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DP takes 'pass first, revise later' stance on commercial code amendment, much to business community's chagrin

Published: 30 Jun. 2025, 19:16

Democratic Party policy chief Jin Sung-joon, center, speaks during a meeting with vice chairs of Korea’s six major business lobbies at the National Assembly in Yeouido, western Seoul, on June 30 to hear their views on the party’s push to amend the commercial code. [YONHAP]

The Democratic Party (DP) is standing by its “pass first, revise later” stance on a controversial commercial code amendment despite pleas from Korea’s business community to reconsider. The president’s party reaffirmed its intent to push ahead with the legislation and deal with any side effects through supplementary laws at a later date.

The business community is increasingly concerned about potential side effects, such as a surge in breach-of-trust lawsuits, as the opposing People Power Party (PPP), which had long opposed the commercial code amendment, has now signaled a more open stance.

On Monday, Jin Sung-joon, the DP’s policy chief, met with the vice chairs of Korea’s six major business lobbies at the National Assembly to discuss the legislation.

“While business leaders are concerned about management burdens that could come with these changes, the passage of the amendment could catalyze a stock market rebound,” Jin said. “We’re willing to revise or supplement the law later if the concerns raised do materialize.”

The amendment focuses on expanding directors’ fiduciary duties from the company itself to include its shareholders, an effort primarily aimed at protecting the interests of all shareholders. Other proposals under review include mandatory electronic shareholder meetings, expanded cumulative voting and a so-called “3 percent rule” that would cap voting rights for the largest shareholder and related parties when electing audit committee members.

The DP successfully passed a version of the bill in the National Assembly last year, but then-Acting President and Prime Minister Han Duck-soo vetoed it. With the DP now holding a supermajority, the bill is expected to pass during the next plenary session on July 3.

Business groups fear the changes could expose company directors to a flood of lawsuits from minority shareholders and encourage hostile maneuvers from foreign hedge funds.

In a report released Monday, the Korea Listed Companies Association warned that expanding fiduciary duty to all shareholders could paralyze decision-making, especially when the interests of minority shareholders conflict with those of the company or other shareholders.

In response, business representatives called for accompanying legislation to soften the legal risks, including limiting criminal liability for breach of fiduciary duty and codifying the “business judgment rule,” which protects directors from liability when acting in good faith.

“Measures should be considered to prevent excessive litigation, including the repeal of certain breach-of-trust provisions prone to abuse, the incorporation of the business judgment rule — established through court rulings — into the commercial code alongside fiduciary duty clauses, and the introduction of safeguards to protect managerial control,” said Park Il-joon, vice chair of the Korea Chamber of Commerce and Industry.

Despite these concerns, the DP appears determined to pass the bill first. Oh Gi-hyoung, a DP lawmaker who chairs the party’s Kospi 5000 Special Committee, said, “We’ve heard various concerns from companies that the penalties might be too harsh. We’ll revisit those issues in the regular session later this year.”

Business leaders, who saw Monday’s meeting as their last chance to delay the bill, expressed disappointment.

“We asked them to reconsider the legislation, but the DP emphasized that they’ll move ahead and make changes only afterward,” one attendee told the JoongAng Ilbo. “We’re still very concerned, especially since there’s no clear timeline or plan for follow-up measures.”

The PPP, which had previously opposed the amendment, also shifted its stance, adding to corporate unease. While PPP floor leader Rep. Song Eon-seog warned that the bill could result in “excessive regulation targeting private companies,” the business community now fears it faces a de facto policy vacuum with little recourse.

“If the DP, now a dominant majority, pushes ahead with this revision, there’s little the corporate sector can do,” said Choi June-sun, a professor emeritus of law at Sungkyunkwan University and former president of the Korea Commercial Law Association. “The only viable option is to swiftly pass the promised supplementary legislation, including easing criminal liability for breach of fiduciary duty.”

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