DEEP RESEARCH · Holding companies/Commercial Act reform
[Holding Companies] Can Korea Amend the Commercial Act?
A memo on why duplicate listings and holding-company structures may become a practical obstacle to Commercial Act reform
0. Bottom line first
Korea has many structures where both a holding company and its subsidiaries are listed, so I question whether boards can actually coordinate conflicts of interest after Commercial Act reform. In my view, companies with simpler structures may be more comfortable investments than holding companies with heavy conflicts of interest.
The core issue is not one legal clause but the duplicate-listing structure already embedded in the market. Even if the Commercial Act is amended, the practical question remains: what decisions can boards make when holding-company shareholders and subsidiary shareholders have conflicting interests?
1. The starting point of Korea’s holding-company structure
Official fact: The original post says duplicate listings through holding-company structures are active in Korea, with roughly 18% of market capitalization duplicated.
I understand this structure as something temporarily allowed after the IMF crisis to address difficulties in restructuring through cross-shareholdings among affiliates. But now, as Commercial Act reform is being discussed, that structure is creating a new conflict-of-interest problem.
2. The practical difficulty of reform
Interpretation: When conflicts of interest arise between a holding company and its subsidiaries, I do not think it will be easy for boards to actually coordinate the conflict among shareholders.
- When duplicate listings are common, holding-company shareholders and subsidiary shareholders may have different interests.
- If breach-of-duty legal risk becomes significant in Korea, the burden on board decision-making could grow.
- In the end, legal reform alone may not resolve conflicts among shareholders that already exist because of the structure.
Duplicate listings
Shareholders exist at both the holding company and subsidiary level, and their interests can diverge.
Breach-of-duty burden
Depending on which shareholders are disadvantaged, board decisions may become more burdensome.
Structural simplicity
Companies with fewer conflicts of interest may offer a clearer investment case.
3. Prior tasks and investment judgment
In my view, the government may need to first address problems arising from duplicate listings and holding-company structures through tax policy and other measures, and only then push forward with Commercial Act reform disclosures or implementation.
At companies with conflicts of interest, appointing directors could carry substantial legal risk. That may require higher compensation for directors, and even then appointments may not be easy.
Interpretation: Even if the Commercial Act is amended, I think it may be better to invest in companies with fewer conflicts of interest rather than holding companies or duplicate-listed structures where conflicts are heavy.