Governance Forum "Director's Escape Has Begun... Amendment to Capital Markets Act Is Regression and Deterioration"

109 Participants from Finance and Legal Sectors
To Prevent Exodus, Directors' Duty of Loyalty to Shareholders Must Be Specified
Regarding Concerns Over Excessive Litigation in Business Circles, It Is "Exaggerated"

About 100 experts from the financial and legal sectors sharply criticized the push to amend the Capital Markets Act instead of the Commercial Act to expand directors' fiduciary duties to shareholders, calling it a "regression and deterioration." They pointed out that amending the Capital Markets Act rather than the Commercial Act only strengthens controlling shareholders' private interests and is merely a stopgap measure that fails to resolve corporate governance issues and strengthen shareholder protection.

On the 28th, at the Press Center in Jung-gu, Seoul, Chairman Lee Nam-woo is speaking at the press conference urging the completion of the Commercial Act amendment. Korea Corporate Governance Forum

On the 28th, Lee Nam-woo, chairman of the Korea Corporate Governance Forum, stated at a press conference held at the Press Center in Jung-gu, "Governance issues are deeply rooted problems that cannot be resolved by merely changing some provisions of the Capital Markets Act."

On the same day, Lee took a stance opposing Lee Bok-hyun, the Financial Supervisory Service chief who had actively advocated for amending the Commercial Act but suddenly changed his position, saying, "It is more reasonable to establish shareholder protection principles through amendments to the Capital Markets Act than to revise the general fiduciary duty provisions under the Commercial Act."

Chairman Lee Nam-woo attributed the Korean stock market's position near the bottom among major countries to problems in the corporate system as a stock company. He pointed out, "The biggest reason why Korea's capital market is losing vitality and the economy is losing new growth engines is that the fundamental mechanisms of stock companies are not functioning as they should." He viewed the backward corporate governance as making it difficult for companies to receive their proper value.

The forum's urgent statement, issued under the name of the "Joint Investors and Civil Society Group Urging the Completion of the Introduction of Directors' Fiduciary Duty to Shareholders," included a total of 109 participants from the financial and legal sectors. The statement included names such as Cho Jae-min, CEO of Shinhan Asset Management, and representatives from overseas institutions like the Dutch pension fund.

The forum emphasized, "The vicious cycle of self-defeating national decline caused by laws that do not protect infringed shareholder interests, domestic demand stagnation, and economic growth slowdown has already begun," adding, "The first step and the most certain declaration to stop this exodus is to explicitly state directors' fiduciary duties to shareholders in the Commercial Act."

Regarding the emergency statement issued on the 21st by the presidents of 16 groups including Samsung and SK opposing the amendment of the Commercial Act, the forum rebutted, "How is including the protection of the rights and interests of all shareholders, the owners of the company, in the Commercial Act a regulation on companies?" and "Is specifying the direct election of the president in the constitution a regulation on the government?"

Experts expressed concerns that amending the Capital Markets Act instead of the Commercial Act could cause other problems. Cheon Jun-beom, vice chairman of the Governance Forum (lawyer), said, "So far, patchwork without basic principles has caused leaks. New holes will appear." He added, "Amending the Capital Markets Act only sets procedural rules for capital transactions, which strengthens and legitimizes controlling shareholders' private interests, representing regression and deterioration."

They refuted the business community's claim that amending the Commercial Act could stifle management activities as an exaggerated concern.

Lawyer Kim Kwang-jung said, "According to Supreme Court precedents on the business judgment rule, if a director exercises authority with sufficient review, even if the outcome is poor, they cannot be held liable for breach of trust or damages," adding, "If the fiduciary duty of directors is amended, this legal principle will be applied more frequently, so such concerns will not arise."

Regarding criticism that shareholders would file excessive lawsuits against directors involved in business decisions, Lawyer Kim said, "Filing lawsuits costs money for the plaintiff, and if they lose, they must bear the opponent's costs as well, so such cases will not occur."

Choi Jun-chul, CEO of VIP Asset Management, also said, "People think that amending the Commercial Act will lead investors to file excessive lawsuits, but they do not pursue lawsuits one by one," adding, "The focus is on prevention to enable comfortable investment."

There was also an opinion that lawsuits could rather lead to investor protection. Chairman Lee Nam-woo said, "Professor Song Ok-ryul of Seoul National University Law School, the highest authority on commercial law, recently published a paper stating that lawsuits can actually strengthen investor protection," adding, "The development of the capital market and investor protection require more lawsuits and precedents."

Meanwhile, as the government shifted its stance to amend the Capital Markets Act, the Korean stock market faced not only index sluggishness but also increased policy uncertainty. Although Director Lee Bok-hyun turned to protecting general shareholders' interests through amendments to the Capital Markets Act, Lee Jae-myung, leader of the Democratic Party of Korea, expressed determination to pass the Commercial Act amendment during the regular National Assembly session.

On the same day, Lee Jae-myung visited the Korea Exchange and said, "Although the amendment of the Commercial Act originally falls under the jurisdiction of the Political Affairs Committee, we will push for the amendment at the party level for faster and clearer processing." After the ruling Democratic Party declared its intention to amend the Commercial Act, the government took the opposite stance, saying that amending the Capital Markets Act is more reasonable. However, even if the Democratic Party passes the bill alone, if the ruling party does not agree, the president may exercise the veto power citing business community concerns.

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