[Exclusive] Next is the cumulative voting system... Ministry of Justice "Strongly agree, appropriate for companies with over 2 trillion won... will analyze the effects"

Last Month 26th, Judiciary Committee Subcommittee

On the 10th, a forum on improving corporate governance and directions for amending the Commercial Act was held at the National Assembly. Participants, including Park Ju-min, a member of the Democratic Party of Korea, and Lee Sang-hoon, a committee member of the Economic and Financial Center at the People's Solidarity for Participatory Democracy, are taking a commemorative photo.
Photo by Yoon Dong-joo doso7@

[Asia Economy Reporter Park Cheol-eung] The Ministry of Justice expressed strong support for the bill mandating cumulative voting to strengthen minority shareholders' rights to appoint directors, proposing its application to companies with assets exceeding 2 trillion won. They also decided to begin analyzing the effectiveness of the system upon its introduction.

Although the government's amendment to the Commercial Act excluded cumulative voting, the bill submitted by Democratic Party lawmakers includes it. In this regular session of the National Assembly, the separation of audit committee elections and multiple derivative lawsuits are expected to pass, and cumulative voting is likely to be a key topic in the next session. Opposition from the business community, concerned about the side effects of management disputes, is expected to intensify.

According to the transcript of the first subcommittee of the Legislation and Judiciary Committee held on the 26th of last month, then Vice Minister of Justice Ko Ki-young stated, "We are in strong agreement regarding the mandatory implementation of cumulative voting."

He further explained, "We reflected two items (multiple derivative lawsuits and separation of audit committee elections) in the amendment, and decided to exclude the rest for now, suggesting that after the amendment is implemented, the situation should be reviewed and discussed again."

Cumulative voting is a system where, when a company elects two or more directors, shareholders are given voting rights equal to the number of directors to be elected, rather than one vote per share. Minority shareholders can concentrate their votes on specific candidates. Although adopted in the current Commercial Act, it can be excluded by the articles of incorporation, so actual implementation cases are minimal. If mandated, it would change the principles of board composition and could have a greater impact than the separation of audit committee elections included in the government proposal. The business community strongly opposes this issue.

Democratic Party lawmaker Park Jumin included mandatory cumulative voting for listed companies designated by presidential decree when he proposed an amendment to the Commercial Act in October. Additionally, fellow party member Park Yong-jin proposed mandatory cumulative voting for all stock companies, and Justice Party lawmaker Bae Jin-gyo proposed it for all listed companies.

The Ministry of Justice supported Park Jumin's proposal. Former Vice Minister Ko said, "Applying it to all listed companies or all companies is excessively broad," adding, "It seems appropriate to apply it to listed companies of a certain scale."

He continued, "If applied to companies with assets exceeding 2 trillion won, as of February last year, out of 1,948 listed companies, 154 companies, about 7.9%, would be covered. These are leading companies, so I believe this could address corporate issues," expressing agreement with Park Jumin's proposal.

When Democratic Party lawmaker Song Ki-heon suggested, "It is necessary to simulate how many minority shareholders can be represented as directors through cumulative voting," former Vice Minister Ko responded, "We will conduct more empirical analysis and research."

He added, "Companies tend to stagger directors' terms and minimize the number of directors elected in a single vote, so to realize the effects of cumulative voting, the issues of staggered terms must also be reviewed."

The mandatory cumulative voting was also included in the Commercial Act amendment proposed by Kim Jong-in, the emergency committee chairman of the People Power Party, when he was in the Democratic Party in 2016. Gyeonggi Province Governor Lee Jae-myung has strongly criticized the exclusion of mandatory cumulative voting from the current government's amendment.

The business community strongly opposes cumulative voting, arguing that directors elected through it may pursue short-term profits rather than the company's long-term development and that it could trigger management disputes.

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