Governance Forum: Passage of Commercial Act Amendment Marks Start of K-Governance Reform

The Korea Corporate Governance Forum on July 7 described the passage of the Commercial Act amendment as "the first step toward KOSPI 5000," emphasizing that bold reforms in corporate governance must follow.

In a statement released that day, the Governance Forum said, "For KOSPI to surpass 4000 and reach 5000, more aggressive and comprehensive K-governance reforms are necessary."

The Forum explained that, following the Commercial Act amendment, a series of measures must be implemented, including: △introduction of cumulative voting, expansion of separate election of audit committee members, and establishment of a principle for the cancellation of treasury shares; △introduction of a discovery system and establishment of a principle for easing the criminal breach of trust law; △separate taxation of dividend income, public tender offer system, and establishment of a principle for fair value assessment in mergers of parent-subsidiary and affiliate companies.

The Forum stated, "The hope within the international financial community is that, once the new financial chief is appointed, the government will issue 'guidelines' based on the legislative content, which companies and investors can use as a reference to avoid confusion and specifically enhance corporate value." The Forum added, "Last year, a great idea led to the announcement of excellent guidelines, but due to a lack of corporate response, the Value-Up Plan project fizzled out. We recommend restarting this project."

The Forum also strongly criticized the business community's argument for "management rights protection." The Forum asserted, "Management rights are not a privilege but a duty and responsibility to shareholders," emphasizing that "the very term 'management rights' is simply a Korean-style Konglish expression."

The Forum pointed out that concerns over excessive litigation are exaggerated. The Forum stated, "If the board of directors thoroughly examines and approves the validity of new facility investments or mergers and acquisitions (M&A) based on the duty of care, there will be no issue at all," adding, "Going forward, the board should put the brakes on diversification unrelated to the core business."

In addition, the Forum argued that concerns about foreign speculative capital attempting to seize management control are unfounded. The Forum said, "When discussions on the Commercial Act amendment, such as the separate election of audit committee members and the 3% rule, took place in September 2020, the chairman of the Korea Automobile Manufacturers Association claimed that domestic companies' management information would be leaked if a candidate recommended by foreign competitors or speculative capital was appointed as an auditor." The Forum emphasized, "Over the past five years, there has not been a single such case among domestic listed companies."