1.

Prohibition of Double Listings

Noting that the proportion of “double listings” where both a parent company and its subsidiaries are listed at the same time is higher in Korea than in major overseas market, the FSC stated that a double listing of promising subsidiaries may cause harm to general shareholders of the parent company as it often has an adverse effect on the stock price of the parent company. Accordingly, the FSC announced that it would establish measures to prevent infringement of the rights and interests of general shareholders of the parent company as a result of such double listing through the following measures:
 

• (Prohibition of Double Listings upon Listing Review on KRX) The FSC has announced that, in principle, double listings should be prohibited in the course of reviewing applications for listing on the Korea Exchange (“KRX”). However, double listings may be permitted only on an exceptional basis, taking into account whether consent has been obtained from general shareholders and whether there is a genuine necessity for listing in Korea. The FSC also stated that it will clarify the scope and review standards for double listings based on substantive control as well as split listing (i.e., listing following a vertical or horizontal spin-off). Under the proposal, review would cover cases where a listed company seeks to list an entity that constitutes its subsidiary under the Act on External Audit of Stock Companies, etc. (“External Audit Law”) or an affiliate under the Monopoly Regulation and Fair Trade Law (“FTL”) and is in a vertical control relationship with the listed company (including sub-subsidiaries). The proposed review criteria would focus on factors such as the necessity of the listing, the adequacy of shareholder communication, protection of general shareholders, and the listed entity’s operational independence and managerial independence, among other considerations.
   

• (Imposing Fiduciary Duty to Shareholders on Parent Company’s Board of Directors upon Double Listing of its Subsidiaries) Because the KRX’s principle-based prohibition on double listings through its listing review process cannot regulate cases where a subsidiary is listed on an overseas exchange, the scope of regulation will be expanded and supplemented by imposing on the parent company’s directors a duty of loyalty to shareholders. Accordingly, through measures such as amending the KRX’s listing and disclosure rules and submitting proposed amendments to the Financial Investment Services and Capital Markets Act (“FSCMA”), the FSC plans to impose an obligation that, when pursuing a double listing of a subsidiary, the parent company’s board of directors assess the impact of a double listing of its subsidiaries and make relevant disclosures from the perspective of general shareholders.
   

2.

Prevention of Damage to Corporate Value by Neglecting Low Stock Prices

The FSC proposed the following measures to prevent conduct that undermines corporate value, such as leaving stock prices depressed:
 

• (Imposing Obligations to Calculate Fair Value and to Conduct External Valuation for M&A transactions) Currently, in mergers between affiliated companies, the merger price for a listed company is based on its stock price. This creates an issue whereby the merger price can be adjusted by coordinating the timing of the merger, among other means. Going forward, the FSC plans to mandate the determination of fair value and an external valuation when pursuing mergers and similar transactions. As the amendments to the FSCMA dealing with this issue have already been proposed, the FSC will support prompt enactment of the amendments.
   

• (Encouraging Low-PBR Companies to Make Efforts to Enhance Corporate Value) Currently, even when a company has a low price-to-book ratio (PBR), there is an issue that controlling shareholders may leave the stock price depressed if it serves their interests. In this regard, a list of low-PBR companies (e.g., the bottom 20% for two consecutive half-year periods within the same industry) will be made public on the KRX value-up website at all times and their stock names will be tagged. However, if a low-PBR company discloses a plan to increase its corporate value, the disclosure and tag display will be exempted for a certain period in order to encourage proactive value-enhancement efforts.
   

• (Introducing Disclosure of Asset Value Based on Revaluation Criteria) Some companies fail to reevaluate their assets to market value (or fair value) despite increases in asset values, resulting in distorted corporate value and limiting investors’ ability to properly assess changes in the actual value of corporate assets. Accordingly, the FSC plans to amend K-IFRS to require disclosure of the difference between the book value (cost) and fair value through revaluation of major assets in the notes to the financial statements. As an initial step, the FSC will make it mandatory to disclose primarily undervalued land in the notes by using officially assessed land values. Going forward, it will consider expanding the scope of assets subject to this requirement, taking into account factors such as the proportion of each asset class in total corporate assets and the ease of fair value measurement.
   

3.

Strengthening Monitoring of Institutional Investors by Improving Stewardship Code

As previously informed, the FSC has been pursuing amendments to the Stewardship Code given that it has not been amended since its enactment in 2016 and has not adequately reflected any changes in the market environment. In addition, the FSC has noted that the Stewardship Code’s effectiveness has been limited due to the lack of an implementation inspection system (link). When announcing the policy, the FSC stated that it will strengthen the Stewardship Code in order to reinforce institutional investors’ responsibilities and roles.
 

• (Expansion of Factors to be Considered for Shareholders’ Activities and Scope of Application) The Stewardship Code will be amended to expand the factors to be considered in shareholders’ activities to include all relevant Environment, Social and Governance (ESG), and to expand the scope of application beyond “selecting new investment targets,” in addition to “monitoring existing investment targets.”
   

• (Establishment of New Third-Party Inspection System and Improvement of Comparability through Consolidated Disclosure) To ensure faithful implementation of the Stewardship Code by institutional investors, the FSC plans to introduce a third-party inspection system that proceeds as follows: preparation of institutional investors' reports → working-level inspection → final review and inspection by the Stewardship Code Development Committee. In addition, the FSC plans to disclose a list of institutions that have implemented or not implemented each principle on the website of the Korea Institute of Corporate Governance and Sustainability at the end of each year.
   

• (Support for Reducing Uncertainty of Institutional Investors) The FSC plans to support institutional investors in reducing uncertainty related to trustees’ responsibility activities by amending the Interpretation of Relevant Law and Regulations on the Stewardship Code published in June 2017.