Hindering Businesses... Economic Sector Urges "Refrain from Indiscriminate Corporate Governance Regulation Legislation"

Joint Statement by 8 Economic Organizations on the 16th

The business community has requested the political sphere to refrain from proposing bills that strengthen regulations on corporate governance. This is based on the judgment that while major advanced countries are implementing corporate support policies including subsidies and tax benefits, Korea is hindering companies by flooding the legislature with bills that tighten regulations.

On the 16th, eight economic organizations including the Korea Economic Association (HanKyungHyup) issued a joint statement at the FKI Tower in Yeouido, Seoul, saying, "A flood of bills strengthening corporate governance regulations that strangle companies are being proposed," and "We earnestly request the National Assembly to immediately stop indiscriminate regulatory legislation on corporate governance in line with the times."

Attending the joint statement were Kim Chang-beom, Vice Chairman of HanKyungHyup; Park Il-jun, Vice Chairman of the Korea Chamber of Commerce and Industry; Lee Dong-geun, Vice Chairman of the Korea Employers Federation; Lee In-ho, Vice Chairman of the Korea International Trade Association; Jung Yoon-mo, Vice Chairman of the Korea Federation of SMEs; Jung Woo-yong, Vice Chairman of the Korea Listed Companies Association; Park Yang-gyun, Director of the Korea Federation of Medium-sized Enterprises; and Kim Jun-man, Director of the KOSDAQ Association.

Kim Chang-beom, Vice Chairman of the Korea Economic Organization Association, along with heads of economic organizations, exchanged opinions on the 16th at the FKI Tower Conference Center, expressing concerns about the numerous proposed bills to strengthen corporate governance regulations. From the left in the photo are Kim Jun-man, Head of the KOSDAQ Association; Jung Woo-yong, Vice Chairman of the Listed Companies Association; Lee In-ho, Vice Chairman of the Korea International Trade Association; Park Il-jun, Vice Chairman of the Korea Chamber of Commerce and Industry; Kim Chang-beom, Vice Chairman of the Korea Economic Organization Association; Lee Dong-geun, Vice Chairman of the Korea Employers Federation; Jung Yoon-mo, Vice Chairman of the Korea Federation of SMEs; and Park Yang-gyun, Head of the Korea Association of Mid-sized Enterprises.
[Photo by Korea Economic Organization Association]

Currently, 19 bills related to corporate governance, including amendments to the Commercial Act and the enactment of the Listed Companies Governance Act, are pending in the National Assembly. These bills mainly focus on introducing or strengthening regulations such as expanding the scope of directors' fiduciary duties, requiring separate election of all audit committee members, and mandating cumulative voting systems.

In particular, the government is promoting a plan to expand the scope of directors' fiduciary duties from a value-up perspective to include the protection of shareholders' interests. According to Article 382-3 of the current Commercial Act, directors' fiduciary duties are defined as "Directors shall faithfully perform their duties for the company in accordance with laws and the articles of incorporation." The government's idea is to add the phrase "protection of shareholders' interests" to clarify directors' fiduciary duties.

The economic organizations pointed out in the joint statement that "this seriously infringes on the autonomy of corporate management and runs counter to global standards, posing serious problems."

They expressed concern that if bills strengthening corporate governance regulations are enacted, there will be rampant accusations of breach of trust against directors and lawsuits for damages, making it difficult for companies to enter new industries and make large-scale facility investments to secure future growth engines.

The economic organizations said, "In the case of semiconductors, which have supported the Korean economy, after the declaration to enter the semiconductor industry in 1983, a cumulative deficit of 140 billion won occurred until 1987. If shareholders had filed lawsuits excessively over this, the current success would not have been possible."

They are particularly concerned that activist funds' increasing attacks on the management rights of Korean companies will weaken companies and reduce their competitiveness.

Attacks by activist funds on Korean companies have surged 9.6 times in the past four years, from 8 cases in 2019 to 77 cases in 2023. The eight economic organizations warned, "If corporate governance regulations are strengthened, the outflow of national wealth due to speculative forces will intensify."

Furthermore, they argued that various corporate governance regulations, including the expansion of directors' fiduciary duties, are almost nonexistent overseas and have not been sufficiently discussed in academia.

They stated, "Premature Galapagos-style regulations delay bold management decisions, provoke management rights attacks by speculative capital, and deepen the Korea discount. While major overseas companies are far ahead in the era of artificial intelligence (AI), excessive regulations that do not align with global trends will ultimately cause difficulties for the national economy."

They added, "We earnestly request the National Assembly to immediately stop indiscriminate regulatory legislation on corporate governance in line with the times," and emphasized, "The business community will also make every effort to revitalize the stock market through enhancing corporate value and protecting shareholder rights, and to advance our economy."

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