Seoul: The Democratic Party in Korea has successfully passed the second round of amendments to the nation's corporate law, commonly referred to as the "stronger Commercial Act," through the National Assembly. This legislative move was made possible after the party ended a filibuster initiated by the People Power Party (PPP) within a day, subsequently pushing the bill through a plenary session. The PPP boycotted the vote, condemning the legislation as an "economic rebellion act."
According to Yonhap News Agency, the revision mandates that listed companies with assets exceeding 2 trillion won ($1.4 billion) adopt cumulative voting for board elections. Additionally, it expands the requirement for the separate election of audit committee members from one to two or more. Cumulative voting is intended to empower minority shareholders by allowing them to concentrate their votes on a single candidate, facilitating the placement of their representatives on company boards. However, critics argue this could lead to board divisions and undermine long-term strategic planning, a concern that led most U.S. states to abolish cumulative voting after initially mandating it.
The amendment's provision for the expanded separate election of audit committee members has sparked further debate. By curbing the influence of controlling shareholders, it raises the possibility that candidates supported by activist funds or foreign investors could gain seats. Business leaders express concerns that such a shift might result in the leakage of core technology and sensitive information from large companies competing in the global market. Coupled with the previously introduced 3 percent rule-which caps the voting rights of controlling shareholders and affiliates at 3 percent when electing outside directors to audit committee positions-the potential impact of these changes could be significant.
The combined effect of these amendments has intensified fears regarding the potential weakening of corporate management rights. A simulation conducted by Choi Joon-sun, a professor emeritus at Sungkyunkwan University Law School, suggests that in a company with seven board members, controlling shareholders and their affiliates might secure only two to three seats. This could leave boards with the capacity to act contrary to the desires of controlling shareholders. Meanwhile, discussions are already underway within the Democratic Party about a third amendment that would require the cancellation of treasury shares, further complicating efforts to defend management rights.
In response, business groups have urged lawmakers to pursue "balanced legislation that minimizes side effects," advocating for internationally recognized tools to protect corporate governance. These include dual-class shares that grant controlling shareholders enhanced voting rights and poison pills that allow existing shareholders to purchase shares at a discount when management control is threatened. They also argue for the codification of the business judgment rule and the reform of strict breach-of-trust provisions to foster bold decision-making. President Lee Jae Myung has emphasized the importance of business as the center of economic growth, but the administration and ruling party's determination to proceed despite corporate concerns has left many observers surprised.