"Expansion of Moving Duty Obligations, Unrealistic Application... Concerns Over Excessive Litigation"

Hankyung Association and Hankibop Hold Academic Conference
Keynote Speech by Choi Junsun, Sungkyunkwan University Emeritus Professor
"Commercial Law Amendment Misleads Minority Shareholders"
"No Practical Effect in Problem Solving; Impossible Under Current System"

There are claims that the recent proposed amendment to the Commercial Act in the National Assembly, which seeks to expand the scope of directors' duty of loyalty, is practically impossible to apply and could potentially lead to a surge in lawsuits.

Professor Choi Joon-sun of Sungkyunkwan University School of Law is delivering the keynote speech at the summer academic conference hosted by the Korea Economic Association and the Korean Corporate Law Society on the 22nd. Photo by Hankyung Association

On the 22nd, Choi Jun-seon, Honorary Professor at Sungkyunkwan University School of Law, made these remarks during a keynote speech titled "The Fallacy of Proportional Shareholder Interests" at the 2024 Summer Joint Academic Conference jointly hosted by the Korea Economic Association and the Korean Corporate Law Society.

Professor Choi first expressed concern that "the amendment to the Commercial Act, which includes shareholders within the scope of directors' duty of loyalty, could mislead minority shareholders." Under corporate law, a director's duty of loyalty is defined as "when a conflict of interest arises between the director's personal interests and the company's interests, the director, who has entered into a delegation contract with the company, must prioritize the company's interests." Regarding this, Professor Choi pointed out, "Some argue misleadingly that directors have an unconditional duty of loyalty to the company, disregarding shareholders' interests, and therefore claim that shareholders and the company should be listed side by side as subjects of the directors' duty of loyalty."

He continued, "Since the current corporate law advocates shareholder primacy under the principle of shareholder capitalism, directors working for the company inherently work for all shareholders," adding, "The claim that 'directors only prioritize the company's interests' is incorrect." He also expressed concern about the potential for a flood of damages lawsuits following the amendment. The proposed amendment requires directors to owe a separate duty of loyalty to shareholders, distinct from their duty to the company. This could lead some dissatisfied shareholders to file lawsuits against directors, claiming that their interests were not adequately reflected in management decisions.

Professor Choi also addressed the proposal to include a mandatory provision for the "proportional protection of shareholder interests," stating that "it is neither effective in solving the problem nor feasible under the current stock company system." Regarding the issue of unequal distribution of benefits among shareholders, he said, "Since solutions already exist in the Commercial Act, unnecessary amendments that could cause confusion in frontline management should be avoided."

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