Following Trump Tariffs, Now the Commercial Act Amendment... Companies Pushed to the Brink

Commercial Act Amendment Passes Judiciary Subcommittee
Eight Major Economic Organizations Prepare Joint Action to Block It
Most Concerned About Surge in Lawsuits Targeting Directors
Decision-Making Burden Threatens to Shrink Corporate Management
Companies Cornered by External Risks and Labor-Management Conflicts

Korean companies have been cornered from all sides. With the revision of the Commercial Act, the 52-hour workweek system, labor-management conflicts, and tariff risks originating from the United States all overlapping, corporate investment sentiment is freezing up. As government and political circles' regulations on companies flow populistically, management uncertainty is growing even larger.

According to the business community on the 25th, the amendment to the Commercial Act that passed the National Assembly's Legislation and Judiciary Committee's Bill Review Subcommittee 1 the day before is expected to further increase the management burden on companies.

The core of this amendment is the introduction of directors' duty of loyalty to shareholders. Previously, directors had a duty of loyalty to the company (corporation), but once the amendment is implemented, directors will bear legal responsibility if they make decisions unfavorable to specific shareholders. The Democratic Party explains this as "a measure to strengthen shareholder protection," but the business community is concerned that "management may feel burdened in decision-making, which could shrink corporate operations."

The business community is most worried about the issue of excessive lawsuits targeting directors. The content of the amendment, which imposes a duty on corporate directors to be loyal not only to the company's interests but also to the proportional interests of shareholders, has raised continuous voices that it will trigger numerous lawsuits by shareholders against directors.

Economic organizations, concerned about the side effects of the Commercial Act amendment, issued a joint statement expressing great concern about the 'judicial risk' that directors will bear. The business community's argument is that it is practically impossible for directors to satisfy the tastes of numerous shareholders, yet due to this amendment, shareholders are highly likely to file numerous damage compensation lawsuits on the pretext of breach of the duty of loyalty stipulated in the amendment if directors do not reflect their interests and demands in management issues.

Experts have also strongly criticized the passage of this amendment as a political act aimed at popular appeal. Professor Byungtae Lee of KAIST's Department of Business Administration strongly criticized, saying, "This amendment to the Commercial Act is a rather populist response." He pointed out, "Expanding the scope of corporate responsibility from the company to shareholders has been attempted in some countries with strong socialist tendencies, but it practically causes many problems," adding, "In particular, it causes management confusion and is likely to impose unnecessary burdens on directors."

Professor Jaeyeol Kwon of Kyung Hee University Law School also pointed out, "It is practically impossible to make decisions considering the interests of all shareholders simultaneously." Professor Kwon expressed concern that "small shareholders often prioritize short-term profits and demand stock price increases without investment," but "if investment is not made from a long-term perspective, research and development (R&D) will shrink and corporate growth will slow down." He added that in a situation where companies are struggling due to the Trump administration's tariff policies, if investment and R&D shrink, the problem will become even more serious.

The eight economic organizations are preparing additional joint actions. A business community official said, "Since the plenary session is on the 27th and there is not much time, we are trying to respond quickly," adding, "Executives are visiting National Assembly members' offices for meetings."

In addition to the Commercial Act amendment, labor-management conflicts have escalated to extremes. Hyundai Steel has intensified labor conflicts by implementing a workplace closure due to a breakdown in wage negotiations with the union. Hyundai Steel carried out a partial 'workplace closure' for the first time since its founding the day before. This was in response to the union's repeated temporary strikes. However, despite this strong measure, the union refuses to accept the company's proposal of a performance bonus payment plan of '450% of base pay + 10 million KRW.'

The union held a related meeting the previous afternoon and discussed "how to fight" rather than accepting the company's opinion. The number of union members who stopped work due to the workplace closure of the hot rolling and rolling facilities at Hyundai Steel is about 80 to 90. These facilities correspond to the early process of cold-rolled steel sheet production, and if the labor-management conflict continues, there is a high possibility that workplace closures will also occur in the subsequent process facility lines due to the continuous process characteristics.

The total number of union members of the Dangjin Hysco branch engaged in cold rolling production is about 530. The company's proposal of a performance bonus payment plan of '450% of base pay + 10 million KRW' is analyzed as the negotiation 'red line.' This is the smallest increase compared to the previous round among the 22 rounds of wage and collective agreement negotiations, and the company is countering the union's partial strike with the measure of workplace closure.

Even if this plan is followed, the total amount of performance bonuses is estimated to reach about 400 billion KRW, exceeding Hyundai Steel's operating profit of 314.4 billion KRW last year. The union demands that performance bonuses be paid according to the 2023 results (operating profit of 807.3 billion KRW) and is requesting the parent company Hyundai Motor Group's proposal of '500% of base pay + 18 million KRW.'

The Korean corporate environment, struggling due to government regulations and labor-management conflicts, is pointed out to be in contrast with the United States and China, which provide incentives to attract their domestic companies while also considering imposing tariffs on imported products. The United States encourages domestic investment by providing subsidies to semiconductor and electric vehicle companies through the Inflation Reduction Act (IRA) and the CHIPS Act, while pushing for additional tariffs on Korean automobiles and semiconductors. The Chinese government is expanding support for domestic semiconductor companies under the banner of 'semiconductor rise' while strengthening regulations on foreign companies. Especially amid intensified technological hegemony competition with the United States, China is implementing policies to reduce dependence on foreign semiconductor equipment and products to protect its domestic semiconductor supply chain. An industry official said, "While the United States and China are implementing strong industrial policies to protect their domestic companies, Korea is only increasing regulations that tie the hands of companies," adding, "In such an environment, companies inevitably have less incentive to invest domestically."

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