Governance Forum: "Governance Change Possible with Model Articles Without Legal Amendments"

The Korea Corporate Governance Forum (hereinafter referred to as the Forum) proposed amendments to the articles of incorporation of listed companies and the stock exchange listing regulations as measures to improve corporate governance.

On the 5th, Kim Ju-young, lead attorney at Hannuri Law Firm, stated at a press conference hosted by the Forum at the Seoul International Finance Center (IFC), "Even without amending the Commercial Act or the Capital Markets Act, if a company adopts a model articles of incorporation, it can serve as a highly attractive and desirable catalyst for investors."

High-rise buildings in Yeouido financial district. Photo by Hyunmin Kim kimhyun81@

Attorney Kim presented a case of articles of incorporation that introduced provisions to fairly guarantee the interests of controlling shareholders and ordinary shareholders.

According to the Forum, most listed companies follow the standard articles of incorporation created by the Korea Listed Companies Association (KLCA). Namwoo Lee, chairman of the Forum, pointed out, "Due to the nature of the association, the standard articles of incorporation reflect the interests of controlling shareholders and management."

The model articles of incorporation proposed by the Forum reduce the term of directors from three years to one year, requiring all directors to be reappointed annually, and include a duty of loyalty extending to ordinary shareholders. Additionally, it mandates obtaining prior approval from a majority of outside directors for transactions with affiliates and explicitly states that treasury shares acquired must be canceled within three months.

When making decisions such as spin-offs, mergers, comprehensive stock exchanges, or transfers of management rights, the articles add a new 'organizational change' (Chapter 8) section, which requires the company to review and act in accordance with the interests of all shareholders?something not present in existing articles of incorporation.

Lee Chang-hwan, CEO of Align Partners Asset Management, said, "For newly listed companies, if promoted well, many may adopt the model articles of incorporation. Recently listed companies often receive venture capital (VC) investments, with VCs as major shareholders, and VCs need to secure higher valuations. This can be a marketing point."