Sangui Submits Opinions on Commercial Law and Fair Trade Act: "Please Respect the Basic Rules of the Market"

Source: Korea Chamber of Commerce and Industry

[Asia Economy Reporter Changhwan Lee] The Korea Chamber of Commerce and Industry (KCCI) announced on the 20th that it has submitted economic sector opinions on the proposed amendments to the Commercial Act and the Fair Trade Act, which are being promoted by the Ministry of Justice and the Fair Trade Commission, respectively.

While KCCI agrees with the legislative intent of establishing a fair economic order, it pointed out several issues: ▲ the potential infringement on the fundamental principles of stock companies due to the introduction of separate election of audit committee members under the Commercial Act ▲ the risk of reverse discrimination against holding companies that have cooperated in enhancing corporate transparency if internal transaction regulations under the Fair Trade Act are uniformly strengthened ▲ the possibility that the introduction of voting rights regulations on stocks contributed to public interest corporations could dampen corporate social contribution activities, and thus requested a reasonable reconsideration.

KCCI first argued that the ‘separate election of audit committee members’ system in the proposed amendment to the Commercial Act could violate the basic rules of stock companies. Audit committee members not only perform audit roles but are also members of the board of directors, the highest decision-making body of a company. If elected separately, the voting rights of major shareholders would be limited to a maximum of 3%.

In this regard, KCCI stated that electing management based on the majority rule according to shareholding is a fundamental principle of the ‘stock’ system, which is the core of market economy. Introducing a separate election system would undermine the basic rules of stock companies and is a system difficult to find in overseas legislation.

It also argued that the separate election system could be highly susceptible to abuse by speculative funds in money games. Speculative funds could split shares into 3% portions and unite to attack the company, then enter the board of directors and obstruct management by blocking various board agendas (such as venture investments, business restructuring), potentially engaging in greenmail (demanding high-priced purchase of attacker’s shares).

Regarding this, KCCI proposed either observing the external auditor designation system and the National Pension Service Stewardship Code, which will be implemented from this year, or empirically verifying the extent of transparency issues among listed companies with assets exceeding 2 trillion won before reconsidering the matter.

KCCI claimed that if the scope of internal transaction regulations is uniformly expanded as in the current Fair Trade Act amendment, companies affiliated with holding companies would also find it difficult to avoid regulation.

This is because holding companies aim to control other companies, with an average shareholding ratio of subsidiaries reaching 72.7% (growth companies 40.1%, unlisted companies 85.5%).

In this regard, a KCCI official said, "The current holding company system has been introduced and encouraged policy-wise to increase shareholding ratios to enhance corporate transparency, but companies that have complied with this policy by increasing subsidiary shareholdings may face regulatory reverse discrimination," and requested that transactions between affiliates belonging to holding companies be exempted from internal transaction regulations.

KCCI pointed out that restricting voting rights of public interest corporations could weaken the positive function of corporate social contribution. Stocks held by public interest corporations serve as friendly shareholders, and limiting voting rights would eliminate this function, reducing incentives for companies to contribute to public interest corporations, which would lead to a reduction in resources for public interest corporations and a contraction of social contribution activities.

There are no legislative precedents abroad that restrict voting rights of public interest corporations, and major countries actually allow a wider limit on stock holdings by public interest corporations than South Korea.

KCCI proposed an alternative to limit voting rights restrictions to insincere corporations if such restrictions are necessary. It suggested that a credible institution regularly evaluate the public interest activities of public interest corporations and restrict voting rights only when they fail to receive an ‘adequate’ certification and are rated as ‘limited’ or ‘rejected’.

KCCI also expressed concerns about the proposed amendment to the Fair Trade Act that punishes collusion through information exchange and presumes agreement to collusion if information exchange occurs, stating that companies could be punished even in cases of information exchange without actual intent to collude.

In practice, companies often exchange prices or sales performance data with competitors at the operational level to formulate management strategies. The possibility of punishing even such information exchange aimed at outperforming competitors increases external management risks, and if companies fail to prove ‘no agreement to collude,’ they could be punished without intent to collude.

Hyunsoo Kim, head of the Corporate Policy Team at KCCI, said, “Most companies agree on the necessity of establishing a fair economic order and are making efforts to improve. However, uniformly regulating all companies due to problems of some companies risks harming the good with the bad,” adding, “The economic sector is willing to accept what is acceptable, and we hope the government and the National Assembly will reasonably review economic sector alternatives regarding concerns about side effects.”

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