Hankyung Association, Report on Corporate Group Regulation Improvement
Designation of Corporate Groups and Adjustment of Same Person Scope
To improve corporate governance regulations based on the Fair Trade Act, it has been argued that corporate groups should be designated around core companies, the scope of relatives should be reduced, and the system related to the same person should be improved by completely excluding outside directors. There was also a proposal to abolish the obligation to submit data for designating large business groups by the same person.
On the 9th, the Korea Economic Association announced this through a report titled "Improvement Plan for Large Business Group Regulations under the Fair Trade Act to Secure Corporate Governance Autonomy," commissioned to Professor Hong Dae-sik of Sogang University Law School.
The same person designation system is a system established for the government to designate the head (same person) of a corporate group. It sets 'persons related to the same person' who have certain relationships centered on the same person and designates large business groups based on this.
The report pointed out that the Fair Trade Act’s method of defining corporate groups starts with the "same person who effectively controls the corporate group" and uniformly determines the scope. It also highlighted that the negative perception of traditional corporate governance is the biggest problem of the current regulations.
The current large business group regulations were designed to prevent the harms caused by founders personally operating companies in circular shareholding or pyramid-type corporate group forms and passing on management rights, which does not align with recent trends emphasizing voluntary corporate governance improvements such as the introduction of ESG disclosures.
The report explained that to improve these issues, the system of designating a natural person as the same person should be abolished, and corporate groups should be designated centered on 'core companies.' It also argued that in cases where the structure is effectively a holding company, the scope of the corporate group can be sufficiently determined around core companies such as the top-level company.
It was also raised as a problem that the scope of relatives among persons related to the same person is excessively broad even after the revision of the enforcement decree. Since the bonds between relatives have weakened recently, the report proposes limiting the scope of relatives to 'the same person's spouse, lineal ascendants and descendants, and cohabiting relatives' who share economic interests with the same person.
Another issue is the increased practical burden on companies in meeting the requirements when excluding companies managed by outside directors from the affiliates of the outside director’s corporate group. The report argued that related conditions should be removed so that companies do not face difficulties when recruiting outside directors engaged in the same or similar fields.
Furthermore, although the Fair Trade Act stipulates that the submission of corporate group designation data is required from 'companies or special related parties,' the Korea Fair Trade Commission’s practice of imposing the obligation to submit corporate group data on the same person should be improved. Since it is difficult to verify the consistency of designation data for many affiliates of the same person, there was also a proposal to impose the obligation to submit designation data on core companies, which is considered reasonable.
The report also argued that violations of the obligation to submit designation data, which are merely procedural obligations, should be converted from criminal penalties to fines.
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