Why Is the Business Community Sensitive to the '3% Rule'? "Speculative Capital Attack" vs. "It's Okay If It's Not Illegal"

"Breaking the Basic Rules of the Corporation" vs "The Audit Committee as the Subject of Oversight"

Lee Nak-yeon, leader of the Democratic Party of Korea, and Sohn Kyung-shik, chairman of the Korea Employers Federation, attended the Democratic Party-Korea Employers Federation meeting held on the 6th at the Korea Employers Federation in Baekbeom-ro, Mapo-gu, Seoul, and posed for a photo before the meeting began. Photo by Yoon Dong-joo doso7@

[Asia Economy Reporter Park Cheol-eung] The controversy surrounding the 'Three Economic Laws' is centered on whether to adjust the so-called '3% rule,' which is the core of the amendment to the Commercial Act. The ruling party is maintaining the basic framework but is actively reviewing whether supplementary measures are needed by realistically assessing concerns about attacks from foreign speculative capital.

The government proposal requires audit committee members to be appointed separately from other directors and prevents the largest shareholder from exercising voting rights exceeding 3% by 'combining' shares held by special related parties. This stems from the view that since auditors are appointed from among directors under the influence of the largest shareholder, they cannot perform an independent role.

The business community argues that this violates the basic rules of joint-stock companies. Audit committee members are both auditors and members of the board of directors, and limiting the voting rights of the largest shareholder undermines the framework of majority-rule management selection based on shareholding.

Park Cheol-ho, a legislative and judicial committee specialist affiliated with the National Assembly Secretariat, pointed out in a review report on the Commercial Act amendment by Democratic Party lawmaker Park Yong-jin that "Shareholders exercising voting rights in director appointments is the most essential way for shareholders to participate in company management and realize control rights," adding, "Restricting this is a concern as it infringes on the essential content of shareholder rights, which are a type of property right."

He further stated, "Unlike non-executive auditors who supervise directors' execution of duties, audit committee members who also serve as directors still fundamentally constitute the board of directors, the company's decision-making body, which needs to be fully considered."

On the other hand, there is a contrasting view that the essential role of audit committee members is to check and monitor management rather than manage, making strengthening independence inevitable. The People's Solidarity for Participatory Democracy recently commented, "Audit committee members are not executive officers actually managing the company," and argued, "It is more reasonable to view them as entities that monitor and check whether managers operate efficiently based on rational standards to prevent damage to corporate value from the perspective of general shareholders, so independence and objectivity from controlling shareholders are more important."

They added, "As seen in the recent indictment of the Samsung C&T unfair merger case by the prosecution, we must not overlook that the top priority management goal of many companies has been the personal gain of the owners and controlling shareholders rather than increasing company value and corporate growth. This is the minimum device to prevent unfair and illegal decisions by corporate management."

The most realistic issue is the concern that it could serve as an attack route for foreign speculative capital. Sohn Kyung-shik, chairman of the Korea Employers Federation, mentioned, "Allowing foreign financial speculative capital and speculative forces to participate in the board of directors entails risks of exposing technology and trade secrets and disrupting smooth corporate operations."

This is also the focus of the Democratic Party. They plan to analyze the shareholding structures of various companies to assess how likely these concerns are to materialize and, if necessary, propose supplementary measures.

In this regard, CEO Score, a corporate performance evaluation site, conducted a survey once in 2017. Among 93 listed companies with assets over 2 trillion won subject to audit committee installation within the top 30 conglomerate affiliates, the domestic investors' (including largest shareholders, institutions, and strategic investors) shareholding ratio was 50.8%, while foreign institutional investors held 10.3%. If the largest shareholder's voting rights are limited to 3%, domestic voting rights would plummet by 36.2 percentage points to 14.6%, whereas foreign voting rights would decrease by only 0.8 percentage points to 9.5%.

It was noted that in 32 large companies (34.4%), including Samsung Electronics, the voting rights of foreign institutional investors would surpass domestic shareholding ratios.

Regarding this, Kim Ki-sik, policy chairman of The Future Research Institute (former Financial Supervisory Service chief), appeared on KBS Radio's 'Kim Kyung-rae's Strongest Current Affairs' and said, "Foreign investors mostly engage in portfolio investment exceeding 90%. These are funds managing investments worldwide, and since the 20th century, portfolio funds have never challenged management control."

He added, "Most hedge funds also follow portfolio funds, and without their support, they cannot act. Even if they claim their own shares, it is only 3% or 5%. If they do not commit illegal acts, foreign capital cannot challenge management control itself."

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