Joint Statement by 8 Economic Organizations "Earnest Request to Exercise Veto on the Commercial Act Amendment"

Press Statement at the National Assembly Communication Hall Urging Exercise of the Right to Request Reconsideration
Detailed Criticism of the Problems in the Commercial Act Amendment
Concerns Over Undermining the Foundation of Company Law and Excessive Litigation
"Innovation Will of Companies May Be Undermined"
"Targeted Improvements Are More Desirable"

The business community has called on the acting president to exercise the right to request reconsideration (veto power) after the amendment to the Commercial Act, which expands the duty of loyalty of directors from the company to shareholders and establishes a duty to protect shareholder interests, passed the National Assembly plenary session.

Park Il-jun, Executive Vice Chairman of the Korea Chamber of Commerce and Industry, Lee Dong-geun, Executive Vice Chairman of the Korea Employers Federation, Kim Chang-beom, Vice Chairman of the Korea Economic Association, and executives of eight economic organizations held a press conference on the 19th at the National Assembly Communication Office urging the acting president to exercise the right to request reconsideration of the amended Commercial Act passed by the plenary session. Photo by Yonhap News

On the 19th, eight economic organizations (Korea Chamber of Commerce and Industry, Korea Employers Federation, Korea Federation of Small and Medium Business, Korea Employers Association, Korea International Trade Association, Korea Federation of Medium-sized Enterprises, Korea Listed Companies Association, and KOSDAQ Association) held a press conference at the National Assembly Communication Hall, pointing out the problems of the Commercial Act amendment in detail and requested that the right to request reconsideration be exercised if the amendment is sent to the government. It has been six days since the amendment was passed in the National Assembly plenary session on the 13th, led by the opposition parties including the Democratic Party of Korea. According to our Constitution, Choi Sang-mok, acting president and deputy prime minister, can promulgate the approved legislation within 15 days or request reconsideration.

The organizations stated, "We fully agree on the necessity of developing the capital market and will continue efforts to enhance shareholder rights and interests. However, it is desirable to make pinpoint improvements through amendments to the Capital Market Act for problematic parts rather than the Commercial Act amendment. We earnestly request the acting president to exercise the right to request reconsideration."

Through this statement, the business community pointed out five major problems with the Commercial Act amendment. First, they emphasized that it undermines the foundation of company law based on the delegation relationship between directors and the company. This is a point raised not only by the business community but also by the majority of commercial law scholars. They added that major advanced countries such as the United States, the United Kingdom, and Germany also limit the duty of loyalty of directors to the company, so it does not align with global standards.

They also expressed great concern about the potential for excessive litigation against directors due to the amended Commercial Act. Under current law, shareholder derivative suits are based on company damages and compensation is made to the company, but lawsuits related to breaches of the duty to protect shareholders are based on shareholder damages and compensation is made to shareholders, so the likelihood of filing lawsuits is much higher than shareholder derivative suits.

They added that there is a high risk of unconstitutionality. The amendment uses ambiguous expressions such as "majority shareholder interests," which may violate the constitutional "principle of clarity," especially in situations of conflicts of interest among shareholders. Ambiguous legal expressions may ultimately cause disputes and lawsuits with investors until related precedents are established. In this regard, the business community argued that since the duty of loyalty of directors already includes the meaning of shareholder protection and individual shareholder protection measures are in place, and the legislative purpose can be sufficiently achieved through amendments to the Capital Market Act, amending the fundamental law, the Commercial Act, to impose broad and general obligations on all companies may violate the "principle of prohibition of excess" under Article 37 of the Constitution. They also added that it may infringe on the constitutional principle of "harmony among various economic actors" guaranteed by Article 119 of the Constitution.

Amid recent changes in the rules of the global market and stagnation of growth engines in our economy, they pointed out that the Commercial Act amendment significantly dampens corporate innovation will. For economic revitalization, the role of medium-sized and small enterprises, which account for 99.9% of all companies and 86.5% of listed companies, is very important. However, the amendment is expected to mainly restrict growth opportunities for medium-sized and small enterprises, damaging the corporate growth ecosystem where small enterprises grow into medium-sized and eventually large enterprises.

Regarding the "mandatory electronic shareholder meetings," the amendment mandates the introduction of electronic shareholder meetings for listed companies designated by presidential decree, considering asset size and other factors, but the business community pointed out that preparations are insufficient to institutionalize this. Some listed companies have millions of shareholders, and currently, there is no stable electronic shareholder meeting system capable of simultaneous access, which may cause system errors, inaccurate verification of shareholder qualifications and proxy voting, hacking, and other security issues.