Will Commercial Act amendment bring 'flood of litigation'?
Published: 14 Mar. 2025, 00:00
Audio report: written by reporters, read by AI
Despite fierce opposition from the business community, the National Assembly passed an amendment to the Commercial Act yesterday, spearheaded by the opposition party. The revised law expands the fiduciary duty of board of directors from serving solely “the company” to also include “the company and its shareholders” while mandating the introduction of electronic shareholder meetings. The People Power Party (PPP), which either opposed or abstained from the vote, has since announced plans to request a veto from Acting President Choi Sang-mok.
![An amendment to the Commercial Act was passed at the National Assembly in Yeouido, western Seoul, on March 13. [NEWS1]](https://koreajoongangdaily.joins.com/data/photo/2025/03/14/3941e802-fd0c-47f0-9fc9-6d6a321a7d8e.jpg)
The opposition parties, led by the Democratic Party(DP), pushed through the amendment under the banner of enhancing “K-Value,” arguing that addressing the so-called “Korea Discount” — the persistent undervaluation of the Korean stock market — requires reforming corporate governance, which is heavily concentrated in the hands of major shareholders, and strengthening the rights of minority investors. The DP has officially adopted this initiative as part of its policy agenda.
With the amendment’s passage, listed companies are now bracing for significant repercussions. While the objective of strengthening shareholder rights is understandable, the vague language surrounding “fiduciary duty to shareholders” raises the risk of increased litigation. By broadening the fiduciary duty of directors (Article 382-3 of the Commercial Act) to explicitly include shareholders, corporate executives may find themselves facing lawsuits simply because “the stock price fell.” Legal experts predict that while courts are unlikely to uphold such claims, the mere prospect of litigation could burden executives and create an environment of excessive caution, where decision-makers prioritize risk aversion over strategic investment, ultimately compromising competitiveness.
Efforts to enhance corporate governance and transparency are, in principle, welcome; provided they contribute to improving corporate competitiveness. Even Lee Bok-hyun, Chairman of the Financial Supervisory Service, has voiced concerns, stating, “Reverting discussions on enhancing shareholder value back to square one is utterly unacceptable. I will oppose the ruling party’s veto request, even at the risk of my position.” This underscores the urgency of boosting shareholder value. Meanwhile, the nation’s eight leading economic organizations have proposed amending the Capital Markets Act as an alternative. Their argument is that rather than modifying the Commercial Act, which could disrupt overall corporate management, introducing targeted regulations under the Capital Markets Act would be a more precise and effective approach to protecting minority shareholders.
For years, the business community has warned that the existing special misappropriation crime (Article 622 of the Commercial Act) already imposes excessive legal liability on executives, as management members can face prosecution if they are deemed to have caused financial harm to their company. The addition of an ambiguous “fiduciary duty to shareholders” clause may unleash a wave of lawsuits, further stifling corporate management. The number of domestic companies targeted by activist funds seeking short-term gains continues to rise annually. Subjecting companies to excessive litigation burdens is inconsistent with global standards and could discourage corporate investment and job creation. Efforts to enhance shareholder value should not come at the cost of exposing Korean companies to opportunistic speculators.
Translated using generative AI and edited by Korea JoongAng Daily staff.
An amendment to the Commercial Act was passed at the National Assembly in Yeouido, western Seoul, on March 13. [NEWS1]
The opposition parties, led by the Democratic Party(DP), pushed through the amendment under the banner of enhancing “K-Value,” arguing that addressing the so-called “Korea Discount” — the persistent undervaluation of the Korean stock market — requires reforming corporate governance, which is heavily concentrated in the hands of major shareholders, and strengthening the rights of minority investors. The DP has officially adopted this initiative as part of its policy agenda.
With the amendment’s passage, listed companies are now bracing for significant repercussions. While the objective of strengthening shareholder rights is understandable, the vague language surrounding “fiduciary duty to shareholders” raises the risk of increased litigation. By broadening the fiduciary duty of directors (Article 382-3 of the Commercial Act) to explicitly include shareholders, corporate executives may find themselves facing lawsuits simply because “the stock price fell.” Legal experts predict that while courts are unlikely to uphold such claims, the mere prospect of litigation could burden executives and create an environment of excessive caution, where decision-makers prioritize risk aversion over strategic investment, ultimately compromising competitiveness.
Efforts to enhance corporate governance and transparency are, in principle, welcome; provided they contribute to improving corporate competitiveness. Even Lee Bok-hyun, Chairman of the Financial Supervisory Service, has voiced concerns, stating, “Reverting discussions on enhancing shareholder value back to square one is utterly unacceptable. I will oppose the ruling party’s veto request, even at the risk of my position.” This underscores the urgency of boosting shareholder value. Meanwhile, the nation’s eight leading economic organizations have proposed amending the Capital Markets Act as an alternative. Their argument is that rather than modifying the Commercial Act, which could disrupt overall corporate management, introducing targeted regulations under the Capital Markets Act would be a more precise and effective approach to protecting minority shareholders.
For years, the business community has warned that the existing special misappropriation crime (Article 622 of the Commercial Act) already imposes excessive legal liability on executives, as management members can face prosecution if they are deemed to have caused financial harm to their company. The addition of an ambiguous “fiduciary duty to shareholders” clause may unleash a wave of lawsuits, further stifling corporate management. The number of domestic companies targeted by activist funds seeking short-term gains continues to rise annually. Subjecting companies to excessive litigation burdens is inconsistent with global standards and could discourage corporate investment and job creation. Efforts to enhance shareholder value should not come at the cost of exposing Korean companies to opportunistic speculators.
Translated using generative AI and edited by Korea JoongAng Daily staff.
with the Korea JoongAng Daily
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