Commercial Act Amendment Revived... Business Community Urges Consideration for Management Stability [Business Concerns Over the Bill] ③

"Resistance of a Selfish Minority," Says Business Community
Introduction of Duty of Loyalty to Protect Ordinary Shareholders
Business Community Fears Excessive Litigation and Hindrance to Corporate Innovation
Lee Announces Plans for Cumulative Voting and Separate Election of Audit Committee Members

As the amendment to the Commercial Act, which President Lee Jae Myung pledged as a major campaign promise, is increasingly likely to be revived under the new administration, the business community is closely monitoring the potential impact on the corporate management environment. Since the president-elect himself has publicly discussed the previously stalled bill, there are concerns that conflicts over management rights could be reignited.

During the presidential campaign, President-elect Lee described the business community's opposition to the amendment as "the resistance of a selfish minority," and stressed that "if the Commercial Act is amended, abuses by controlling shareholders will decrease and abnormal management decisions will also cease."

The core of the amendment is to protect the rights and interests of ordinary shareholders by improving corporate governance, including the introduction of a duty of loyalty to shareholders. While the current law stipulates that directors must faithfully perform their duties for the company, the amendment would expand this duty to cover both "the company and its shareholders," requiring directors to fairly consider the interests of all shareholders. The amendment also includes a plan to make electronic general meetings of shareholders mandatory for listed companies.

The business community is concerned that, if the amendment is enacted, minority shareholders or activist funds could initiate excessive litigation against companies. Lawsuits for breach of shareholder protection duties would allow shareholders to claim compensation if they suffer damages, making such lawsuits much more likely than existing shareholder derivative suits.

The eight major business organizations also point out that, in most major countries such as the United States, United Kingdom, Germany, Canada, and Japan, the duty of loyalty for directors is limited to "the company." Regarding electronic general meetings, they argue that many companies are not equipped with the necessary systems, raising concerns about security issues and operational confusion.

In particular, the business community believes that mid-sized and small businesses will be more affected than large corporations. According to the Financial Supervisory Service's electronic disclosure system, the number of management rights disputes disclosed by listed companies in Korea increased from 216 cases in 2020 to 315 cases in 2024, with mid-sized and small businesses accounting for 93% of the total.

President-elect Lee has also pledged to promote cumulative voting and expand the separate election of audit committee members. The cumulative voting system allows shareholders to concentrate their voting rights on specific candidates for director positions at the general meeting of shareholders, increasing the likelihood that directors supported by minority shareholders will be elected, as those with the highest number of votes are appointed. Currently, shareholders holding at least 3% of shares can request this system.

The separate election of audit committee members would expand the current regulation for listed companies with total assets of 2 trillion won or more, which requires at least three audit committee members, with at least one elected separately from directors, to at least two members. While the intent is to strengthen the independence and role of audit committees, the business community is requesting a cautious approach, warning that these systems could be used by speculative capital to intervene in management rights.

A business community representative stated, "Since audit committee members have broad access to management information, if activist groups or foreign funds gain control of these positions, the risk of confidential information leaks or threats to management rights increases. There are also concerns that the cumulative voting system could be abused, especially given the high proportion of foreign ownership in domestic companies." The representative added, "Since this is an issue that would fundamentally change the Commercial Act, any move to amend it must be approached with greater caution."