"Lee Jae-yong Acquitted in 2nd Trial, Urgent Need for Shareholder Monitoring System"

Korea Corporate Governance Forum Issues Statement on June 6
"Limits of Resolving Governance Issues Through Criminal Punishment
'Inappropriate Acts' Must Not Be Erased by an Acquittal"

The Korea Corporate Governance Forum commented on the acquittal of Samsung Electronics Chairman Lee Jae-yong in the second trial of the unfair merger and accounting fraud allegations on the 6th, stating, "The resolution of corporate governance issues through criminal punishment has reached its limits," and emphasized, "It is urgent to normalize a general monitoring system by shareholders based on amendments to the Commercial Act."

Lee Jae-yong, Chairman of Samsung Electronics, Yonhap News

The forum stated, "Criminal punishment, which is based on the legal principle of 'beyond a reasonable doubt' that structurally favors the defendant, is not appropriate to properly resolve issues related to the capital market and corporate governance, which require balancing complex interests and fairness."

It continued, "The 'inappropriate acts' recognized by this ruling?including interference in the announcement of securities firm analysis reports, the publication of exaggerated future plans, presidential lobbying during the persuasion process of the National Pension Service, use of Samsung C&T shareholders' contact information without prior consent, share buybacks setting a target price of 170,000 won, and document manipulation to conclude accounting treatment for loss of control?as well as some insufficient disclosures in light of accounting standards, were all judged insufficient for criminal punishment but are clearly acts that must not exist for sound market trust and the development of the capital market."

Furthermore, it said, "These acts are a heavy task that must never be erased by the eraser of a not guilty verdict," and argued, "This ruling clearly shows the limits of the rigid and restrictive method of criminal prosecution by prosecutors in resolving issues related to the trust and corporate governance of our capital market, which is growing in scale and depth day by day."

It also stated that the court should not send a signal that such 'inappropriate acts' are permissible just because of an acquittal related to the merger. "In many companies beyond the reach of investigative and supervisory agencies, investors' interests are unfairly infringed by various acts where 'beyond a reasonable doubt' is practically impossible, which is the reality of our capital market," and added, "Only by properly operating general monitoring by shareholders based on company law principles that can delicately handle various interests depending on the case can these overall problems be resolved."

The forum further noted that this ruling reconfirmed that 'general monitoring by shareholders' is impossible without amendments to the Commercial Act, and that amending the Commercial Act is the first step to solving this issue.