Will the Small Shareholders' Desired Commercial Act Amendment Become a Hot Potato... The Variable Is 'Geumtuse'

15 Corporate Law Amendment Bills Proposed in the 22nd National Assembly
Political Circles Also to Discuss Stock Market Structure Improvement
Due to Financial Investment Tax Political Conflict... "Rational Approach Needed"

As corporate decisions repeatedly go against the interests of minority shareholders, interest is growing in the amendment to the Commercial Act aimed at improving corporate governance and expanding the rights of minority shareholders. However, there are also prospects that proper discussions on the amendment to the Commercial Act may become difficult as the financial investment income tax (Fin-Invest Tax) is pointed out as a prerequisite for improving the domestic stock market structure.

People's Power Party leader Han Dong-hoon and Democratic Party leader Lee Jae-myung (left) are leaving after concluding a meeting between ruling and opposition party leaders at the National Assembly on the afternoon of the 1st, discussing the special prosecutor law for Chae Sang-byeong, the abolition of the financial investment income tax, and the law to provide 250,000 won support to all citizens.
[Image source=Yonhap News]

According to the National Assembly Legislative Information System on the 9th, since the opening of the 22nd National Assembly in May, 15 amendments to the Commercial Act related to improving corporate governance have been proposed. On June 5, Democratic Party lawmaker Jeong Junho introduced an amendment to the Commercial Act, followed by Democratic Party lawmaker Park Sanghyuk on the 4th of this month. In addition to the amendment to the Commercial Act, the Ant Investor Protection Act (Special Act on Corporate Governance of Listed Companies), targeting only listed companies, was proposed on the 20th of last month. These laws aim to expand the duty of loyalty of directors from the company's interests to all shareholders and to mandate cumulative voting, which grants shareholders voting rights equal to the number of directors for listed companies with assets exceeding 2 trillion won.

Recently, dissatisfaction among minority shareholders has grown as listed companies repeatedly make decisions that favor management rather than shareholders. In July, Doosan announced a merger plan to make construction machinery company Doosan Bobcat a 100% subsidiary of collaborative robot company Doosan Robotics. The nominal reason was synergy in the machinery sector. However, the merger ratio between Doosan Bobcat and Doosan Robotics was set at 1 to 0.63, leading Doosan Bobcat shareholders to protest that their stock value was being undermined. Doosan Bobcat's operating profit last year was approximately 1.3899 trillion won, a record high, while Doosan Robotics recorded an operating loss of 19.2 billion won. If the plan proceeded, Doosan Bobcat shareholders would have had to bear the loss of reduced shares. Ultimately, as the controversy grew, Doosan withdrew the merger plan.

Minority shareholders have also voiced their concerns directly to the National Assembly. On the 29th of last month, the Ewha Group Minority Shareholders Solidarity sent an official letter to the National Assembly's Legislation and Judiciary Committee, urging a swift first trial verdict for former Ewha Group chairman Kim Young-jun, who was recently detained, and expressing support for the amendment to the Commercial Act. Ewha Group affiliates Ewha Electric, EID, and E-Tron had their trading suspended last May due to embezzlement of over 10 billion won by the group management and the reduction of the embezzled amount in disclosures. The Minority Shareholders Solidarity argued that if an environment had been established for shareholders to monitor illegal acts by management, false disclosures could have been prevented. Kim Hyun, head of the Minority Shareholders Solidarity, said, "If the amendment to the Commercial Act, which specifies responsibilities to ordinary shareholders, is discussed in the political arena, I believe Ewha Group's stance will change," adding, "Although delisting of Ewha Group will be decided by the end of this year, we will continue to fight."

There is also a consensus forming in the political sphere. President Yoon Suk-yeol mentioned the amendment to the Commercial Act earlier this year, pledging to responsibly reflect the interests of minority shareholders. On the 28th of last month, Financial Supervisory Service Governor Lee Bok-hyun referred to the Doosan case, pointing out, "There continue to be cases where domestic and foreign investors are disappointed by corporate decisions made solely for controlling shareholders in mergers or public offerings." Both ruling and opposition parties are expected to discuss the amendment to the Commercial Act. On the 1st, People Power Party leader Han Dong-hoon and Democratic Party leader Lee Jae-myung agreed in a leaders' meeting to conduct comprehensive discussions, including structural issues in the stock market. Separately from inter-party talks, the Democratic Party is promoting the 'Korea Boost-up Project,' focusing on improving corporate governance.

However, the Fin-Invest Tax is expected to act as a variable. Both ruling and opposition parties are focusing on the Fin-Invest Tax as the core issue of the domestic stock market problems. The People Power Party has labeled the Fin-Invest Tax as the 'Lee Jae-myung Tax,' claiming that the sluggish domestic stock market is due to the Democratic Party and the Fin-Invest Tax. Within the Democratic Party, opinions are divided between maintaining the Fin-Invest Tax and postponing or abolishing it. A Democratic Party lawmaker said, "Not only the Fin-Invest Tax but also the overall discussions related to the stock market could fall into political strife," adding, "For sufficient discussions on the amendment to the Commercial Act, both ruling and opposition parties need to approach the matter rationally."