With the presidential election of Lee Jae-myung, the Democratic Party of Korea is expected to accelerate the re-legislation of the Commercial Act amendment, which was discarded last April. The new Commercial Act amendment is anticipated to include strengthened regulations such as the activation of cumulative voting, which had been omitted due to opposition from the business community, and the expansion of the separate election of audit committee members.
The Democratic Party officially announced the re-push for the Commercial Act amendment in its policy pledge document released on the 28th of last month, prior to the presidential election, presenting promises to improve corporate governance and eradicate the acts of major shareholders exploiting their profits. The amendment to the Commercial Act, which expands the duty of loyalty of directors from the company to shareholders, was rejected and discarded during the re-vote at the National Assembly on April 17, after which a Commercial Act amendment containing stricter regulations was proposed again.
President-elect Lee Jae-myung expressed his intention to re-push the Commercial Act amendment by adding contents that were not included in the previous amendment, such as the activation of cumulative voting and the expansion of the separate election of audit committee members, shortly after the amendment was stalled on April 21. Cumulative voting is regarded as a system favorable for minority shareholders because it allows shareholders to concentrate their voting rights on specific director candidates. The expansion of the separate election of audit committee members is also discussed as a way to limit the influence of major shareholders and strengthen the rights of general shareholders.
The policy proposed by the president-elect was crystallized in a partial amendment bill to the Commercial Act, which was submitted the very next day by Democratic Party lawmaker Yoon Jun-byung and others. The amendment proposed by lawmaker Yoon and others includes provisions to expand the duty of loyalty of directors, ensure that listed companies cannot exclude cumulative voting in the director selection process, and allow the separate election of directors who will become audit committee members from other directors at the shareholders' meeting.
The contents of the re-proposed Commercial Act amendment are mostly included in the election pledge document. The pledge document also contains institutionalization measures such as the principle of retiring treasury stocks, allocating a certain amount of new shares to general shareholders of the parent company when a subsidiary is listed after a material partitioning, and the introduction of mandatory tender offers to guarantee minority shareholders' recovery opportunities during a corporate acquisition.
The economic community is concerned that the Commercial Act amendment and pledges being re-pushed by the Democratic Party contain many anti-corporate elements. While not all pledges are included in the Commercial Act amendment, there is a significant possibility that more unfavorable content for corporations will be included, given that the Democratic Party's legislative power has become stronger. In particular, the economic community opposes items such as the mandatory retirement of treasury stocks, activation of cumulative voting, and expansion of the separate election of audit committee members, arguing that they would stifle corporate management activities and facilitate external attacks on management rights.
Daishin Securities analyzed in a report issued on the 2nd that there are increasing cases of listed companies with low major shareholder equity and high treasury stock ratios voluntarily pursuing delisting due to concerns about losing management rights following the mandatory retirement of treasury stocks. The analysis suggests that firms would choose voluntary delisting through public buybacks to mitigate the risk of becoming targets of activist funds due to the weakening of the major shareholder's equity rate if they retire all treasury stocks.
The Democratic Party argues that retiring treasury stocks is necessary to return profits to shareholders, but treasury stocks are considered the almost sole means available for domestic corporations, which lack adequate legal measures for defending management rights, to safeguard against attacks from external forces.