Governance Forum: "Economic Groups' Claims on Fiduciary Duty Are Gaslighting"

The Korea Corporate Governance Forum criticized the claims of economic organizations on the 25th as 'gaslighting,' accusing them of distorting facts and legal principles.

In a statement released that day, the Korea Corporate Governance Forum pointed out, "Eight economic organizations are polluting a reasonable discussion forum with lies and gaslighting through a joint petition," adding, "The duty of directors to shareholders is an extremely common-sense principle."

Namwoo Lee, chairman of the Korea Corporate Governance Forum, said, "Listed companies where controlling shareholders and related parties hold an average of over 30% of shares submitted a petition distorting foreign cases," and added, "The behavior of focusing on gaslighting such as threats to management rights and the weakening of entrepreneurial spirit while obscuring the issues is disgraceful."

On the 24th, eight domestic economic organizations, including the Korea Economic Association, submitted a joint petition to the government and the National Assembly opposing the plan to amend the Commercial Act to expand the duty of directors from the current company to shareholders.

The economic organizations argued, "Restructuring to enhance corporate value or board decisions can be distorted as 'decisions favorable to controlling shareholders,' and unfair responsibility can be pursued," and "Issuance of new shares, bonds with warrants, or convertible bonds can also be criticized for diluting existing shareholders' equity, making smooth corporate financing difficult." They also claimed that the plan to amend the Commercial Act undermines the existing legal system and deviates from global standards.

In response, Chairman Lee said, "In mergers, which are transactions between shareholders, the advantages and disadvantages of shareholders of both companies vary according to the merger ratio," and added, "The obvious principle that directors must act 'for all shareholders' must be included to protect shareholders' property rights."

The forum presented cases of 'conflicts of interest among shareholders,' including dilution of ordinary shareholders' equity, preferential treatment of affiliates by controlling shareholders, private benefit extraction and strengthening of control, and defense of management rights using treasury stocks.

He emphasized, "The duty of loyalty to shareholders should be introduced as a basis to close the loopholes in the law where regulation has failed, and this is the first step to resolving the undervaluation of the Korean stock market and normalizing the capital market."

Contrary to the claims of the economic organizations, the Governance Forum rebutted that most advanced countries such as the United States and Japan impose a duty of loyalty to shareholders on the board of directors or controlling shareholders when conflicts of interest among shareholders arise.

Chairman Lee explained, "The OECD's 'Principles of Corporate Governance,' a model of advanced systems, also emphasizes the duty of loyalty of directors to shareholders," adding, "The United States is the home of directors' duty of loyalty to shareholders, and Japan and Germany, whose legal systems are similar to ours, also have related regulations."

Regarding the claim that controlling shareholders' management rights could be attacked by activist funds, he said, "This is a prejudice stemming from a lack of understanding of the capital market," and added, "In reality, where institutions such as the National Pension Service fail to improve shareholder value based on stewardship codes, activism is rather protecting investors."