Recently, as the revised Commercial Act passed the National Assembly and was promulgated, there is a sense of tension in the domestic gaming industry. This is because the '3% rule' could mark the beginning of foreign capital's infiltration into the board of directors. Domestic gaming corporations are concerned that Tencent's influence will increase as they have deep interlocking relationships with the Chinese tech giant.
According to the gaming industry on the 26th, the tension is rising as Tencent may be able to intervene more in the governance structure of domestic gaming corporations after the recent passage of the revised Commercial Act. The revised Commercial Act, passed by both ruling and opposition parties in the National Assembly on the 3rd, expands the scope of the directors' duty of loyalty from the company to shareholders and introduces the '3% rule' to limit the voting rights of major shareholders and related parties by aggregating their equities when appointing all audit committee members. The revised Commercial Act will apply from the shareholders' meeting held after July 2026, following a one-year grace period.
What the domestic gaming industry is focused on is the '3% rule.' Previously, the '3% rule' applied only when audit committee members were elected separately, but this revision has expanded its application to the entire appointment process of all audit committee members, including outside directors. As a result, even major shareholders with a large equity stake can find it difficult to exert substantial influence during the voting process for appointing audit committee members. While this was introduced to strengthen the protection of minority shareholders and external investors, it has also created greater opportunities for foreign investors with minority stakes to exert influence. Particularly, the audit committee is considered a core organization that not only oversees financial audits but also investigates subsidiary operations and assets, along with having the authority for representative lawsuits, indicating an increase in its influence over management rights.
Some domestic gaming corporations have been directly affected by this revision, as they have deep interlocking relationships with Tencent. Currently, Tencent holds equities in domestic gaming corporations such as SHIFT UP (34.76%), Netmarble (17.52%), KRAFTON (13.86%), and Kakao Games (3.88%). Tencent is the second-largest shareholder in SHIFT UP, Netmarble, and KRAFTON, and has secured the third-largest shareholder position in Kakao Games.
SHIFT UP, which has the largest equity held by Tencent, is mentioned as the most representative example. Currently, SHIFT UP's CEO, Kim Hyung-tae, holds 39.21%, while Tencent's affiliate, Aceville Hong Kong Limited, holds 34.76%, and the total friendly equity, including related parties, amounts to only 42.60%. SHIFT UP's flagship title, 'Goddess of Victory: Nikke,' relies heavily on Tencent, with Tencent managing global services, accounting for 83.4% of SHIFT UP's total revenue. Consequently, the industry believes that the revised Commercial Act has increased Tencent's influence over SHIFT UP's management. Although Tencent is the second-largest shareholder, there are speculations that it may become active in management, such as changing the CEO or in hostile mergers and acquisitions.
KRAFTON, which recorded its highest revenue last year, is no different. Currently, KRAFTON's Chairman, Jang Byung-kyu, holds 14.89% to become the largest shareholder, but Tencent secures 13.86%, including related entities. The total friendly equity, including related parties, remains at about 17.1%. KRAFTON's flagship title, 'PUBG Mobile,' is also published by Tencent for both China and global markets, making it a point of concern for Tencent's potential increase in substantial management influence. In May, KRAFTON repurchased 470,000 shares, slightly raising the equity stake of the major shareholders, but the gap with Tencent is still only 1 percentage point.
Subsequent revisions to the Commercial Act are also heightening the industry's tension. The Democratic Party of Korea expressed their intention to process the second revision this month, which includes expanding the number of audit committee members elected separately from one to two and mandating a cumulative voting system. As a result, a structure is in place that could allow foreign investors to exert influence over director appointments with only minority equity holdings, enabling them to place candidates of their preference on the board. Indeed, there is already one person from Tencent on the boards of both SHIFT UP and Netmarble.
A gaming industry official noted, "If Tencent extends its influence to the boards of domestic gaming corporations while simultaneously engaging in publishing and equity investments, it may become difficult to maintain management independence. I agree with the intent to protect minority shareholders, but there are great concerns that the actual structure of the domestic gaming industry could end up being swayed by Chinese capital."