Half of Listed Companies Say They Will Reconsider or Cancel M&A if Director Fiduciary Duty Expands

KCCI Surveys 153 Listed Companies
Concerns Rise Over Expanded Litigation and Embezzlement Penalties

More than half of listed companies said they would reconsider or cancel their merger and acquisition (M&A) plans due to the amendment of the Commercial Act, which expands the duty of loyalty of directors to include shareholders in the company.

Seoul Jung-gu Korea Chamber of Commerce and Industry Korea Chamber of Commerce Building exterior. [Photo by Korea Chamber of Commerce and Industry]

On the 12th, the Korea Chamber of Commerce and Industry announced that a survey conducted from the 3rd to the 7th among 153 domestic listed companies showed that more than half of the respondents would either reconsider (44.4%) or withdraw/cancel (8.5%) their M&A plans if the duty of loyalty of directors under the Commercial Act is expanded.

66.1% of the responding companies predicted that the amendment to the Commercial Act would hinder the M&A momentum not only for their own companies but also for the entire domestic corporate sector.

Companies expressed concerns that expanding the duty of loyalty of directors would increase their responsibilities. 61.3% anticipated that shareholder derivative lawsuits and criminal penalties for breach of trust would expand with the introduction of the system. The Korea Chamber of Commerce and Industry explained that since the current standards for breach of trust under criminal law are ambiguous, increasing directors’ responsibilities could discourage risky investments from a long-term perspective. Additionally, many companies worried about practical confusion such as the inability to distinguish between the interests of the company and shareholders (61.3%) and difficulties in decision-making when there are disagreements among shareholders (59.7%).

Listed companies responded that, to enhance corporate value, it is necessary to establish a system culture that guarantees free corporate activities rather than regulations such as expanding the duty of loyalty of directors. Suggestions included clarifying breach of trust offenses (67.6%), codifying the principle of respecting business judgment (45.9%), introducing incentives for value-up excellent companies (40.5%), and reducing inheritance tax (27.0%).

Song Seung-hyuk, head of the Financial Industry Team at the Korea Chamber of Commerce and Industry, said, "It is difficult for companies to preemptively judge which management decisions benefit the company but harm shareholders," adding, "Since companies are also devising many institutional measures to protect shareholders, regulations should not be hastily strengthened to increase uncertainty in management."

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