[Exclusive] Democratic Party Begins Simulation on Impact of '3% Rule' on Corporate Governance of Large Companies

Discussions with Business Circles Scheduled for the 14th and 15th

Kim Tae-nyeon, floor leader of the Democratic Party of Korea, is attending the National Assembly's audit countermeasure meeting held on the 8th and delivering an opening remark. Photo by Yoon Dong-joo doso7@

[Asia Economy Reporter Park Cheol-eung] The Democratic Party of Korea is analyzing the impact on companies through its own simulation regarding the separation of election of audit committee members and the restriction of voting rights of major shareholders (the 3% rule), which have emerged as the biggest issues among the 'Three Economic Laws,' and plans to engage in further dialogue with the business community. This is interpreted as an effort to make improvements on issues that have faced strong opposition from the business sector.

According to political circles on the 8th, the Democratic Party has begun simulation work related to the governance of major corporations and plans to meet again with the Korea Employers Federation (KEF) on the 14th to hear their opinions, followed by a discussion session on the 15th with the Democratic Research Institute, the party’s think tank, and key business representatives.

Yoo Dong-su, the senior deputy chairman of the Democratic Party’s Policy Committee, said in a phone interview with Asia Economy, "We are conducting simulation work to assess how much companies will be affected when voting rights are applied at 3% by combining the shareholding ratios of major shareholders and related parties according to the government’s proposal," adding, "We will basically examine the governance structures of companies required by law to establish audit committees." Under the Commercial Act, listed companies with total assets exceeding 2 trillion won must establish an audit committee instead of an auditor. It is expected that the impact on companies with high foreign investor shareholding ratios will be gauged when audit committee members are elected separately.

Yoo said, "We plan to meet with KEF again next Wednesday (the 14th) to listen to their views," and added, "Based on the government’s proposal, we hope to discuss the simulation results during the dialogue."

Considering the Democratic Party’s recent moves, it seems unlikely that the current law’s method of allowing major shareholders and related parties to each hold 3% voting rights will be maintained. However, the key issue will be to what extent the party will accept business demands regarding whether the 3% rule applied to the 'combined' shareholding, as proposed by the government, is appropriate.

The Democratic Party has formed a 'Fair Economy Three Laws Task Force (TF)' under the Policy Committee and began full-scale activities starting with a closed meeting on the 6th. The TF, mainly composed of incumbent lawmakers, plans to meet with KEF on the 14th, a day with relatively few National Assembly audit schedules. The following day, the Democratic Research Institute is expected to hold discussions with major companies and business research organizations. This appears to be an effort to gather as many opinions as possible. Yoo said, "We will listen not only to the business community but also to voices from civic groups, and if necessary, we plan to hold a forum."

The business community is concerned that participation of foreign speculative capital in boards of directors could expose technology or trade secrets. On the 6th, Democratic Party leader Lee Nak-yeon also stated at a meeting with business leaders, "I do not think it is wise to open a gap that allows foreign hedge funds to target Korean companies."

Reporter Park Cheol-eung hero@asiae.co.kr

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