Despite Business Concerns and Opposition from the Opposition, the Ruling Party Pushes Ahead with the Original 'Three Regulatory Laws' Proposal

Policy for Handling During This Regular National Assembly Unclear in Consultation with Opposition
Business Community "Concerns Over Threats to Corporate Management Rights and Property Rights if 3% Rule Enforced"

[Asia Economy Reporters Park Cheol-eung and Lee Chang-hwan] Despite the political climate rapidly freezing due to the failure to select a candidate for the head of the High-ranking Officials' Crime Investigation Office (HCIO), the ruling Democratic Party of Korea (DPK) has reportedly decided to pass the so-called three corporate regulation laws?the Commercial Act, the Fair Trade Act, and the Financial Group Integrated Supervision Act?within this regular session of the National Assembly, causing extreme tension in the business community.

The party plans to base the bills on the government proposals but adjust necessary parts through negotiations with the opposition. However, with the People Power Party (PPP) even mentioning protests outside the parliament, the possibility of reaching an agreement remains uncertain.

Ultimately, there is a possibility that the bills could be passed unilaterally by the DPK. The business community intends to devote all efforts to persuading politicians until the end of the regular session on the 9th of next month, but if the ruling party pushes forward, there is practically no way to stop it.

According to political sources on the 23rd, during the subcommittee on bill examination of the National Assembly's Legislation and Judiciary Committee on the 17th, fundamental objections were raised by PPP lawmakers regarding the amendment to the Commercial Act, and it was decided to discuss it further later. The bill is scheduled to be revisited on the 25th, but if a fierce clash occurs over the HCIO Act amendment, which is the most contentious, it will be difficult to even bring other bills to the discussion table.

Kim Jong-in, the emergency committee chairman of the PPP, has strongly urged, saying about the three laws, "If they are relaxed, there is no need to amend them," but PPP lawmakers themselves have shown negative reactions.

According to the transcript of the Legislation and Judiciary Committee subcommittee on the 17th, regarding the major issues of separate election of audit committee members and the 3% voting rights cap for major shareholders, PPP lawmaker Yoo Sang-beom said, "There may be someone who owns 50% of the shares, but if the 3% rule is applied, wouldn't 47% disappear?" He added, "Comparing guaranteeing shareholder equality and the value of voting rights with restricting them, it only makes sense if there is a significant relative benefit that justifies infringing on such fundamental values. This is a very serious concern."

On the other hand, DPK lawmaker Song Ki-heon said, "The intention is to elect independent audit committee members who can somewhat escape the influence of major shareholders," and Ko Ki-young, Deputy Minister of Justice, stated, "It is merely an attempt to reflect the current spirit of the Commercial Act as it stands."

This reflects a difference in perspective at a fundamental level. There was no mention of supplementary measures such as recognizing 3% individually without aggregating shares held by major shareholders and related parties, or imposing mandatory holding periods on shares considering that foreign speculative capital generally holds stocks for a short term.

The DPK plans to focus on policies to overcome the economic crisis caused by the novel coronavirus disease (COVID-19) ahead of the by-elections in April next year after this regular session. It is reported that the party is strongly determined to pass reform legislation such as corporate regulation laws this time. A DPK official said, "We will try to pass the bills without significant deviation from the government proposals in the broad framework."

Yoo Dong-su, head of the Fair Economy 3 Laws Task Force of the Democratic Party of Korea (second from right), and Park Yong-man, chairman of the Korea Chamber of Commerce and Industry (right), exchange greetings at a policy meeting held on the 14th of last month at the Korea Chamber of Commerce and Industry in Jung-gu, Seoul.
[Image source=Yonhap News]

Business Community in Urgency Amid Ruling Party's Push to Pass Bills

The business community has become more urgent in response to the ruling party's push to pass corporate regulation laws. Since the ruling party has announced plans to pass the bills within the regular session ending on the 9th of next month, there are only about two weeks left to persuade the political circles.

Executives responsible for legislation from major economic organizations such as the Korea Employers Federation, the Korea Chamber of Commerce and Industry, and the Federation of Korean Industries have recently been spending more time at the National Assembly than in their offices. Not only economic organizations but also some companies are individually persuading lawmakers about the problems of the corporate regulation laws, mainly through their government relations officers.

Since mid-year, economic organizations have repeatedly met with the ruling party to convey the business community's concerns about the three corporate regulation laws. In particular, they have continuously advocated for the abolition of the 3% rule. They argue that if the 3% rule is implemented, issues such as the possibility of speculative capital infringing on management rights and violations of shareholder and property rights will arise.

Choi Wan-jin, Professor Emeritus at Hankuk University of Foreign Studies, pointed out, "If the major shareholder's voting rights are limited to 3% as in the government's amendment proposal and the separate election of audit committee members is enforced, the major shareholder's authority in board composition will be relatively weakened," adding, "This ultimately causes problems related to shareholder and property rights infringement."

The multiple derivative suit system is also a major concern for the business community. This system allows shareholders of a parent company owning more than 50% of a subsidiary's shares to file shareholder derivative lawsuits against subsidiary directors who commit illegal acts. Although it is intended to prevent major shareholders' abuses such as preferential transactions through subsidiaries, companies worry about excessive litigation and the resulting weakening of corporate management.

An official from an economic organization said, "We have continuously met politicians to inform them of the side effects of various regulatory proposals, including the 3% rule, and to persuade them to amend the bills, but the ruling party's push remains strong," adding, "Since there is still time left, we plan to continue visiting the National Assembly."

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