Ruling Party Moves to Amend Commercial Act... Park Yong-jin: "Shareholders to Dismiss Unqualified Directors"

Park Yong-jin to Propose "Amendment to the Commercial Act" on the 2nd, Including a System to Dismiss Unqualified Directors
Chu Mi-ae: "Chaebol Reform is Essential for South Korea's Economic Growth"
Cho Sung-wook: "Amendment to the Commercial Act Must Accompany Qualitative Improvement of Corporate Governance"
Businesses and Industry Express Concerns... "Regulatory Bills Should Be Discussed After Overcoming COVID-19"

[Image source=Yonhap News]

[Asia Economy Reporters Wondara and Seong Giho] The Democratic Party of Korea is pushing for amendments to the Commercial Act in the 21st National Assembly. Park Yongjin, a Democratic Party lawmaker who is expected to 'return' to the National Assembly's Political Affairs Committee, is preparing an amendment to the Commercial Act that would allow shareholders to dismiss 'unqualified directors.' As the ruling party's lawmakers began actively moving to amend the Commercial Act even before the National Assembly convened, the business community has expressed concerns that the burden on companies will increase amid the economic difficulties caused by the novel coronavirus disease (COVID-19) crisis.

On the afternoon of the 2nd, at a forum held at the National Assembly titled "Focusing on the Proposed Amendments to the Commercial Act: Improving Corporate Governance," Rep. Park stated, "The current system lacks mechanisms to sanction or dismiss unqualified inside or outside directors," adding, "We aim to establish a system through amendments to the Commercial Act that would allow shareholders to propose the dismissal of directors who are unqualified."

If this bill is legislated, business owners and executives who have been convicted of embezzlement or breach of trust will not be able to maintain their director positions during trials or probation periods after sentencing. A representative from Rep. Park's office explained, "The dismissal proposal system for directors, which was not included in the Commercial Act amendment bill discarded in the 20th National Assembly, has been newly added," and added, "We are also coordinating activation measures regarding cumulative voting, multiple derivative lawsuits, and electronic voting systems." At the forum, mandatory cumulative voting for listed large corporations, the exclusive shareholder right to file derivative lawsuits holding directors accountable even with just one share, mandatory electronic and written voting systems, and the introduction of labor directors were also discussed as agenda items.

Justice Minister Choo Mi-ae and Fair Trade Commission Chairman Cho Sung-wook attended the forum to lend their support. Minister Choo said, "For new growth in the Korean economy, reforming conglomerates through improved corporate governance is an essential task," and added, "The Ministry of Justice will listen carefully to the discussions at today's forum and strive to establish a fair and just governance structure." Chairman Cho also emphasized, "Earlier this year, the enforcement decree of the Commercial Act was amended to strengthen qualifications for outside directors and expand disclosure requirements for executive candidates," and stated, "I believe that amendments to the Commercial Act must be made in parallel to improve the quality of corporate governance."

Within the ruling party, there are expectations that the comprehensive amendment to the Fair Trade Act, which was a campaign pledge of President Moon Jae-in, will be re-pursued. On the 15th of last month, Kim Tae-nyeon, the Democratic Party floor leader, said at the 7th Euljiro Committee meeting on livelihood issues held at the National Assembly, "Unfortunately, several bills to realize a fair economy are currently pending in the National Assembly," and added, "In the 21st National Assembly, we will engage in more active dialogue and persuasion with the opposition party to complete the legislative tasks for a fair economy." The comprehensive amendment to the Fair Trade Act, which was discarded due to term expiration in the 20th National Assembly, included provisions such as abolishing the exclusive prosecution rights of the Fair Trade Commission, strengthening regulations on internal transactions, and raising mandatory shareholding ratios for subsidiaries and sub-subsidiaries. The amendment to the Win-Win Cooperation Act, which also failed to pass in the 20th National Assembly, is also expected to have a high chance of passage in the 21st National Assembly.

Meanwhile, the business community and companies are expressing concerns about these moves by the ruling party. An executive from one of the four major conglomerates said, "It is not right to impose regulatory bills that have adverse effects amid the economic difficulties caused by COVID-19," and added, "Bills that could burden companies should be discussed more cautiously after overcoming the COVID-19 crisis." A representative from an economic organization pointed out, "Some systems such as the separate election of audit committee members and multiple derivative lawsuits are rarely seen in foreign countries," and warned, "If systems that are absent or rare abroad are introduced all at once, the business environment will deteriorate further."

This content was produced with the assistance of AI translation services.