstract, it clearly defines the responsibility of directors to shareholders, and if they fail to ensure shareholder interests through stock management or dividends, there will likely be an increase in shareholders seeking to address problems more aggressively through lawsuits.' Kim added, 'An environment has already been created where minority shareholders can easily gather their voices through activist funds and internet platforms, and this amendment will accelerate such movements.'
Professor Kim Jeong-yeon from Ewha Womans University law school commented on claims for damages, 'Ultimately, we need to see how the court interprets the amendment,' noting that 'it is true that the amendment provides legal grounds for (minority) shareholders to take more proactive action, but it is difficult to predict how the court will interpret the amended law.'
Professor Jang Deok-jo from Sogang University law school remarked, 'Even if management caused the stock price to drop, it is uncertain whether claims for (damages) responsibility can be made based on this amendment, as it is a matter that could create too much strain on corporate management, leading to significant debate among scholars.'