Amendment to the Enforcement Decree of the Commercial Act and Capital Markets Act Passed at Vice Ministerial Meeting... KEC Deeply Concerned

[Asia Economy Reporter Kiho Sung] The Korea Employers Federation (KEF) expressed "deep regret" on the 17th regarding the government's 'Amendment to the Enforcement Decree of the Commercial Act' and 'Amendment to the Enforcement Decree of the Capital Market Act' passing the vice-ministerial meeting.

In a statement released that day, KEF said, "The 'Amendment to the Enforcement Decree of the Commercial Act,' which limits the term of outside directors of listed companies to a maximum of six years, is an excessive regulation rarely seen in foreign legislation. It imposes a direct control mechanism over the personnel rights of companies and shareholders by preventing even competent and professional personnel from serving as outside directors for more than six years." It added, "Moreover, considering the realistic external political and social influences that may arise during the appointment process of outside directors, there is significant concern in the business community that such term limits could lead to increased external intervention in corporate management."

The related bills passed the vice-ministerial meeting that day and are scheduled to be submitted to the Cabinet meeting on the 21st.

KEF further stated that the amendment to the Enforcement Decree of the Commercial Act exceeds the scope of delegation under the superior law. KEF explained, "The Commercial Act defines disqualification for outside directors as those 'who find it difficult to faithfully perform their duties as outside directors or who may influence the management of the listed company,' setting disqualification based on the substantive capabilities of outside directors. Introducing a formal and temporal restriction of six years in the Enforcement Decree exceeds the limits delegated by the law and should be discussed legislatively rather than through the Enforcement Decree."

It continued, "If the term limit for outside directors is implemented, more than 560 companies will have to replace their outside directors simultaneously at this year's general shareholders' meetings. Under Korea's globally very strict resolution requirements (majority of voting rights present & approval by at least one-quarter of total issued shares), many companies are expected to face significant confusion due to the inability to appoint suitable candidates," criticizing the amendment.

KEF also criticized the amendment to the Enforcement Decree of the Capital Market Act, stating, "It excludes core matters of management rights such as the appointment and dismissal of directors and the promotion of articles of incorporation amendments from the scope of management intervention, thereby exceeding the legal delegation scope. Furthermore, regarding reporting obligations, it relaxes the requirements for general investors to simplified reports within 10 days and significantly eases monthly simplified reporting for public pension funds including the National Pension Service, thereby weakening the affected companies' ability to defend their management rights."

Given that the National Pension Service is practically the only entity capable of holding large stakes in major listed companies in the domestic capital market, this amendment effectively allows the National Pension Service to freely implement shareholding changes without external disclosure or prior announcement. It also amounts to a blank delegation enabling the National Pension Service to more easily pursue director appointments and dismissals and amendments to articles of incorporation through strengthening its stewardship code.

KEF emphasized, "Considering the difficult domestic and international economic conditions and the deteriorating investment environment for companies, and that 'revitalizing companies' is more important than anything else at this time, we urge the government to postpone the amendment to the Enforcement Decree, which is not urgently needed nationally, and to proceed with it in the mid-to-long term while taking into account Korea's industrial and economic realities and gathering opinions from the business community."