Government Backs Down on Commercial Law Amendment... Global Asset Managers and Pension Funds Join Criticism Statement

Statement Urging Amendment of Commercial Act Announced
Over 100 Legal Professionals, Professors, and Institutional Investors Participate
Global Asset Managers and Pension Fund Officials Join

Namwoo Lee, Chairman of the Korea Governance Forum. Photo by Younghan Heo

On the 28th, the Korea Corporate Governance Forum strongly opposed the claim from the business community and financial authorities advocating for "shareholder protection through amendments to the Capital Markets Act" instead of revising the Commercial Act, calling it a "deterioration and regression."

At a press conference held that day at the Press Center in Jung-gu, Seoul, the forum stated, "The biggest reason why Korea's capital market is losing vitality and the economy is losing new growth engines is that the fundamental mechanisms of joint-stock companies are not functioning as they should," expressing this view.

The urgent statement released at the forum under the name of "All-Investors and Civil Society Members Urging the Completion of the Introduction of Directors' Fiduciary Duty to Shareholders" included a total of 109 signatories. They consisted of legal professionals, professors of business administration and law, and major domestic institutional investors.

Asia heads, Korea representatives, and portfolio managers of global asset management firms and pension funds such as Fidelity, Wellington, Schroders, and the Dutch pension fund, as well as current and former overseas institutional investors, participated. Numerous economic YouTube creators with a combined subscriber count of approximately 8 million also joined.

They emphasized, "A joint-stock company is the flower of a market economy, where managers work for the benefit of all shareholders and shareholders supervise managers through checks and balances to maintain vitality," urging the government and political circles to return to the "basics of market economy."

They continued, "The fiduciary and protective duties of directors to all shareholders are the most fundamental first principles for the proper functioning of the joint-stock company system, but in Korea, these have existed only in textbooks," raising their voices.

Regarding the opposition from 16 group presidents, including Samsung and SK, on the 21st against amendments to the Commercial Act and their request to the National Assembly to focus on economic revitalization rather than regulation, they questioned, "How is including the protection of the rights and interests of all shareholders, the owners of the company, in the Commercial Act considered corporate regulation? Is direct presidential election stipulated in the Constitution considered regulation of the government?"

They added, "At a crucial time when Korea's economic power and culture as a developed country are facing the world, we must not let a tiny minority stuck in the mindset of the developmental dictatorship era hold back and betray the future of the vast majority of the people."

The forum stated, "The self-defeating 'national exit' rush caused by laws that do not protect infringed shareholder interests, the stagnation of domestic demand, and the vicious cycle of economic growth slowdown have already begun," urging, "We must quickly return to the basics of joint-stock companies."

Meanwhile, Director Lee Bok-hyun changed his stance on the discussion of legal amendments for shareholder protection that day, saying, "At this stage, establishing shareholder protection principles through amendments to the Capital Markets Act seems to be a more reasonable approach than introducing directors' fiduciary duties under the Commercial Act." Director Lee has been a proponent of amending the Commercial Act to expand the fiduciary duty of corporate directors from the existing 'company' to 'shareholders.'

Director Lee explained, "The issue originated from mergers and physical spin-offs of listed companies. Currently, there are about 2,400 listed companies, and it is reasonable to establish a regulatory framework for these listed companies," adding, "If the Commercial Act is amended, it would apply to over one million corporations, so I have some doubts about whether that is appropriate."