Lee Bok-hyun, Financial Supervisory Service Chief, Meets Business Leaders to Hear Opinions on Commercial Act Amendments

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Lee Bok-hyun, Governor of the Financial Supervisory Service. Photo by Kang Jin-hyung aymsdream@

Lee Bok-hyun, Governor of the Financial Supervisory Service (FSS), will meet with business leaders on the 26th to hear the corporate perspective regarding the proposed amendments to the Commercial Act (duty of directors to act faithfully). This comes as companies oppose the amendments, fearing an increase in frivolous lawsuits aimed at criminally prosecuting directors for breach of trust.

The FSS announced on the 12th that it will hold a "Corporate Governance Improvement Seminar (tentative title)" on June 26, which will include discussions on improving the director liability system. The seminar will be hosted by the Korea Listed Companies Association, the KOSDAQ Association, and the Korea Economic Association, with participation from listed companies as well.

The seminar topics will be decided reflecting the corporate stance on governance improvements. It is known that Governor Lee is personally attentive to the schedule.

There is a reason why Governor Lee is listening closely to the business community's voices regarding the Commercial Act amendments. Companies are deeply concerned that the amendments will increase the possibility of criminal prosecution for breach of trust. In the US and Europe, even if directors cause harm to the company, faults are addressed through civil lawsuits. In Korea, both civil lawsuits and criminal prosecution are possible. This is why there is strong opposition to the amendments.

Currently, based on the Commercial Act provisions (duty of directors to act faithfully), there are actual cases where registered directors (family members of the controlling shareholder or executives) have been prosecuted for breach of trust. Representative cases include the Samsung Everland convertible bonds (CB) and the Samsung C&T-Cheil Industries merger lawsuits. Notably, when Governor Lee was a prosecutor, he indicted Samsung Group Chairman Lee Jae-yong and executives for breach of trust, citing violation of the duty of directors in the Samsung C&T and Cheil Industries merger.

Governor Lee is reported to strongly empathize with the business community's concerns about the potential expansion of breach of trust charges related to the Commercial Act amendments. He believes that Korea’s unique business environment must be considered, as expanding the duty of directors to include 'shareholders' could excessively restrict management.

This is why Governor Lee has consistently stated in public that "if the 'business judgment rule' is explicitly institutionalized so that directors who make reasonable business decisions based on sufficient information can be exempted from civil and criminal liability, it will not impose significant constraints on corporate management."

An FSS official said, "We consider the governance improvement seminar hosted by the Korea Economic Association and others to be important, not just the seminar organized by the Korea Capital Market Institute and the Securities Association on the 12th," adding, "We expect a balanced public discourse process related to corporate governance improvement."