Samsung Electronics' (005930.KS) labor-management agreement to pay performance bonuses in treasury shares will face a shareholder verdict at next year's general meeting. The case is seen as the first large-scale example of applying an exception to the "mandatory treasury share cancellation" provision under the revised Commercial Act. With bonus demands spreading across the broader business community, including at Hyundai Motor (005380.KS) and Kakao (035720.KS), social friction appears unavoidable.
According to the investment and legal communities Friday, for Samsung Electronics to dispose of treasury shares as employee compensation, it must pass an "approval of treasury share disposal plan" at the shareholders' meeting. Article 341-4 of the Commercial Act, revised this year, stipulates that acquired treasury shares should in principle be cancelled within one year, but allows the board to establish a disposal plan and obtain approval at the shareholders' meeting only for "employee compensation purposes."
Analysts say passage of the agenda item is likely given that labor and management have reached an agreement. However, the process is expected to be rocky, as foreign investors (holding a 48% stake) and some 4.2 million minority shareholders are pushing back, citing damage to shareholder value. Minority shareholders have already formalized legal action. The "Republic of Korea Shareholders' Movement Headquarters" has applied to inspect and copy the shareholder register and begun rallying shareholders. Concerns are growing that the standoff between shareholders and labor-management could spread, as other companies must also go through a shareholders' meeting to pay bonuses in treasury shares.
The conflict is in fact spreading like wildfire across the business community. After the Hyundai Motor union demanded 30% of net profit, the Kakao union also signaled its first joint general strike as mediation collapsed amid a bonus dispute. With resources for shareholder returns shrinking while only bonuses increase, investor discontent is reaching a peak.
