"Peter Pan Syndrome Only Grows" HANKYUNGHYUP Seminar Opposing Strengthened Governance Regulations

Jointly Hosted with Law Firm Kwangjang on the 6th
"Causing Confusion... Legislative Discussions Should Be Avoided"

Concerns have been raised that the strengthening of governance regulations currently under discussion in the National Assembly could hinder corporate management and cause some companies to deliberately restrain growth to avoid regulations, falling into a 'Peter Pan syndrome.'

On the 6th, the Korea Economic Association held a seminar titled "Is Strengthening Governance Regulations Okay as It Is?" at the FKI Tower in Yeouido, Yeongdeungpo-gu, Seoul, together with the law firm Kwangjang, analyzing the impact of this bill on companies.

In his opening remarks, Kim Chang-beom, Executive Vice Chairman of the Korea Economic Association, said, "Domestic companies are facing difficulties due to sluggish domestic demand, the spread of protectionism, and intensified global competition," adding, "In this situation, many governance regulations that burden companies are being proposed, so an evaluation of these is necessary." Lee Hyung-geun, Chief Attorney at Kwangjang Law Firm, also stated, "As governance reform has emerged as a major issue, we have prepared a forum for discussions on the long-term value of companies and shareholders."

Kim Tae-jung, a lawyer at Kwangjang who presented on the mandatory separate election of all audit committee members, said, "For listed companies with assets under 2 trillion won, there is a risk of falling into 'Peter Pan syndrome,' deliberately maintaining their size below a certain threshold and delaying growth to avoid the mandatory separate election of audit committee members," adding, "There is also a high risk of cases circumventing the regulation through loopholes such as splitting shareholdings."

Kim further explained, "The current Commercial Act, revised in 2020, already mandates the separate election of one audit committee member for listed companies with assets over 2 trillion won," noting, "As a side effect, activist fund activities have expanded, with proposals related to the appointment of separately elected audit committee members being a primary target."

Additionally, criticisms were raised that the mandatory cumulative voting system contributes more to the expansion of activist funds than to protecting minority shareholders, and that the expansion of directors' duty of loyalty by adding the concept of 'shareholders' interests' causes confusion in corporate management, hindering normal business activities.

In the subsequent discussion, Min Se-jin, a professor of economics at Dongguk University, expressed skepticism about whether amending the Commercial Act alone could solve the 'Korea discount' problem, saying, "It is difficult to expect that the regulations will have a positive impact on corporate value." Professor Min added, "Given that the regulatory level is already considerable, further amendments are unlikely to be effective."

The industry also warned of regulatory side effects. Kim Chun, Head of the Listed Companies Association, said, "If the scope of directors' authority is made ambiguous or excessive responsibilities are imposed, it could hinder proactive corporate management," adding, "Expanding minority shareholders' rights could rather undermine the principle of shareholder equality." Jin Sung-hoon, Group Head of the KOSDAQ Association, expressed concern, saying, "Small and medium-sized enterprises will bear unnecessary regulatory costs," and "Strengthening regulations could be a particularly heavy burden for KOSDAQ-listed companies."

In his closing remarks, Lee Sang-ho, Head of the Economic and Industrial Division at the Korea Economic Association, said, "The recently discussed amendments to the Commercial Act unnecessarily restrict the decision-making authority of corporate management," warning, "There is a high risk that this will become a corporate growth shackle law that blocks investment and growth necessary for securing new growth engines."