Following a report that SM Entertainment had suspicious financial transactions that seemed to be related to them never paying out dividends to stockholders, SME has announced that it will now consider it.
Faced with mounting criticism from shareholders, South Korean entertainment powerhouse S.M. Entertainment announced on May 31 that it will consider handing out dividends for the first time since it went public in 2000.
Why the sudden change of policy? Well their third and fourth largest stakeholders are preparing to send an open letter demanding transparency.
The agency’s decision came after its third- and fourth-largest stakeholders KB Asset Management and Korea Investment Value Asset Management said they are preparing to send an open letter demanding more transparent management. KB has a 6.59 percent stake, while KIVAM holds 5.06 percent. In particular, they found fault with S.M.’s transfer of around 8.16 billion won ($6.82 million) over the last 10 years to Like Agency, a musical consulting service owned entirely by its founder Lee Soo-man. S.M.’s rivals such as YG Entertainment and JYP Entertainment provide similar consulting services but bagged only 840 million won and less than 500 million won, respectively, last year. The investors are consequently arguing that Lee received at least 10 billion won more than appropriate per year through Like Agency. They also called the setup illegal, saying it’s a form of insider trading. S.M., however, refutes the allegations that the money transferred to Like Agency was done legally.
Ah right. SME probably don’t fear legal repercussions, which is why they’ve done nothing to this point, but their investors getting mad? Oh they care about that very much.
Despite its dividend announcement, investors are demanding more transparency, saying that the agency should take more fundamental steps. S.M.’s stock price closed higher by 1.3 percent at 42,800 won, boosted by investors who anticipate better corporate governance.
While SME’s finances may not be all that transparent, what is transparent is what actually gets companies to take action, and it sure isn’t the law or a sense of ethics.