Pros and Cons Clash at Commercial Act Amendment Hearing
Experts Debate Introduction of Cumulative Voting System
Intense Dispute Over Corporate Governance Reform for Large Companies
On July 11, discussions on amending the Commercial Act, focusing on the introduction of a cumulative voting system for appointing directors at large listed companies and increasing the number of audit committee members elected separately, officially began in the National Assembly. At a public hearing held by the Legislation and Judiciary Committee's subcommittee, experts engaged in heated debates over the validity of these institutional reforms.
The subcommittee of the Legislation and Judiciary Committee held a public hearing on the "Commercial Act Amendment Bill" at 2:00 p.m. that day. Previously, the National Assembly had passed an amendment to the Commercial Act that included the introduction of a cumulative voting system for appointing directors at large listed companies and an increase in the number of audit committee members elected separately. The ruling Democratic Party of Korea is also pushing for a further amendment to the Commercial Act to include the introduction of a cumulative voting system and the expansion of separately elected audit committee members.
In this context, Jung Wooyong, Vice President of Policy at the Korea Listed Companies Association, who testified as a witness, expressed concern, stating, "If the cumulative voting system currently under discussion is combined with the separate election of audit committee members, it is possible that even if the largest shareholder holds more than 50% of the shares, minority shareholders such as institutional investors could unite and appoint a majority of the board of directors." He argued, "Preventing the largest shareholder from appointing a number of directors corresponding to their shareholding is an unreasonable restriction on the property rights of the largest shareholder and seriously undermines the principle of majority capital rule, which is the foundation of corporate law."
Choi Junsun, Professor Emeritus at Sungkyunkwan University Law School, remarked, "If the cumulative voting system is introduced now, it will become a battleground for conflicts and struggles among shareholder groups, and the board of directors will inevitably become a war zone." He pointed out, "The biggest problem is the appointment of unqualified directors." Professor Choi expressed concern about the potential impact on mid-sized companies.
On the other hand, Kim Woochan, Professor at Korea University Business School, commented on the cumulative voting system, stating, "In our current reality, the shareholding of major shareholders is quite high, and when directors are appointed under the current ordinary resolution system, it is well known that major shareholders monopolize the appointment of directors, which has led to the board of directors becoming a mere formality." Regarding the separate election of audit committee members, there was also an argument for electing all audit committee members separately. Professor Kim asserted, "Since it is possible to offset the influence of separately elected audit committee members by increasing the number of audit committee members who are not separately elected, rather than increasing the minimum number of separately elected audit committee members from one to two, it is necessary to elect all audit committee members separately."
Yoon Taejun, Head of the Corporate Governance Research Center at the shareholder action platform ACT, introduced overseas cases and emphasized the significance of the cumulative voting system, stating, "This is a system that allows individuals who can represent minority opinions to join the board of directors, and at the same time, in a general meeting of shareholders where only one director is elected, the controlling shareholder can also appoint a capable person who can best reflect their intentions."
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