South Korea has long faced the phenomenon known as the "Korea Discount", where shares of its largest corporations trade about 30% below fair value. Companies like Samsung, Hyundai, and LG remain persistently undervalued due to complex ownership structures and founder families' control through cross-shareholding arrangements. These mechanisms allow families to manage major empires even with minimal real ownership.
After the Korean War, the government helped rebuild the economy by supporting large family conglomerates called "chaebols"—offering them loans, tax incentives, and state contracts. While this strategy fueled rapid industrialization, it concentrated corporate power within a handful of families. Profits frequently benefited these families rather than being distributed as dividends to minority shareholders, leading to opaque enrichment schemes.
In 2023, South Korea introduced a set of reforms compelling company directors to represent all shareholders, not just controlling families. Hybrid shareholder meetings were introduced, enabling both physical and online voting and broadening international investors' participation. The so-called 3% rule was enacted, limiting a single family's voting power on financial auditing committees to 3%, even if their shareholding is significantly higher. This is expected to encourage more independent, transparent oversight.
The reforms are intended to boost investor confidence and reduce the "Korea Discount". However, 76% of South Korean companies have expressed concerns regarding excessive activist involvement and legal risks. Nonetheless, the evolution of South Korean corporate governance aligns the country more closely with global standards, potentially leading to increased foreign capital inflows.
Experts note that deeper changes are needed for long-term improvement, such as limiting cross-shareholding, tightening anti-corruption efforts, and addressing geopolitical risks. Despite its notable progress, South Korea continues to advance its institutions toward greater transparency in corporate governance.
