"Relaxation of Requirements for Appointment of 감사... Need to Examine Why It Was Not Possible Before Changing the Game Rules"

Online Policy Debate on Amendments to the Commercial Act and the Fair Trade Act

[Asia Economy Reporter Minji Lee] Opinions have emerged that before improving the system to relax the resolution requirements for the appointment of auditors (committee members) under the government's proposed amendment to the Commercial Act, measures to promote the exercise of voting rights should first be introduced, as the shareholder meeting could become dominated solely by controlling shareholders. The idea is that rather than changing the rules first because the game is not proceeding properly, it is necessary to first examine why it is not progressing.

On the 13th, Song Minkyeong, a senior researcher at the Korea Corporate Governance Service, stated this at an online policy discussion regarding the amendment. Song, who gave a presentation on the topic of "Amendments and Issues in the Commercial Act and the Fair Trade Act," presented key opinions on the amendment to the Commercial Act among the government's three fair economy laws (the amendment to the Commercial Act, the full revision of the Fair Trade Act, and the enactment of the Financial Group Integrated Supervision Act), specifically concerning the relaxation of resolution requirements for the appointment of auditors (committee members) and the multiple derivative suit system.

The government announced and is promoting the three fair economy laws in August as part of its 100 major national tasks to achieve a "vibrant fair economy." Regarding the relaxation of resolution requirements for the appointment of auditors (committee members) in the amendment to the Commercial Act, the government allows the appointment of auditors (committee members) by a majority of the voting rights of shareholders attending the general meeting if electronic voting is conducted. This is a supplementary measure because many appointments were rejected due to insufficient quorum. Previously, for an appointment to be made, the voting rights of shareholders attending the general meeting had to exceed half, and this had to be at least half of the total issued shares. However, this is conditional on the implementation of electronic voting.

Regarding this, researcher Song said, "Removing the requirement of more than half of the total issued shares is equivalent to removing the quorum requirement, which is tantamount to bluntly changing the rules of the game," adding, "It would be reasonable to first try various attempts to alleviate the problem of the game not proceeding and only change the rules as a last resort if those attempts fail."

He continued, "The causes and extent of the lack of quorum must be identified to prepare countermeasures against the problem of the general meeting becoming a 'shareholders' meeting of controlling shareholders only,' but detailed information has not been disclosed so far," he pointed out.

For example, if about 15% of opposing votes are the cause of the lack of quorum, it would be more appropriate to make those opposing parties vote in favor rather than changing the resolution requirements. Also, if pension funds or asset managers holding an 8% stake do not exercise their voting rights, it could be more reasonable to strengthen legal measures on the grounds that they have failed to fulfill their fiduciary duties to beneficiaries.

Researcher Song emphasized, "Measures to promote attendance at general meetings and the exercise of voting rights should be implemented first to advance the culture of the capital market," and added, "Relaxing resolution requirements should be considered only as a last resort."

Regarding multiple derivative suits, in response to concerns from the business community about the potential for excessive lawsuits by parent company shareholders, researcher Song drew a clear line, stating, "Even if parent company shareholders win lawsuits, the benefits do not directly go to the shareholders who filed the lawsuits, so it is practically difficult to abuse the system by filing excessive lawsuits." The multiple derivative suit system allows lawsuits to be filed against directors of subsidiaries when losses incurred by subsidiaries cause losses to the parent company. It protects parent company shareholders by enabling them to hold subsidiary directors accountable for illegal acts and promotes responsible management within companies.

He further predicted that it would be more efficient to extend the scope of application of the multiple derivative suit system from subsidiaries under the Commercial Act to subsidiaries under the Fair Trade Act. Previously, civic groups pointed out that the multiple derivative suit is only allowed between parent and subsidiary companies under the Commercial Act with a 50% shareholding, but in domestic corporate groups, companies with a 30% investment relationship, which generally form controlling relationships, could be excluded, thus narrowing the scope of application.

Researcher Song stated, "If the multiple derivative suit system can be a means to hold directors of companies controlled by the parent company accountable, then in addition to subsidiaries under the Commercial Act, holding companies established for the purpose of controlling subsidiaries (subsidiaries under the Fair Trade Act) should also be included in the mid-to-long term."

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