Ruling and Business Circles Disagree on Fair Economy 3 Laws: "Property Rights Violation" VS "Responsible Management"

'Public Debate on Legislative Issues of Fair Economy'

Woo Tae-hee, Executive Vice Chairman of the Korea Chamber of Commerce and Industry (fifth from the left), and Yoo Dong-soo, Chairman of the Fair Economy TF (eighth from the left), are taking a commemorative photo with the participants.

[Asia Economy Reporter Dongwoo Lee] On the 3rd, the government ruling party and the business community gathered in one place to discuss the so-called 'Fair Economy Three Acts' amendment bills, including the Commercial Act, the Fair Trade Act, and the Financial Group Supervision Act. The meeting was arranged to review the practical difficulties faced by the business community from a legal perspective if the amendments are implemented.

Yoo Dong-su, chairman of the Democratic Party's Three Acts Task Force (TF), said in his opening remarks at the 'Fair Economy Legislative Issues Public Forum' held at the National Assembly Members' Office Building in Yeouido, "I understand that companies are more worried than expected," adding, "We will listen carefully to the forum and reflect it well in legislation." Woo Tae-hee, Executive Vice President of the Korea Chamber of Commerce and Industry, also urged, "I hope many alternatives will be proposed to reduce the burden on companies and that discussions will be gathered in that direction."

The forum, composed of experts, sharply clashed from the beginning over the '3% rule' included in the first session on the Commercial Act amendment bill. The amendment mandates the separate election of audit committee members who have the same influence as inside directors and limits the voting rights of major shareholders and related parties to 3% by aggregating their shares (the 3% rule).

From the business community's perspective, experts expressed concerns about the potential infringement of property rights by the 3% rule and the defense of major shareholders' management rights. Professor Kwon Jae-yeol of Kyung Hee University Law School stated, "Considering shares exceeding 3% as non-existent when appointing audit committee members is a very serious problem," and argued, "Applying the 3% rule to shareholder proposals makes it difficult to defend management rights."

Professor Han Seok-hoon of Sungkyunkwan University Law School also emphasized, "Restricting the voting rights of 3% shareholders from the director appointment stage is a passive infringement of the essential content of shareholder rights." Jung Woo-yong, Vice Chairman of the Korea Listed Companies Association, proposed an alternative, saying, "After empirical analysis, the 3% should be raised to a realistic level that allows management defense, and a grace period should be given for companies to adapt."

On the other hand, lawyer Myung Han-seok of Hwahaeon Law Firm countered, "If the 3% rule is problematic among the audit appointment requirements, the audit committee can be abolished, and the audit system can revert to introducing cumulative voting," adding, "The bill should be promoted by judging whether the opinions of shareholders other than controlling shareholders are reflected."

Professor Kim Woo-chan of Korea University Business School said, "There are no overseas legislative cases that limit major shareholders' voting rights to within 3%," and added, "Israel and Italy do not recognize any voting rights of major shareholders and related parties combined." He emphasized, "In Italy, an external shareholder-nominated director must be appointed unconditionally. In Israel, it is not mandatory to appoint, but when exercising voting rights, the major shareholder's voting rights are limited to 0%."

Yoo Dong-su, Chairman of the Democratic Party's Fair Economy TF, is attending the public discussion on the legislative issues of the Fair Economy 3 Laws held at the National Assembly on the 3rd, delivering opening remarks. Photo by Yoon Dong-joo doso7@

In the second session, debates continued regarding the 'Expansion of Internal Transaction Regulation Targets' in the Fair Trade Act amendment bill. Currently, companies belonging to a publicly disclosed group are subject to internal transaction regulations when trading with affiliates in which the controlling family holds 30% or more of listed shares or 20% or more of unlisted shares. However, the amendment expands this to companies where the controlling family holds 20% or more of listed or unlisted shares, and subsidiaries where companies with 20% or more controlling family shares hold more than 50%.

Choi Seung-jae, Director of the Legislative Research Institute of the Korean Bar Association, pointed out, "Only transactions between companies inside and outside the holding company framework should be regulated, and transactions among companies within the holding company should be exempted from regulation."

Professor Joo Jin-yeol of Pusan National University Law School emphasized, "No country regulates large business group governance and self-serving transactions under competition law; instead, they regulate through duties of loyalty and good faith," adding, "Even with current regulations, the government can prevent unfair internal transactions it is concerned about." Professor Min Se-jin of Dongguk University Economics Department also argued, "Ultimately, this expands regulation and increases the costs companies must bear," and "Especially, the policy instability grows as the stance was reversed after encouraging holding company compliance."

On the other hand, Professor Lee Hyuk of Kangwon National University Law School said, "Lowering the shareholding ratio to 20% is considered one way to prohibit private interest appropriation," but added, "However, if expanded to 20%, many companies will fall under this, so this part needs to be carefully considered."

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