South Korea’s ruling party is reviving its push for an amendment to the Commercial Act with tougher mandates aimed at protecting minority shareholders’ rights than previously proposed. An earlier version of the bill was vetoed by the country’s then-acting president in March.
The move is gaining momentum after Lee Jae-myung, head of the liberal Democratic Party, was sworn in as the nation’s 21st president on Wednesday.
The proposed reform, unveiled on Thursday, includes the expansion of board of directors’ fiduciary duties to act in the interests of not only the companies, but also minority shareholders.
It also makes it mandatory for listed companies with assets of more than 2 trillion won ($1.5 billion) to offer electronic shareholder meetings, alongside in-person gatherings, enabling remote participation.
NEW PROVISIONS
The draft bill adds new clauses prohibiting large-size listed firms from rejecting cumulative voting requests to enable minority shareholders to concentrate their votes on specific board of directors in proxy fights.
The draft also includes a provision that would require companies to raise the number of audit committee members elected separately from the board of directors and strengthening the independence of outside directors.
The National Assembly, where the Democratic Party holds a majority, passed an earlier version of the Commercial Act amendment in March amid growing calls to strengthen corporate responsibility in management.
However, it faced strong criticism from business leaders, who warned the change would expose more companies to management disputes and foster a risk-averse culture among entrepreneurs.
“Our party will move forward with a reform of the Commercial Act, reflecting the public’s will, expressed through the election,” Oh Gi-hyoung, a lawmaker of the Democratic Party, told a press conference on Friday.
He leads the ruling party’s task force team set up to revitalize domestic stock markets.
During the presidential campaign, Lee had pledged to enact the corporate law revision within two or three weeks of taking office.
Under the proposed reform, listed companies would be required to raise the number of audit members elected separately from the board of directors to at least two from the current one.
They also need to increase the proportion of independent directors to more than one-third of the board, up from more than one-fourth under the current law.
Additionally, South Korea would tighten the qualifications for independent board members.
Once passed, the bill will take effect immediately without a grace period, except for provisions on electronic voting.
The ruling party also seeks to reform the Capital Markets Act to address the Korea Discount – the persistent undervaluation of South Korean companies relative to their intrinsic values.
By Kwang-Sik Lee
bumeran@hankyung.com
Yeonhee Kim edited this article.
