Economic Organizations Taking Action Against the 'Three Types of Regulations'

Joint Seminar Scheduled for the 6th of Next Month
"Amendment Already Passed Cabinet Meeting" Criticism of Delayed Response

[Asia Economy Reporter Dongwoo Lee] Major economic organizations plan to hold a large-scale seminar as early as the beginning of next month to discuss response measures to the Enforcement Decrees of the Commercial Act, Capital Market Act, and National Pension Service. Since the core of this Enforcement Decree lies in strengthening shareholder rights exercised by institutional investors including the National Pension Service, economic organizations intend to focus on reviewing the political independence of these entities. However, there are criticisms that the response is somewhat delayed as the amendment to the Enforcement Decree has already passed the Cabinet meeting.

According to the business community on the 23rd, the Korea Economic Research Institute under the Federation of Korean Industries, the Korea Employers Federation, and the Korea Listed Companies Association are reportedly preparing a joint seminar titled "Improvement Measures for National Pension Governance (tentative)" scheduled for the 6th of next month. Other major economic organizations such as the Korea Federation of SMEs, the KOSDAQ Association, and the Korea Federation of Small and Medium Business are also considering attendance. If all these organizations participate, it is expected to be the largest joint seminar among economic organizations at the beginning of the year.

They are expected to invite related institution heads such as Kim Sung-joo, former chairman of the National Pension Service, for the seminar. In-depth discussions will be held on issues of independence arising from the strengthened shareholder rights exercised by the National Pension Service and concerns about the reduction of corporate management rights as a result.

An official from the economic organizations stated, "Through this amendment to the Enforcement Decree, the National Pension Service will establish three specialized committees (Investment Policy, Fiduciary Responsibility, Risk Management and Performance Compensation Committees)," adding, "This will be an opportunity to focus on ways to ensure proper shareholder rights exercise without infringing on corporate management autonomy."

Discussions on the amendments to the Enforcement Decrees of the Commercial Act and Capital Market Act are also expected. Previously, these three laws passed the Cabinet meeting the day before; the Enforcement Decrees of the Commercial Act and National Pension Act will be enforced immediately upon promulgation, and the Enforcement Decree of the Capital Market Act will be enforced from the 1st of next month. Specifically, under the amendment to the Commercial Act Enforcement Decree, about 560 listed companies must replace outside directors at the March general shareholders' meeting, and under the amendment to the Capital Market Act Enforcement Decree, disclosure obligations will be relaxed due to the application of the so-called 5% rule for institutional investors. However, the obligation to provide business and audit reports when convening shareholders' meetings under the Commercial Act Enforcement Decree amendment has been postponed for one year until January 2021.

This joint seminar by economic organizations was arranged amid growing concerns that the amendments to the Enforcement Decrees, including the Commercial Act, could infringe on corporate management autonomy. The Federation of Korean Industries emphasized in a statement immediately after the Enforcement Decree's passage, "It increases government interference in companies when pension funds demand changes to articles of incorporation or request dismissal of executives without declaring management participation." The Korea Listed Companies Association opposed, stating, "The obligation to attach audit reports for listed companies may increase the risk of inadequate audits by audit institutions."

An official from the Korea Employers Federation said, "We decided to participate in this seminar to jointly discuss concerns about management interference by the National Pension Service and the difficulties faced by business leaders regarding the amendments to the Enforcement Decrees of the Commercial Act and Capital Market Act," adding, "There will be opportunities to collaborate in the future as well."

There are also opinions that this move by economic organizations, occurring after the amendment has already passed, is a belated response. A senior official from a major economic organization said, "We believe that if actual difficulties arise in companies in the future, we can raise issues, but it is difficult to overturn the Enforcement Decree immediately," adding, "It seems unreasonable to launch a joint response after the amendment has already been passed; it is a matter to be judged by observing future developments."