[Column] The Uncomfortable Task Between Public Interest and Shareholders

Calls for Increased Investment Amid Record Financial Sector Profits
Urgent Need for Systems to Support Balanced Management

The four major financial groups, including KB, recorded their highest-ever performance in the first half of the year. Their net profit reached an impressive 10.3 trillion won. However, it is difficult for them to simply express joy. President Lee Jaemyung, in a meeting with his senior aides, urged financial institutions to “not just rely on easy interest income from mortgage loans, but also pay attention to expanding investments.”

Of course, the President’s remarks are fundamentally principled. However, financial authorities convened the heads of financial industry associations to discuss related measures, and it was announced that financial companies would actively cooperate in creating a 100 trillion won fund for future investments in innovative enterprises. How should shareholders and board members of these financial companies perceive this situation?

From a shareholder’s perspective, if profits increase, resulting in higher stock prices and expanded dividends, this is something to welcome, regardless of the reasons. It is certainly not something to criticize. Moreover, banks fundamentally generate profits by intermediating funds. The recently revised Commercial Act has even codified directors’ duty of loyalty to shareholders. This represents significant progress in advancing corporate governance and protecting the rights of minority shareholders. However, there remains the issue of what happens when shareholder interests conflict with the public interest or national policy.

According to the intent of the revised Commercial Act, if cooperating with government policy could infringe on shareholder interests, the board of directors should reject government requests or pressure. The conflict between the public interest and shareholder interests is already evident in the issue of contributing to a fund for writing off long-term delinquent loans. The government is asking the financial sector, including banks, to cover half of the required 800 billion won fund.

However, the demand for fund contributions may conflict with the legal duties of directors. This issue is not limited to banks; most listed public enterprises face the same problem. In the case of Korea Electric Power Corporation, strengthening shareholder rights may lead to pressure to raise public utility rates and conflict with the government, making it a typical example of a clash between the public interest and shareholder interests. If public demands conflict with legal obligations, a reasonable solution must be found.

Ultimately, a balance between social responsibility and shareholder interests is needed. Pursuing profit is necessary for the sustainability of a company, but shareholder and corporate interests should, as much as possible, be harmonized with the public interest. Public utility rates, which directly affect the lives of all citizens, cannot be determined solely based on the profitability of public enterprises.

In the case of Korea Electric Power Corporation, the situation is so severe that urgent measures are needed, but public enterprises sometimes must accept losses. Banks, as corporations, should strive to improve profitability, but as public institutions, they must also bear a certain degree of responsibility for financial market stability. Bank contributions to the fund are also an act of fulfilling social responsibility for the stability of the financial market. While shareholder rights must be protected and shareholder returns should naturally be expanded, it is not desirable to ignore corporate social responsibility and prioritize only shareholder interests.

First and foremost, institutional improvements are urgently needed to resolve legal issues. Fulfilling public responsibilities should not be seen as a betrayal of shareholder interests but as meeting institutional obligations. The principles of business judgment need to be codified. If a director’s decision in the course of corporate management is based on good faith and reasonable judgment, they should be exempt from legal liability. At the same time, government demands for public responsibilities should be limited and carried out through formal procedures based on regulations.

If the goal is to increase corporate lending, the first step should be to reform the system to facilitate this. Without institutional support, it does not align with the revised Commercial Act for public enterprises or banks to simply comply with government demands. For the revised Commercial Act to take root, the government’s way of working must also change from the past.

Kim Sangchul, Economic Commentator