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## ■ Paper basic information
- Author: KS Kim
- Source: Research Handbook on Shareholder Power (Edward Elgar Publishing), 2015
- Topic: CMS (Controlling Minority Shareholder) structure analysis of Korean corporate governance
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## ■ Key findings
- Korea is a capital market with the most clearly developed CMS structure in the world.
- The controlling shareholder effectively controls the entire affiliated company with less than 30% of the shares — “Minority stake, complete control.”
- Demonstrated that tunneling is **pervasive** throughout Korean companies.
- Distortion of capital structure: Corporate value is intentionally kept low for the benefit of controlling shareholders
- External investors (including individuals) are structurally excluded from information and profit distribution
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## ■ What is CMS structure?
- **Controlling Minority Shareholder**: A controlling shareholder who controls overall management with only a minority stake.
- How it works:
- Holding a minority stake in a holding company or core affiliate
- Amplification of dominance through circular shareholding and pyramid structure among affiliates
- Proxy voting rights, outside director personnel rights, control of board composition
- Result: Minority shareholders do not receive dividends, have no voting rights, and have no information.
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## ■ Actual path of tunneling
1. Unfair internal transactions between affiliates → Concentration of profits in top companies
2. Sale of undervalued assets → Acquisition by controlling shareholder-related corporation at low price
3. Paid-in capital increase → Dilution of minority shareholders’ shares, and only controlling shareholders participate at a favorable price
4. Excessive executive compensation → Transfer of corporate profits directly to controlling shareholders
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## ■ Connection with relational risk
- The CMS structure itself is the prototype of **Human Risk + Governance Risk** of relational risk.
- Executive network: A number of people from the controlling shareholder concurrently serve as directors of multiple affiliates → Captured in the relational risk index of concurrent executive positions
- Circular shareholding/pyramid: Can be traced to changes in shareholding structure in public data
- The CMS structure pointed out by Kim (2015) is still in operation across Korean listed companies as of 2025.
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## ■ One-line summary of the evangelist
> “Even if the stake is small, control is complete. And traces of that control always remain in the executive network.”
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## ■ Reference materials
- Kim, K.S. (2015). Dynamics of Shareholder Power in Korea. *Research Handbook on Shareholder Power*, Edward Elgar Publishing.
- Overview of relational risk: https://www.konnect-ai.net/whitepaper
- Blog series: https://blog.naver.com/raymondsrisk
#relational risk #raymondsrisk #raymondsindex #konnectai #governance #CMS #minorityshareholder #tunneling
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