Democratic Party "Considering Including Principles of Business Judgment in Criminal Law"
Government "To Confirm After Discussion in F4"
The business community strongly opposed the Democratic Party of Korea's direction to amend the Commercial Act to impose fiduciary duties on shareholders, uniting in opposition for the first time in nine years. In response to the business community's backlash, Lee Jae-myung, leader of the Democratic Party of Korea, proposed holding a public debate in which he would personally participate. The government is considering reflecting a 'duty of effort' in the Commercial Act as a compromise, taking into account the business community's position. Meanwhile, the People Power Party is focusing its efforts on amending the Capital Markets Act rather than the Commercial Act.
On the 22nd, Lee proposed a public debate regarding the Commercial Act. He said, "Instead of arguing unilaterally, it is necessary to have a public debate in front of the people to see whose argument is correct and whether a reasonable conclusion can be reached by integrating both sides' claims." He added, "I will personally participate in the debate and, after collecting both sides' positions through the Policy Committee Chair, will clearly organize the Democratic Party's stance." He emphasized, "No one in our society opposes protecting small investors. However, since there are theories about what methods exist, we can find reasonable alternatives," and urged, "I ask companies and investors to promptly respond to the public debate."
Lee Jae-myung, leader of the Democratic Party of Korea, is speaking at the 1st Expanded Executive Meeting held at the National Assembly on the 22nd. Photo by Yonhap News
The Democratic Party is seeking a compromise solution in light of the business community's opposition. A Democratic Party official said on the same day, "The business community is concerned about the amendment of the Commercial Act, fearing criminal liability for breach of trust, and there are even opinions to abolish the breach of trust offense. We are considering at least specifying the business judgment rule as a constituent element," adding, "This part is expected to be addressed in the amendment of the Criminal Act." The business judgment rule is a legal standard that exempts directors from liability for damages if their business decisions are made in good faith and on reasonable grounds as diligent managers of the company. This is intended to alleviate the business community's concerns. The Democratic Party's 'Republic of Korea Capital Market Revitalization Task Force (TF),' which has been in charge of discussions on the Commercial Act amendment, plans to meet with the business community next week to explain the amendment bill the Democratic Party is promoting.
The Democratic Party is currently pushing to expand directors' fiduciary duties to shareholders. Until now, even if the board of directors made decisions favoring management rather than all shareholders, including minority shareholders, directors faced little sanction. This is because courts have interpreted that directors performed their duties faithfully for the 'company' even when making decisions favoring management. In fact, decisions that disregard the interests of minority shareholders, such as the mergers and acquisitions (M&A) of Doosan Enerbility and Doosan Bobcat and the paid-in capital increase of Korea Zinc, have been cited as reasons why the Korean stock market is undervalued, prompting discussions on institutional improvements. The Democratic Party has gone further by including in the board's duties the obligation to 'protect the interests of all shareholders.'
The government plans to finalize and submit to the National Assembly an amendment to the Commercial Act, including a provision for a 'duty of effort,' after detailed discussions at the Macroeconomic and Financial Issues Meeting (F4, a core economic authorities meeting) held that day. Although the government draft was prepared through agreement among related ministries, it has not been officially announced as a formal proposal. Political and legal circles evaluate the duty of effort as a step back from expanding fiduciary duties. This is because effort is a difficult element to quantify and can be broadly interpreted as the company considering the interests of general shareholders. However, the government is understood to have proposed the duty of effort as a middle ground in consideration of the business community's opposition. The business community fears that expanding directors' fiduciary duties will lead to excessive litigation and operational difficulties. Additionally, the government plans to balance the protection of shareholders' interests by supplementing the Capital Markets Act and other laws.
Kim Sang-hoon, Chairman of the Policy Committee of the People Power Party, is speaking at the floor strategy meeting held at the National Assembly on the 22nd. Photo by Kim Hyun-min
The People Power Party is focusing more on amending the Capital Markets Act than the Commercial Act. On the 21st, Han Dong-hoon, leader of the People Power Party, said, "If shareholders are included as subjects of fiduciary duties, there will inevitably be a lot of confusion." Kim Sang-hoon, chair of the People Power Party's Policy Committee, said, "Both the amendment of the Commercial Act and the Capital Markets Act are being reviewed in both directions," but added, "The amendment of the Commercial Act should be cautious because it applies to both listed and unlisted companies." In this regard, the party is preparing targeted measures, such as proposing a Capital Markets Act bill introduced by lawmaker Kang Myung-gu to establish a mandatory tender offer system.
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