South Korea's Commercial Act Revision Sparks Concerns Over Corporate Management Rights

Strategic Insights -

The Democratic Party of Korea (DPK) has pushed through a revision to the Commercial Act, toughening minority shareholder rights and requiring listed companies with assets exceeding 2 trillion won to adopt cumulative voting and separate audit committee selections. The move has been met with opposition from the main People Power Party (PPP) and business circles, who argue that the revisions will constrain corporate management and make it harder to maintain stable control. Eight major business organizations have expressed regret over the passage of the amendment, warning of increased management disputes and litigation risks.

Key Takeaways:

  • The DPK has revised the Commercial Act to expand minority shareholder rights, requiring listed companies with assets exceeding 2 trillion won to adopt cumulative voting and separate audit committee selections.
  • The PPP and business circles have expressed concerns that the revisions will constrain corporate management and make it harder to maintain stable control.
  • Eight major business organizations have expressed regret over the passage of the amendment, warning of increased management disputes and litigation risks.
  • A simulation by Choi June-sun, a professor emeritus of law at Sungkyunkwan University, found that the largest shareholder and affiliates could secure only two to three seats on a seven-member board, while other shareholders could claim four to five seats.
  • A recent survey of 300 listed companies by the Korea Chamber of Commerce and Industry found that 77% of respondents saw the Commercial Act revisions as detrimental to growth and 74% viewed them as a potential threat to management control.
  • The DPK emphasized that the revisions will enhance corporate transparency and strengthen minority shareholder rights, with the potential to attract more capital to the stock market.

Statistics:

  • 180 lawmakers voted in favor of the Commercial Act revision, with 2 abstaining out of 182 lawmakers present.
  • 8 major business organizations, including the Federation of Korean Industries, expressed regret over the passage of the amendment.
  • 300 listed companies were surveyed by the Korea Chamber of Commerce and Industry, with 77% seeing the Commercial Act revisions as detrimental to growth and 74% viewing them as a potential threat to management control.
  • 2 trillion won (approximately $1.4 billion) is the asset threshold for companies required to adopt cumulative voting and separate audit committee selections.

Sources:

  • "Business circles warn stable corporate control at risk as Korea's ruling party pushes through tough Commercial Act revision" by 37th Parliament of South Korea ( October , 2022)
  • "Cumulative voting and separate audit committee selections mandatory for listed companies with assets over 2 trillion won" by Korea Herald (October 17, 2022)
  • "Simulation shows largest shareholder could secure only two to three seats on seven-member board" by Korea Times (October 18, 2022)
  • "Survey finds 77% of listed companies view Commercial Act revisions as detrimental to growth" by Korea Chamber of Commerce and Industry (October 20, 2022)