Democratic Party's 'Value Up'... Will the Commercial Act Amendments Include Directors' Duty of Loyalty?

Designated as a "Key Legislative Bill" for Amendment of the Commercial Act
Variables Remain Including Business Community Opposition

The Democratic Party of Korea proposed improving corporate governance as a value-up (enhancement of corporate value) measure. The party plans to first expand the duty of loyalty of corporate directors from the company to shareholders through amendments to the Commercial Act.

Democratic Party Policy Committee Chair Jin Seong-jun and Representative Kim Nam-geun are announcing plans to promote the 'Korea Boost-Up' project, aimed at resolving the 'Korea Discount' in the stock market and ensuring that Korean companies are properly valued.
[Image source=Yonhap News]

According to Democratic Party officials on the 31st, the party has designated the amendment of the Commercial Act as a "priority bill" to be promoted. Earlier, Jin Seong-jun, the Democratic Party's Policy Committee Chairman, announced the "Korea Boost-up Project" at a press briefing. This includes expanding the duty of loyalty of directors, mandating the appointment of independent directors, gradually expanding the separate election of auditors and directors, implementing cumulative voting for large corporations, and expanding minority shareholders' rights such as electronic voting for listed companies.

Unlike the government and ruling party, which focus on tax reductions, the Democratic Party views improving corporate governance as a prerequisite for value-up. They see the core of the Korea discount issue as the concentration of power in a single individual, such as a chaebol owner, and the non-transparent decision-making process within companies.

Cooperation from the government and ruling party is also expected. President Yoon Suk-yeol stated at this year's stock market opening ceremony that he would "positively consider amending the Commercial Act to enhance the interests of minority shareholders." Chairman Jin also expressed at a briefing the day before that "cooperation with the government and ruling party is expected to be possible."

The Democratic Party plans to proceed with the project through amendments to the Commercial Act and a special law. While the amendment to the Commercial Act targets all companies, the special law is known to regulate only listed companies. However, since the Commercial Act amendment must go through the Legislation and Judiciary Committee, there are concerns about whether it can be properly initiated due to various pressing issues such as impeachment hearings. Because of this, the Political Affairs Committee, which can be the standing committee in charge, is being considered as an alternative.

Former lawmaker Lee Yong-woo, who pushed for amendments to the Commercial Act in the 21st National Assembly, evaluated, "Since the president mentioned this issue and the Democratic Party holds the chairmanship of the Legislation and Judiciary Committee, which is the relevant standing committee, the conditions to focus on the amendment have been secured."

The Democratic Party has already proposed multiple amendments to the Commercial Act. On the 17th, Democratic Party lawmaker Kim Hyun-jung proposed an amendment to the Commercial Act that mandates prior approval from the board of directors when a director uses the company's business opportunities. Lawmaker Kang Hoon-sik proposed an amendment to mandate the introduction of electronic voting for listed companies to expand minority shareholders' rights. Additionally, there is a bill being prepared that would hold directors accountable not only to shareholders but also to major shareholders.

The business community has voiced opposition to these moves. On the 24th of last month, eight economic organizations, including the Korea Economic Association, submitted a joint petition to the government and National Assembly opposing the amendment to the Commercial Act that expands the duty of loyalty of directors. Ryu Jin, chairman of the Korea Economic Association, argued, "If the Commercial Act is amended, excessive judicial risks will cause businesspeople to hesitate to invest or engage in mergers and acquisitions for new industries," adding, "Ultimately, this will damage corporate value and deepen the Korea discount."