[Momentum Builds for Commercial Act Amendment] ① Government to Hold Public Hearing in June and Fully Promote in Second Half

Lee Bok-hyun, Financial Supervisory Service Chief, Shows Determination for 'Commercial Act Revision'
Joint Commercial Act Revision Symposium by Jasiwon and Securities Association
Ministry of Economy and Finance Likely to Lead Commercial Act Revision as Control Tower

The government is pushing for an amendment to the Commercial Act that includes shareholders as subjects of directors' fiduciary duties. This is a follow-up measure to President Yoon Seok-yeol's request at the 'Economic Issue Review Meeting' held on the 9th, where he urged, "Please promptly prepare concrete measures to improve corporate governance that can protect investors' interests." The government plans to hold a public hearing on the amendment to the Commercial Act in June to gather opinions from various sectors and is expected to begin work on the legislative amendment as early as the second half of the year.

[Image source=Yonhap News]

According to the government on the 24th, the Korea Capital Market Institute and the Korean Securities Association will hold a symposium on June 12 focused on the amendment of the Commercial Act. Financial Supervisory Service Governor Lee Bok-hyun is scheduled to deliver a congratulatory address, and the public and private sectors will discuss the amendment to the Commercial Act to impose fiduciary duties on corporate boards toward shareholders. The symposium aims to gather experts from the public, private, and academic sectors to initiate related discussions and gain momentum before formally starting the amendment process.

Separately, the Ministry of Economy and Finance, which acts as the control tower for various ministries, is reportedly planning to hold a public hearing with the Ministry of Justice, the main ministry responsible for the amendment of the Commercial Act, as a follow-up to President Yoon's request for corporate governance improvement at the recent Economic Issue Review Meeting. A Ministry of Justice official stated, "We understand that the Ministry of Economy and Finance is pushing for a public hearing as a follow-up to the last meeting," adding, "We are reviewing various measures, including the amendment of the Commercial Act, to prepare plans for governance improvement."

Discussions on the amendment of the Commercial Act, which had been dormant for some time, resurfaced following remarks by Governor Lee Bok-hyun of the Financial Supervisory Service. On the 16th (local time), after the 'Invest K-Finance' investor relations (IR) event held in New York, Lee told reporters, "Personally, I believe that the fiduciary duty of directors toward shareholders must be introduced unconditionally," igniting debate on the amendment of the Commercial Act.

Although Governor Lee prefaced his remarks by saying they were his "personal opinion," President Yoon has also repeatedly mentioned the necessity of amending the Commercial Act in the same context. In early January, President Yoon promised to amend the Commercial Act to enhance the interests of minority shareholders at the stock market opening ceremony. However, the Ministry of Justice, the responsible ministry, drew a line by stating that "there is a possibility it will remain an abstract and declarative provision," which stalled further progress in the amendment discussions.

Full-scale Promotion After June Opinion Gathering... Expectations for Smooth Passage in the National Assembly

Experts have voiced that, to resolve the Korea discount (undervaluation of the Korean stock market), amending the Commercial Act is as important as implementing corporate value-up programs. For companies to voluntarily implement corporate value-up programs based on their own judgment, legal mechanisms that encourage such actions must be established to achieve policy effectiveness. In particular, regarding Article 382-3 of the Commercial Act, which stipulates directors' fiduciary duties, adding the phrase "proportional interests of shareholders" to the clause "Directors shall faithfully perform their duties for the company in accordance with laws and the articles of incorporation" would dramatically improve shareholder rights.

Lee Nam-woo, chairman of the Korea Corporate Governance Forum, said, "The amendment of the Commercial Act is absolutely necessary for the advancement of the capital market and the future of the majority of the people," supporting Governor Lee's remarks by adding, "If it is difficult to interpret, it should be resolved through legislation."

The government is expected to begin full-scale work on amending the Commercial Act from the second half of the year after gathering opinions through public hearings and symposiums in June and after the National Assembly's leadership is finalized. It is highly likely that Choi Sang-mok, Deputy Prime Minister and Minister of Economy and Finance, rather than the Ministry of Justice, will take the role of control tower. This is because a control tower is needed to mediate conflicts and coordinate differences among related ministries such as the Financial Services Commission and the Ministry of Justice to deliver a unified government voice. Deputy Prime Minister Choi mentioned the direction of the amendment, including strengthening directors' responsibilities and enhancing shareholder meetings, at an expert meeting on capital market advancement held in March.

Unlike other capital market-related issues where legislative amendments were difficult due to differing positions between ruling and opposition parties, the amendment of the Commercial Act is widely expected to pass the National Assembly without much difficulty. A financial investment industry official said, "While the Democratic Party views the abolition of the financial investment income tax as a tax cut for the wealthy, the amendment of the Commercial Act aimed at enhancing the interests of minority shareholders is broadly seen as protecting ordinary citizens," adding, "There are almost no contentious points in the amendment, so there is little opposition from either side."