Samsung Group has petitioned the Constitutional Court to review the legitimacy of the antitrust rule restricting the voting rights of financial units of top conglomerates.
Samsung Life Insurance, Samsung Fire & Marine Insurance, and Samsung Corp, three major shareholders of Samsung Electronics, filed the petition last week, claiming that the revised Fair Trade Act that went into effect on April 1 possessed clauses that could be viewed as unconstitutional. Samsung needs the support of six of the court’s nine justices to invalidate the antitrust revision.
Samsung also claimed the reforms would leave it vulnerable to a hostile takeover by foreign investors who now hold more than a 50% stake in the world’s largest memory chipmaker. It has so far refused to implement the rule amendment introduced by the anti-monopoly regulator, the Fair Trade Commission. The rule amendment limits the voting rights of a chaebol’s financial companies over other affiliates in the group.
However, the FTC has dismissed any possibility that the group’s lawsuit will change the rule limiting the voting rights at the Constitutional Court. It also dismissed claims that the amendment was unconstitutional, but admitted it would limit Samsung’s voting right to some degree, but that was needed for the public interest.
The amendment essentially halves the maximum voting rights of financial units over affiliates to 15% within three years. The current 30% limit applies to stock held by a majority shareholder, his or her family, and those who have special relations with senior executives.
The reason why this act has angered Samsung so much is that Samsung’s financial arms (Samsung Securities, Samsung Life Insurance, and Samsung Card) play an integral role in protecting its management. For example, Samsung Life Insurance is a major shareholder of the group’s flagship Samsung Electronics with a 6.26% stake in it. Samsung Card has the largest share of 25.6% in the group’s virtual holding company Everland.
The combined voting rights of Samsung Group in Samsung Electronics are estimated to be 17.72%. Under the revamped regulations, the voting rights of the financial units will be scrapped when the group’s combined voting rights on its affiliates exceed 15%.
The revised Fair Trade Act is regarded as a pillar of South Korea’s economic policy, pushing corporate governance reforms on conglomerates that continue to anchor the economy. Samsung alone accounts for one-fifth of the country’s exports.
