6 out of 10 Professors Specializing in Commercial Law Oppose the Amendment Expanding Directors' Duty of Loyalty in the Commercial Act

Hankyung Association Survey of 131 Commercial Law Professors Nationwide
62.6% "Oppose Commercial Law Amendment"
"Minority Shareholder Protection Provisions Already in Company Law"
"Minimize Government Intervention and Promote Market Self-Regulation"

Among 10 professors majoring in Commercial Law at universities in South Korea, 6 oppose the amendment of the Commercial Act aimed at expanding the fiduciary duties of directors.

National Assembly
[Image source=Yonhap News]

On the 25th, the Korea Economic Association (KEA) commissioned Monoresearch to conduct a survey of 131 professors majoring in Commercial Law affiliated with law schools and university law departments nationwide. Among the 99 respondents, 62.6% expressed opposition to the proposed amendment of the Commercial Act.

This year, the Korean Commercial Act is set to be amended to expand the scope of directors' fiduciary duties from the company to include shareholders. The amendment bill was introduced in the National Assembly led by members of the Democratic Party of Korea. In response, the business community has voiced opposition, citing concerns that it could impose restrictions on corporate management activities and cause various side effects.

Among professors majoring in Commercial Law, the most common reason for opposing the amendment was that "there are already minority shareholder protection provisions in the Company Act," accounting for 40.3%. This was followed by "undermining the foundation of the Company Act" (27.4%), "insufficient provisions to prevent side effects" (24.2%), and "existing provisions in the Company Act to prevent majority shareholders from pursuing private interests" (8.1%).

Regarding the impact of expanding directors' fiduciary duties on corporate management, 65.7% responded "negative," which is twice the 34.3% who responded "positive." The most cited reason for the anticipated negative impact was "an increase in lawsuits against directors leading to a contraction of normal management activities such as investment," at 49.2%. This was followed by "increased management interference by activist funds and other speculative capital" (33.9%), "infringement on the interests of stakeholders other than shareholders, such as creditors and employees" (9.2%), and "contraction of corporate financing through issuance of bonds with warrants (BW) and convertible bonds (CB)" (7.7%).

The professors viewed "minimizing government intervention in the capital market and inducing market self-regulation" (37.4%) as the most necessary measure to resolve the Korea discount (undervaluation of the Korean stock market). Other opinions included "securing investor confidence by enhancing shareholder value through corporate governance improvement" (29.3%), "inducing improved management performance by creating a corporate institutional environment that meets global standards" (17.2%), "reducing inheritance tax rates, which are significantly higher than those of the Organisation for Economic Co-operation and Development (OECD)" (11.1%), and "inducing large-scale foreign capital inflows by inclusion in the Morgan Stanley Capital International (MSCI) developed market index" (5%).

Lee Sang-ho, head of the Economic and Industrial Division at KEA, said, "If the expansion of directors' fiduciary duties is pursued, there are concerns about an increase in lawsuits and management interference by speculative capital." He added, "Since there are virtually no overseas cases and it could hinder investments and mergers & acquisitions (M&A) necessary for securing new growth engines for companies, caution is needed in amending the Commercial Act."