DP passes bill mandating shareholder protections, PPP urges veto

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DP passes bill mandating shareholder protections, PPP urges veto

Published: 13 Mar. 2025, 18:58 Updated: 19 Mar. 2025, 10:38

SHIN HA-NEE
[email protected]

Audio report: written by reporters, read by AI

An amendment to the Commercial Act was passed at the National Assembly in Yeouido, western Seoul, on March 13. [NEWS1]

The National Assembly passed a contentious bill to expand the duty of good faith for corporate board members on Thursday, spurring strong backlash from businesses.

The amendment to the Commercial Act is now pending approval from acting President Choi Sang-mok. As the liberal Democratic Party (DP) — which controls the legislature — pushed the measure through, the conservative People Power Party (PPP) and business lobbies are urging Choi to veto, saying the measure would “weigh significantly on the economy.”

Board directors are currently subject to a duty of loyalty to their company, compelling them to prioritize corporate well-being over personal gains in decision-making. The bill would expand the scope of that responsibility, adding a clause mandating that they “protect shareholders’ interests and treat them equally.” The intention is to prevent the owners of major stakes — such as a company's owning family — from sacrificing minority shareholders' gains for their own financial benefit.

An example of such a conflict of interest between retail shareholders and management was LG Energy Solution’s spinoff from LG Chem and subsequent initial public offering in 2022, which brought down the parent company’s share prices.

The vote was 184 to 91, with four of the 279 lawmakers present during Thursday's plenary session abstaining

DP lawmakers advocate that the latest amendment is a step toward improving corporate governance and bolstering shareholder protection, which would ultimately contribute to resolving the perceived undervaluation of domestic stocks, or the Korea discount.

The PPP and the business sector, however, are strongly opposing the bill, arguing that it will heighten legal risks, expose companies to external interference and hinder corporate growth.

In December, the government announced a plan to revise the Capital Markets Act instead of the Commercial Act, which would apply only to public companies and to a relatively smaller scope of operations.

But the DP railroaded the amendment to the Commercial Act at the parliamentary judiciary committee in February. While National Assembly speaker temporarily shelved the bill during last month’s plenary session, encouraging further discussions, the parties have failed to reach agreement on the issue in the time since.

Choi can exercise veto power within 15 days of the bill's passage in the National Assembly.

“We deeply regret the National Assembly’s passage of the bill, which the business sector has been constantly and repeatedly opposing,” said the Korea Chamber of Commerce and Industry in a statement Thursday, warning that the amendment could “put a significant burden on the economy” because legal concerns could discourage companies from making “aggressive and bold” investment decisions.

The Federation of Korean Industries argued that the bill would enable activist funds to demand excessive dividends and interfere with management while seeking short-term gains, “making it practically impossible for companies to wholly focus on business operations.”

Financial Supervisory Service Gov. Lee Bok-hyun also weighed in with a firm stance, voicing his opposition to the potential revocation of the bill.

Financial Supervisory Service Gov. Lee Bok-hyun, left, speaks during a conference in western Seoul on Feb. 13. [NEWS1]

“I have no choice but to oppose against [the acting president's potential veto] even if it puts my position on the line,” Lee told reporters in western Seoul on Thursday.

Before the plenary session, Rep. Kwon Young-se, interim leader of the PPP, warned that the party would “immediately request” a veto from the acting president “in order to protect our companies.”

BY SHIN HA-NEE [[email protected]]