South Korea's Commercial Act Amendments: A Delicate Balance of Corporate Governance and Investor Confidence

Ruling party leaders held a meeting with heads of the country's six major business associations to discuss proposed amendments to the Commercial Act, sparking concerns about the potential impact on corporate governance and investor confidence. Key points from the meeting highlighted the parties' willingness to revisit the stringent breach of trust laws, which have been criticized for being overly vague and subject to broad prosecutorial interpretation. Business representatives warned lawmakers of potential harm to corporate governance and investor confidence, emphasizing the need for careful consideration of the proposed changes.

Key Takeaways:

• The proposed amendments to the Commercial Act include a broader duty of loyalty for corporate directors, separate elections of audit committee members, and a mandatory cumulative voting system.
• Critics argue that these measures could leave listed companies vulnerable to short-term activism from foreign investors and stifle the bold, long-term investment strategies that have driven Korea's economic rise.
• The Democratic Party (DP) is open to revising the bill if problems arise during implementation.
• The DP is willing to revisit Korea's breach of trust laws, which have been criticized for being overly vague and subject to broad prosecutorial interpretation.
• Breach of trust cases have a high acquittal rate, indicating inconsistency in legal outcomes, and the crime is punishable with penalties comparable to those for murder.
• Calls to resolve breach of trust disputes through civil channels rather than excessive criminal prosecution have been growing.
• In the United States, there is no such crime as breach of trust, and Japan and Germany apply it more narrowly with clearer protections for management decisions.

Statistics:

• The proposed amendments to the Commercial Act include a broader duty of loyalty for corporate directors, a requirement for separate elections of audit committee members, and a mandatory cumulative voting system.
• The acquittal rate for breach of trust cases is more than double that of other criminal charges, with 63.5% against 25.4% for other crimes ( National Judicial Academy, Korean Prosecutors' Office).
• The penalties for breach of trust can be comparable to those for murder, with a minimum of five years' imprisonment for gains of over 5 billion won and up to life imprisonment for offenses involving more than 50 billion won (Act on the Aggravated Punishment of Specific Economic Crimes).
• The breach of trust law is punishable under both the Criminal Act and the Commercial Act, with an additional enhanced sentencing under the Aggravated Punishment of Specific Economic Crimes (Act on the Aggravated Punishment of Specific Economic Crimes).

Sources:

• Yonhap News Agency, 01 Jul 2025
• The National Judicial Academy, Korean Prosecutors' Office (data on acquittal rates for breach of trust cases)
• Act on the Aggravated Punishment of Specific Economic Crimes (law regarding penalties for breach of trust)
• Lee Jae Myung's presidential administration (championing pragmatism and listening to business concerns)