The Democratic Party of Korea has officially stated that it will handle the 'Commercial Act amendment' during the June extraordinary National Assembly. It plans to reintroduce the legislation for 'revitalizing the stock market,' which was pushed by the Yoon Suk-yeol administration but fell through, following the inauguration of the Lee Jae-myung administration. Regarding concerns from the business community about management decision-making difficulties and expanded litigation risks, the stance is to first implement the amendment and discuss supplementary measures later.
After a meeting with six major economic organizations held in the National Assembly on the 30th, Commissioner Kim Nam-geun of the Democratic Party noted, "There is an issue with trust between the public and the market, so we will process the current Commercial Act amendment quickly," adding that it will be addressed within the extraordinary National Assembly, which ends on July 4.
The Democratic Party of Korea reiterated its position to pursue the five key amendments to the Commercial Act that were previously adopted as party policy. These include: expanding the duty of care of directors to include 'the company and shareholders'; mandating electronic general meetings; gradually expanding the separate election system for audit committee members; introducing cumulative voting; and implementing a system for independent directors.
Commissioner Kim stated, "This was created with the intention of enhancing transparency and independence in the governance structure of the board of directors," and emphasized that "the five items should be legislated together as a principle." Chairperson Oh Gi-hyeong, head of the party's 'KOSPI 5000 Task Force,' added, "This is a package that aims to improve the process of board composition and change the guidelines for decision-making actions of directors."
These tasks were also pursued during the Yoon Suk-yeol administration but were repeatedly thwarted due to backlash from the business community and from the People Power Party, which was the ruling party at the time, as well as the exercise of presidential veto powers.
This time, the plan is to reintroduce a strengthened Commercial Act amendment that not only includes all five key tasks but also adds a 3% rule and removes the implementation grace period. The 3% rule restricts the combined voting rights of the largest shareholders and affiliates to 3% when appointing audit committee members, with the intention of limiting the influence of large shareholders. The Democratic Party introduced a system to separately elect audit committee members from inside and outside the company in 2020 during the Moon Jae-in administration, at which time the 3% rule was promoted. At that time, due to backlash from the business community and opposition parties, the '3% rule for affiliates' was only applied to internal directors, but now the intent is to extend this to 'outside directors' in line with the original legislative intent.
The Democratic Party intends to reshape the structure of boards in listed companies to be 'accountable boards' through this revision. The Lee Jae-myung administration is tackling reform tasks that were abandoned during the Yoon Suk-yeol administration, proclaiming this as "the first signal of the reform drive." In particular, this amendment to the Commercial Act is a core task to implement the 'capital market advancement' and 'governance transparency' that President Lee Jae-myung has been emphasizing, signifying that it presents the first model for stock market system reform since the new government's inauguration.
◇Business community "concerns about potential litigious excess"… ruling party "future discussions on abolishing the crime of breach of trust"
The business community that attended the meeting expressed concerns about the broader application of the crime of breach of trust, the potential for litigious excess, the erosion of management judgment principles, and the burdens on small and medium enterprises, requesting a grace period for implementation or legal codification.
Commissioner Kim commented, "There was a concern that the expanded application of the crime of breach of trust and potential litigious excess are overall issues," adding that "large corporations suggested that the duty of care for directors and the mandatory electronic general meetings be implemented first, with the other measures to be rolled out over time. The small and medium corporations generally suggested that for smaller unlisted companies, it would be good to provide a grace period concerning the duty of care for directors."
However, the proposal to abolish the special breach of trust crime, which has been mentioned as an alternative to potential litigious excess, will not be included in this amendment to the Commercial Act. According to Article 622 of the Commercial Act, those causing damage to a company through breach of trust may be subject to imprisonment for up to 10 years or a fine of up to 30 million won. Countries like the United States and Germany do not codify the crime of breach of trust but instead resolve such issues through private compensation, prompting the business community to raise the suggestion of abolishing the breach of trust crime to minimize management decision-making difficulties.
Commissioner Oh remarked, "There is no need to excessively define criminal responsibility, but I agree that if necessary, we should accept any issues raised for discussion," but added, "Now is not the time to discuss individual legal provisions. We will handle this during multiple discussions in the second half of the year as part of the regular National Assembly process."
Commissioner Kim also stated, "The courts do control principles of management decision-making. However, I think it may be discussed to codify case law to clarify these points. We can discuss this after the amendment to the Commercial Act."
The 'stock buyback' plan included in the Democratic Party's campaign promises will not be part of the current Commercial Act amendment and will be discussed separately in the future. Chairperson Oh noted, "The stock buyback issue has been excluded from this discussion. It is not included in this amendment to the Commercial Act. We will go through an additional discussion process on this matter in the second half of the year."
Future discussions will be led by the Democratic Party's 'KOSPI 5000 Task Force.' Commissioner Kim stated, "Once the Commercial Act is revised, there will be additional institutional reform tasks to address; we will proceed with the legislation while soliciting opinions from the business community through the KOSPI 5000 Task Force."
◇Possibility of consensus processing… opposition party also “proactively reviewing the Commercial Act amendment”
The Democratic Party has set a timeline for processing during the June National Assembly and has left open the possibility of a unilateral handling if necessary. Commissioner Kim emphasized, "There are issues concerning the KOSPI market and public trust," stating that "we will not drag our feet on this matter."
The People Power Party, which has been opposed to this as a party line, is also expected to turn its stance on the Commercial Act amendment, allowing for a consensus processing possibility. People Power Party Floor Leader Song Eon-seok stated, "Considering issues such as shareholder rights violations occurring recently in some corporations' capital increases, we have decided to proactively review the Commercial Act amendment." He added that there is a need for accompanying tax reforms that can provide incentives to both corporations and investors as part of the package.
Commissioner Oh urged, "Although it's late, if the People Power Party has that position, I hope they will handle it actively during discussions in the Legislative Affairs Committee now."