"Cost VS Benefit"... Diverging Evaluations of the Fair Economy 3-Law Amendment Proposal

[Asia Economy Reporter Eunmo Koo] Conflicting opinions have been raised regarding the costs and benefits of the proposed amendments to the Commercial Act and the Fair Trade Act concerning corporate governance.

The Korea Corporate Governance Service and the Korea Capital Market Institute held an online policy forum on the 13th focusing on the amendments to the Commercial Act and the Fair Trade Act.

At the forum, Professor Seok-Hoon Kang of the Department of Economics at Sungshin Women’s University argued that there is a lack of consensus on the ideal corporate governance and considering that the social goals of corporate governance policies are to enhance corporate sustainability and create jobs, the current proposals have clear costs but uncertain benefits, or in many cases, costs outweigh benefits, thus requiring a cautious approach.

Professor Kang stated, “For example, regarding the multiple derivative suits, the business community opposing the introduction claims that lawsuits will be rampant, whereas supporters argue that lawsuits will be almost nonexistent, presenting conflicting claims. In such a situation, it is difficult to accurately calculate what benefits exist and, if benefits exceed costs, by how much.”

Professor Ju-Seon Yoo of the Department of Public Talent at Kangnam University also expressed concerns about potential side effects such as deterioration of the international competitiveness of Korean companies, contraction of investment activities by corporate managers, and capital flight due to frequent intervention by foreign speculative capital, evaluating that “from an overall perspective, the amendments will lead to negative outcomes.”

On the other hand, counterarguments were raised that benefits outweigh costs. Professor Woo-Chan Kim of the Department of Business Administration at Korea University first stated, “Although there is no perfect answer to governance, at minimum, the board of directors should effectively check the management, and company funds should not be used for the controlling shareholder’s private interests. I support the intent and direction of the current amendments,” adding, “In fact, the current amendments are more of a pro-corporate law protecting companies from management rather than a law regulating companies.”

Professor Kim emphasized, “Since the amendments slightly reallocate authority from controlling shareholders to the remaining shareholders, there are no costs and the benefits are positive.” He explained, “The costs cited by the business community refer to the holding company having to purchase shares of subsidiaries, but this is merely exchanging cash for shares and not a loss. The funds used to purchase shares go to other shareholders who sold their shares, and those shareholders then invest the funds elsewhere, providing capital to our economy and increasing employment.”

Former Bareunmirae Party lawmaker E-Bae Chae also stated, “From the perspective that management rights are not to be protected but are subject to challenge and competition, the current amendments represent a low level of regulation, so I hope they will be revised in a stronger direction during the legislative process.”

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