Vice Chairman Kwon Tae-shin: "Excessive Regulation Drives Out Companies and Destroys Jobs"

Kwon Tae-shin, Former Vice Chairman of FKI, Asia Economy Interview, Sharp Criticism on Successive Regulatory Bills
"Indiscriminate Accusations and Punitive Damages Are Excessive... Are Companies Being Forced Overseas?"
"Korea Going Against Developed Countries, Job Losses Inevitable"

Kwon Tae-shin, Vice Chairman of the Federation of Korean Industries, is being interviewed by Asia Economy on the 25th. / Photo by Moon Ho-nam munonam@

[Asia Economy reporters Changhwan Lee and Dongwoo Lee] "Advanced countries are continuously removing corporate regulations to revive their economies, but Korea is doing the opposite. If excessive regulations continue to pour in as they are now, companies will inevitably move overseas, and domestic jobs will keep decreasing."

Vice Chairman Kwon Tae-shin of the Federation of Korean Industries (FKI) made these remarks during an interview with Asia Economy on the 25th at his office in the FKI building in Yeouido, Seoul. He stated, "Companies are struggling due to the novel coronavirus disease (COVID-19), and the government and National Assembly have recently tightened regulations further, creating a very difficult situation," expressing strong criticism toward the government and legislature.

◆Corporate Regulation Laws: Unfair Laws Focused Only on 'Minority Shareholders'

Vice Chairman Kwon particularly pointed out the amendments to the Commercial Act, the Fair Trade Act, the class action system, and punitive damages system, which the government and ruling party are pushing forward, as representative regulations that companies are concerned about. He sharply criticized these as regulations excessively focused only on 'minority shareholders.'

Audit committee members are key personnel in the board of directors, the highest decision-making body of a company, and can be involved not only in audits but also in corporate management. Currently, audit committee members are selected from directors appointed by major shareholders, but according to the government's amendment to the Commercial Act, companies will have to elect at least one audit committee member separately from directors at the shareholders' meeting. Moreover, major shareholders' voting rights will be limited to only 3%, which is criticized for excessively strengthening the power of minority shareholders.

"Similar incidents to the 2004 SK management rights attack by the foreign fund Sovereign could occur frequently," Vice Chairman Kwon argued. At that time, Sovereign Asset Management split its 14.99% stake in SK into five funds, each exercising 2.99% voting rights. Based on high voting rights, Sovereign threatened management rights by demanding the resignation of SK executives, opposing support for troubled affiliates (SK Global), and calling for improvements in corporate governance.

He also mentioned that the multiple derivative lawsuit system is problematic. If introduced, shareholders of a parent company holding only 1% (0.01% for listed companies) of shares can file derivative lawsuits against directors of subsidiaries.

Vice Chairman Kwon expressed concern, saying, "The multiple derivative lawsuit system enables corporate destabilization with a small shareholding. If introduced together with the class action system, Korea will become a litigation paradise for companies." The FKI estimated that the litigation risk for listed companies could increase up to 3.9 times due to the multiple derivative lawsuit system.

He also argued that the government's amendment to the Fair Trade Act, which strengthens regulations on holding companies and abolishes the exclusive right to file complaints, is excessive regulation. Vice Chairman Kwon said, "Expanding mandatory shareholding ratios for subsidiaries and sub-subsidiaries drastically increases the cost of converting to holding companies and raises the cost of newly incorporating subsidiaries and sub-subsidiaries, consuming funds that should be used for investment and job creation in securing shares."

According to the FKI, as of last year, among 34 business groups restricted from cross-shareholding, if 16 non-holding company business groups convert to holding companies, approximately KRW 30 trillion would be additionally required for share acquisition, and the resulting job loss is expected to reach 238,000.

Regarding the abolition of the exclusive right to file complaints, Vice Chairman Kwon said, "Anyone will be able to directly file complaints against companies without going through the Fair Trade Commission, which will cause indiscriminate complaints by competing businesses and overlapping investigations by the Fair Trade Commission and prosecutors, leading to great confusion."

◆Excessive Regulations Will Lead to Job Losses

The class action system and punitive damages system being promoted by the Ministry of Justice are also criticized as unreasonable regulations.

Vice Chairman Kwon said, "It is obvious that excessive lawsuits will occur due to the class action system, and even the strongest companies will suffer enormous damages. As a result, companies will refrain from pursuing new businesses and investments, shrinking their management activities."

He added, "Those who benefit from the class action system are not the victims but litigation experts such as lawyers. For example, if a class action wins and receives KRW 100 billion in damages, lawyers take more than KRW 60 billion, and tens of thousands of victims share the remainder." He pointed out, "Although many countries like the U.S. and Europe have class action systems, negative perceptions are growing due to serious side effects."

Regarding punitive damages, he said, "Currently, companies face fines and CEOs can be imprisoned under various laws if they commit wrongdoing, and civil lawsuits also exist. Adding state-imposed damages of 5 to 10 times is double or triple regulation. Companies, fearing damage lawsuits, will end up hoarding money, not investing, and reducing jobs."

He also identified the amendment to the Labor Union Act, recommended by the International Labour Organization (ILO), as a major law that increases the burden on companies. Vice Chairman Kwon emphasized, "Since democratization in 1987, labor unions, once perceived as weak, have become the most powerful organizations worldwide. Just as unions can strike, employers should be allowed to use replacement workers during strikes to ensure labor and management are on equal footing according to international standards."

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