Professor Shin Chang-seop: "Companies are not the property of shareholders but independent legal entities… They should focus on long-term survival and growth"

*This content was translated by AI.View Original

It was argued that companies should not be viewed solely as means to maximize shareholder profits, but rather understood as entities pursuing long-term survival and growth as independent legal persons. As discussions intensify around expanding shareholder returns and enhancing corporate valuation (value-up program), the essence of the corporation, management's long-term decision-making, and the role of the board of directors need to be re-examined.

Professor Shin Chang-seop of the Department of Economics at the National University of Singapore expressed this view at the 3rd Monthly Forum of the Future Economic Research Center under the Seoul National University Institute of Economics, held on the 6th at the Seoul National University Uiseok Economics Hall. At the forum, themed "Why Do Companies Exist? Beyond Shareholder Value Theory and Stakeholder Theory," Professor Shin challenged the conventional view that sees companies as tools for achieving specific objectives. Professor Kim Byung-yeon, a Chair Professor at Seoul National University, served as the moderator.

Professor Shin pointed out that both shareholder value theory, which emphasizes maximizing shareholder value, and stakeholder theory, which prioritizes the realization of social value, share the limitation of focusing on the purpose companies should pursue rather than their very existence itself. He noted that a company's unique identity and reason for being, such as The New York Times' "editorial independence" or Samsung's "business serving the nation," are difficult to explain solely by the interests of shareholders or stakeholders.

He emphasized that "only by properly understanding the ontology of a company can its teleology be properly seen," stressing that corporations should be understood as independent legal entities. To illustrate this, he presented two principles: "corporation through a legal entity" and "market competition," and introduced the "8 Corporate Propositions," which encompass the independent ownership rights of the legal entity, the separation of ownership and control, and the perpetuity of the company.

In particular, he argued that the relationship between shareholders and the company must be clearly distinguished. Professor Shin stated, "Shareholders are merely the owners of shares, not the owners of the company; the owner of the company is the legal entity." He explained that while shareholders can supervise and check management through the appointment and dismissal of directors, the company's business judgment and the corresponding responsibility lie with the board of directors and management.

Citing the "Time Warner" case from the Supreme Court of Delaware, USA, as a basis for this perspective, he noted that at the time, Time Inc.'s board of directors opposed Paramount's hostile tender offer while pursuing a merger with Warner. Professor Shin interpreted the precedent to mean that the board's judgment, considering the company's long-term strategy and identity, can be respected even when a high short-term sale price is offered.

Based on this, he emphasized that companies should be viewed not as mere means of generating investment returns, but as "communities of long-term prosperity." He stated that management's discretion must be guaranteed to enable innovation and long-term investment, and that board-centric leadership and the company's unique vision must be established. He also proposed that management compensation systems need to be linked to long-term performance rather than short-term stock prices.

He also pointed out that the interests of financial investors and corporate management do not always align. Since each investor has different investment objectives and holding periods, the demands of investors pursuing short-term profits may conflict with a company's long-term growth strategy. Professor Shin said, "Fund managers are merely agents of investors, and there is no guarantee that the purpose of fund trustees will always align with the company's purpose." He emphasized that the benchmark for finding common ground between management and investors should be medium- to long-term performance, not short-term stock prices.

He also called for a cautious approach to shareholder return policies. Citing examples such as Intel, General Electric (GE), and TSMC, he explained that share buybacks do not necessarily lead to medium- or long-term stock price increases. He stated, "Fundamentally, what determines stock prices in the medium to long term is not share buybacks, but the company's medium- to long-term operating performance and vision." This implies that enhancing corporate valuation requires strengthening core business competitiveness and sustainable growth foundations rather than expanding short-term shareholder returns.

In the subsequent discussion, participants exchanged views on the role of corporate articles of incorporation, the role of the government, and changes in the Korean stock market. Professor Kim Byung-yeon, Chair Professor at Seoul National University, evaluated that "the perspective of viewing companies as independent legal entities rather than shareholder property provides new implications for corporate governance discussions."

Lee Ji-hong, Director of the Future Economic Research Center, emphasized the need to review regulations reflecting principles of long-term investment and market competition, stating, "Considering Korea's manufacturing-centric industrial structure, concerns have grown that capital market reforms may tilt excessively toward shareholder capitalism."

Meanwhile, Professor Shin Chang-seop is a professor in the Department of Economics at the National University of Singapore (NUS), where he has researched economic development, industrial policy, corporate governance, technological innovation, and structural changes in the Korean economy. In particular, his research achievements are recognized in the fields of East Asian economic development and industrial and financial structure analysis. Beyond academic research, he actively offers opinions through media contributions and interviews on major policy issues in the Korean economy and corporate governance matters.

<© STARNEWS. All rights reserved. No reproduction or redistribution allowed.>

*This content was translated by AI.View Original