SEOUL (Reuters) – South Korea’s opposition-controlled parliament passed on Thursday a revision to the Commercial Act expanding the fiduciary duty of board members to protect the interests of minority shareholders and address the so-called “Korea discount.”
It is not clear if the amendment will be adopted or vetoed by the acting president, since the ruling conservative party has opposed the revision.
The main opposition Democratic Party has pushed for the revision of the law to extend the fiduciary duty to shareholders, to address depressed stock prices and poor corporate governance at Korea’s family-owned conglomerates.
Under the existing law, board members have a fiduciary duty to perform their duties in the company’s interest, but not to safeguard the interests of shareholders.
The legislation also aims to address the lack of board independence, particularly at family-run conglomerates known as chaebols, which are often criticised for putting the interest of family members ahead of others, leading to undervaluation of Korean companies versus overseas peers.
South Korea’s failure to protect the interests of shareholders are “stumbling blocks” to revitalising the domestic market stock market by preventing inflows of foreign capital, the opposition party said.
The country’s business community, which includes some of the major chaebols, has expressed objections to the amendment, saying it will hamstring business growth and make South Korea a country where it’s tough to do business in.
A South Korean business association that includes conglomerates like Samsung and Hyundai as members warned businesses could be subject to shareholder lawsuits and attacks from “speculative” overseas funds if the law was amended.
The conservative ruling People Power Party also objected to the revision as unnecessarily broad in scope as it would apply to more than a million companies incorporated in the country rather than to publicly traded companies, which it said are where the change is needed.
The ruling party on Thursday called on acting President Choi Sang-mok to veto the revision. Choi previously expressed reservations about the revision in November, but it is not clear whether he will veto it.
The government has been pushing listed companies to voluntarily improve shareholder returns and make boards more accountable to stockholders, as analysts often cite poor corporate governance as a factor behind the local equity market’s underperformance compared to global indexes.
The Financial Services Commission has said a government proposal aims to make it mandatory for listed companies to seek external valuation of any mergers or acquisitions, to better protect the rights of minority shareholders against those of controlling shareholders.
The revised act also mandates virtual shareholder meetings for publicly traded companies, which were seen by the bill’s sponsors as a way to elevate the voice of minority shareholders in major company decisions.
(Reporting by Jack Kim and Hyun Joo Jin; Editing by Ed Davies)
