[NEWS ANALYSIS] Ruling party refuses to budge on business reform bills

Ruling party leader Lee Nak-yon, fourth from right, poses with business leaders on Tuesday at the office of the Korea Employers Federation in Mapo District, western Seoul. [YONHAP]

Lawmakers and business leaders have fallen out over the government’s move to introduce a set of rules aimed at tightening scrutiny of big corporations and hand more rights to minor shareholders and consumers.

Ruling party leader Lee Nak-yon met the executives of major conglomerates to discuss the controversial bills that passed at a cabinet meeting back in August.

During his visit to the Korea Enterprises Federation (KEF), a business lobbying group, Lee talked to Sohn Kyung-shik, head of the federation, and representatives from Samsung Electronics, LG U+, Lotte, SK, Hyundai Motor and Hanwha Solutions.

Lee told the participants that the government's direction won't change, emphasizing that the laws are not intended to squeeze corporations.

Sohn, however, requested that adjustments or delays are needed since many companies already face a multitude of challenges associated with the coronavirus pandemic.

Controversial revisions

The subject of debate is a package of revisions to the Commercial Act and the Fair Trade Act and the introduction of a new regulation to supervise financial companies without holdings units.

One of the amendments to the Commercial Act aims to allow shareholders of a parent company to file a lawsuit against an affiliate when they hold more than 1 percent of the shares issued at the parent company.

Another revision ensures a separate nomination process for an auditor independent of the selection process for board members. Presently, an auditor is appointed from a pool of board members, a practice that the government says erodes transparency.

Of the revisions, one of the most controversial involves extending the so-called 3 percent rule that limits the voting rights of the largest shareholders to 3 percent. Currently, the regulation is applied when selecting an auditor, but the proposal will extend the condition to nominations of board members.

As for the Fair Trade Act, the proposal seeks to strip the Fair Trade Commission (FTC), an antitrust regulatory agency, of the exclusive right to launch investigation into certain business irregularities such as price rigging. Presently, only when the FTC has filed a complaint with the prosecution is an investigation launched into price-fixing cases.

With the amendment, those affected by unfair business transactions can directly file a lawsuit with the court without reporting it to the FTC.

Another revision creates a new regulatory framework for financial companies without holdings units. Groups with two or more financial affiliates and over 5 trillion won ($4.3 billion) in assets are subject to the regulation.

The bills passed at the cabinet meeting in August and have been submitted to the National Assembly. The ruling Democratic Party vowed to pass the package of bills within 100 days of the opening of the regular session that began on Sept. 1.

Business operation

The business circle believes that some of the new rules will make them more vulnerable to external disruptions such as insurgent moves by activist funds.

The representatives and business lobby groups including Sohn from KEF and the Korea Chamber of Commerce and Industry expressed concerns about the amendments aimed at further limiting the voting rights of large shareholders because it can open the door for activist investors to increase their influence and interfere with management.

As for the separate nomination of an auditor, Joo Ho-young, floor leader of the main opposition People Power Party, cited a similar concern, saying that it will allow foreign activist funds or competitors to upend management structures.

Industry representatives also added that the removal of the FTC’s exclusive right of investigation could increase the burden and financial costs related to compliance at a time when many companies have suffered a downturn in profit due to the pandemic.

Yet regardless of the opposition, as the ruling party holds the majority needed for the passage of a bill, nothing is likely to change. Some of the main opposition party members have also expressed approval for the legislation, so it is extremely unlikely to be overturned.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]