[Opinion] Who Exactly Is Opposing the 'Fair Economy 3 Acts'?

Professor Kim Woo-chan, Korea University Business School (Director of the Economic Reform Research Institute)

A country where one can secure control rights dozens of times greater than their own equity through pyramid and circular shareholding, a country where there are no sanctions or even proper tax obligations for passing wealth down by funneling work orders to children’s companies, a country where stocks donated to public interest corporations are exempt from gift tax even when used not for public interest projects but to strengthen the controlling family’s dominance, a country where the board of directors can be filled with people who cater to the controlling family, turning it into a rubber stamp, a country where shareholders cannot properly claim damages even if executives commit breach of trust or embezzlement, a country where the money of insurance policyholders is concentrated in a single stock to secure the controlling family’s control rights and is neglected under the pretext that no additional capital reserves are needed because it is not risky?this is the legislative intent behind the so-called Fair Economy 3 Acts, which passed the Cabinet meeting on the 25th of last month, urging us to take a step toward a better country instead of remaining in such a nation.

We know well which groups oppose this legislative intent. They are the controlling family themselves and their children, their loyal retainers who share their fate, and some leading figures who act as spokespersons for the controlling family due to their positions as outside directors. Since the 1997 financial crisis, these groups have consistently opposed chaebol reform and corporate governance improvements not out of concern for the company or national economy’s well-being, but for their own private interests. The problem is that their voices are so loud that they influence not only conservative parties but also progressive parties and the government.

This reality is clearly confirmed through the contents of the Fair Economy 3 Acts. Although the shareholding requirements for subsidiaries of holding companies are strengthened, they do not apply to existing holding companies and only apply to holding companies newly established or converted after the law’s enforcement. In the case of circular shareholding, voting rights are restricted, but this does not apply to existing mutually invested business groups and only applies to those newly designated after the law’s enforcement. The multi-representative derivative suit system is introduced, but it applies only when a 50% investment is made based on the parent-subsidiary standard, not the usual 30% investment standard for forming control relationships. The separate election system for audit committee members is reintroduced, but it applies only to one or more audit committee members, not all members. The financial group supervision system is introduced, but even if existing investments in non-financial affiliates are not resolved, the burden of capital increase is reduced if good scores are obtained in subsequent internal control or risk management system evaluations. This is similar to a high court judge’s stance of “It is clear that a bribe was given, but since the person promises not to give bribes in the future, let’s reduce their sentence.”

Furthermore, the government accepted one of the business community’s requests through the Fair Economy 3 Acts. The amendment to the Commercial Act includes a provision that audit or audit committee members can be appointed with the approval of a majority of attending shareholders, assuming electronic voting is conducted. This deletes the requirement of approval by one-fourth of the total issued shares without sufficient review. The fundamental reason companies have failed to appoint audit or audit committee members since the abolition of shadow voting by the Korea Securities Depository lies in companies’ insufficient efforts to encourage small shareholders to attend general meetings. The fact that the number of companies with rejected proposals decreases as the general meeting convocation period lengthens proves this. Also, from next year, it will be possible to hold general meetings in April after submitting business reports at the end of March, greatly alleviating the concentration of general meeting dates. The amendment was hastily proposed without observing this effect. The most worrisome point is that audit or audit committee members can be appointed with the approval of only the controlling family at a general meeting attended solely by the controlling family.

Thus, the Fair Economy 3 Acts proposed by the government were drafted from the start reflecting the business community’s positions in several places. They are far from the excessive regulation claimed by the business community. Rather than burdening companies, these laws reduce their burdens. They ensure that the board of directors makes decisions solely for the company’s benefit, prevent the company’s valuable funds from being wasted as investments unrelated to business content, and protect shareholder interests to encourage more investment in the company. It is clear who the Fair Economy 3 Acts are for and who the business community opposes them for.

Kim Woo-chan, Professor at Korea University Business School (Director of the Economic Reform Research Institute)

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