"Delivery Price Linkage System, Serious Accident Punishment Act, Activist Funds, Burden on Corporate Management"

FKI-Law Firm Gwangjang Joint Seminar
"Need for Alternatives Such as Accumulating Evidence and Defending Management Rights"

[Asia Economy Reporter Moon Chaeseok] It has been pointed out that laws related to corporate governance, environment, and safety still pose burdens on corporate management. Experts advised that companies need to accumulate supporting data regularly and actively defend their management rights.

On the 31st, the Federation of Korean Industries (FKI) announced that such discussions took place at the '2023 Corporate Management Legal and Institutional Risk Review Seminar,' held jointly with the law firm Kwangjang at the FKI Conference Center in Yeouido, Seoul.

Kwon Tae-shin, Vice Chairman of FKI, expressed concerns, saying, "There is severe interference in corporate governance through the Commercial Act and the Fair Trade Act," and added, "Looking at various regulations in the environment and safety sectors, such as the Serious Accidents Punishment Act, I question whether these laws are truly enforceable by companies."

Kim Sang-gon, Chief Attorney at Kwangjang Law Firm, stated, "Significant legal and institutional changes affecting companies are expected in areas such as shareholders' meetings, fair trade, shareholder rights exercise, and environment and safety, so it is necessary to establish response measures."

The seminar was divided into four sessions: shareholders' meetings, fair trade, environment and safety, and institutional investors. Regarding shareholders' meetings, Attorney Hong Seong-chan explained proposals for the concentrated voting system for minority shareholders, case-by-case methods for separate election of audit committee members, and demands by some shareholders for on-site amendments to agenda items that were previously notified and announced. He provided detailed explanations on corporate response strategies to the separate election of audit committee members. Hong said, "The Commercial Act introduced a system requiring at least one audit committee member to be elected separately from other directors," and added, "An invisible war is underway between minority shareholders trying to enter the board through this system and management."

Regarding the delivery price linkage system, Attorney Choi Seung-ho emphasized the importance of consultation between consignor and consignee companies. This system reflects raw material price increases in delivery prices in transactions between consignor and consignee companies. Choi stressed, "For companies subject to the system, it is important to receive exceptions through mutual agreement," and added, "Sufficient supporting materials for consultations and communications must be prepared." He advised, "Corporate practitioners should also pay attention to changes in the application of exception rules and trends in law enforcement."

Advice was also given to pay attention to carbon emission-related systems and the Serious Accidents Punishment Act among environment and safety regulations. Attorney Seol Dong-geun pointed out the need to be cautious about the European Union (EU) Carbon Border Adjustment Mechanism, supply chain due diligence, the Act on the Promotion of Transition to a Circular Economy Society encouraging recycling of waste batteries and plastics, and international regulations on greenhouse gases from ships engaged in international navigation.

In the safety sector, Attorney Seol urged attention to the discussion trends of the 'Serious Accidents Act Improvement Task Force (TF)' to be launched by the government next month. He said, "The government announced plans to improve risk assessment-related systems in its roadmap to reduce serious accidents," and advised, "Companies should also check whether the system is being implemented and proactively improve any shortcomings." The risk assessment system refers to regulations where labor and management cooperate to prevent industrial accidents.

There was also advice to be cautious of governance attacks by institutional investors. Researcher Kim Su-yeon explained, "Although domestic activist funds have recently been trying to improve their image as corporate raiders, attacks by domestic activist funds on companies increased about sixfold last year compared to 2019," and added, "This year, activist fund attacks are expected to become more blatant, and institutional investors' exercise of shareholder rights will become stronger." He said, "Companies need to strengthen communication with institutional investors and establish ongoing response plans against governance attacks."