Korean businesses eye economic rebound, but brace for regulatory shake-up under new government

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Korean businesses eye economic rebound, but brace for regulatory shake-up under new government

Published: 04 Jun. 2025, 19:29 Updated: 05 Jun. 2025, 11:21

Audio report: written by reporters, read by AI

President Lee Jae-myung takes the oath of office in the Rotunda Hall of the National Assembly in Yeouido, Seoul, on June 4. [JOONGANG ILBO]

Korea’s business community is expressing cautious optimism for an economic rebound as President Lee Jae-myung's new administration takes office.

But at the same time, it is closely monitoring legal and regulatory changes that could pose new risks for companies since the liberal ruling party’s dominance in the legislature has raised expectations that contentious business-related bills — such as an amendment to the Commercial Act and a pro-labor law dubbed the “Yellow Envelope Bill” — could soon pass the National Assembly.

The Democratic Party’s (DP) proposed amendments to the Commercial Act, which were part of Lee’s presidential campaign pledges, are likely to pass the National Assembly within the month, according to sources in both business and political circles on Wednesday.

During his candidacy, Lee pledged to push the bill through within “two to three weeks” of taking office. The DP previously passed the amendment in March, but then-acting President Han Duck-soo vetoed the bill.

At the heart of the proposed amendment is a change to the fiduciary duty of corporate directors. The bill would expand this duty from the company itself to include shareholders, a move that would also require large firms to appoint a minimum number of independent directors and gradually implement separate elections for audit committee members.

In a report on Wednesday, law firm Yulchon described the amendment as a “cornerstone” of Lee’s pledge to ensure economic fairness and said it would likely become his first major economic legislation.

Despite the administration’s enthusiasm, Korea’s corporate sector remains wary.

President Lee Jae-myung, far left, announces his first appointments, including nominees for prime minister, intelligence chief and chief presidential secretary, at the presidential office in Yongsan District, central Seoul, on June 4. [NEWS1]

Business groups fear that broadening directors’ fiduciary duties could lead to a surge in shareholder lawsuits and excessive interference from activist foreign investors.

Major business lobbies have warned that the change could effectively “turn Korean companies into prey” for speculative capital.

Speculative capital refers to money invested with the primary goal of achieving short-term profits by taking advantage of fluctuations in market prices. Unlike long-term investments, speculative capital typically chases quick returns and is often associated with higher risk.

“Korea has virtually no defense mechanisms against hostile takeovers by speculative capital, so the Commercial Act amendment could suppress business activity,” said Choi Joon-sun, professor emeritus at Sungkyunkwan University Law School and former president of the Korean Commercial Law Association.

The Yellow Envelope bill also appears to be back on the table. Lee Han-joo, head of The Institute for Democracy and a likely candidate for policy chief in the new administration, said in an MBC Radio appearance Wednesday that the government would move forward with the bill “immediately.”

The DP had previously passed the bill twice during its time in opposition, only to have both attempts blocked by presidential vetoes.

The bill seeks to expand the legal definition of “employer” in the Labor Union Act to allow subcontracted workers to collectively bargain with parent companies. It would also restrict companies from claiming damages related to losses caused by strikes.

President Lee Jae-myung, then-Democratic Party leader, heads to the main chamber of the National Assembly in Yeouido, western Seoul, on Sept. 26, 2024, after attending an emergency rally held by opposition lawmakers to protest the rejection of bills including the Yellow Envelope Bill. [NEWS1]

Businesses argue the bill could encourage excessive labor action and weaken accountability.

Even during the former Moon Jae-in administration, similar concerns led to the bill’s failure. Park Hwa-jin, then vice minister of employment and labor, told a National Assembly committee in 2020 that the bill contained “many exceptional clauses that undermine core legal principles,” citing nearly two decades of unresolved debate.

Some also worry that the administration will strengthen the Fair Trade Commission’s investigative powers, further increasing legal pressure on businesses.

The DP’s campaign platform calls for stricter scrutiny of practices like internal transactions that benefit chaebol — the owner families of large business conglomerates — and proposes fines equivalent to illicit gains for violations of fair trade laws.

In his inauguration speech Wednesday, President Lee pledged to lead a “practical, market-oriented government” that supports rather than controls business.

“The government will encourage and support, not manage and regulate,” he said.

“With Trump-era tariff policies and other internal and external challenges, the business environment is far from easy,” said a source in the finance industry, who requested anonymity. “For the industrial ecosystem to thrive, we hope the government will gather input from stakeholders before pushing ahead with issues that are causing major concern for companies.”

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.
BY NA SANG-HYEON [[email protected]]