Governance Forum: "'Stronger Commercial Act' Pledges Must Be Fulfilled to Achieve KOSPI 5000"

Warning: KOSPI Could Drop Below 3,000 if Second Amendment and Supplementary Legislation Fail
To Business Circles and Economic Organizations: "Do Not Antagonize Ordinary Shareholders"

"If the second Commercial Act amendment and subsequent supplementary legislation are derailed, the KOSPI could fall back below 3,000 due to foreign selling." On July 29, the Korea Corporate Governance Forum asserted that only if the 'second Commercial Act amendment,' which mandates the introduction of cumulative voting and expands the separate election of audit committee members, passes the National Assembly and is implemented as policy, will President Lee Jaemyung's vision of a 'KOSPI 5000 era' be achievable.

In a statement titled "The Remaining Commercial Act Amendments Fulfill the Fair Economy Presidential Pledge," the Forum said, "Over the past three months, more than 8 trillion won in foreign capital has flowed in thanks to the Lee Jaemyung administration and the ruling party's commitment to improving corporate governance." The Governance Forum is a non-profit incorporated association comprised of over 120 domestic and international members, including financial professionals, legal experts, and academics, aiming to advance the capital market through corporate governance reform.

The second amendment mandates cumulative voting for listed companies with assets exceeding 2 trillion won and increases the number of separately elected audit committee members from one to two. This is a so-called 'stronger Commercial Act' amendment to fulfill President Lee's campaign pledges. Previously, the Democratic Party, which unilaterally passed the second amendment in the National Assembly Legislation and Judiciary Committee's subcommittee, aims to have it pass the full committee on August 1 and the National Assembly plenary session on August 4.

The Forum emphasized the necessity of the amendment, stating, "The second amendment aims to correct boards of directors that are effectively controlled by controlling shareholders, to check wrongful decisions such as private interest appropriation, to protect the rights and interests of minority shareholders, and to enhance stock valuation." The Forum also pointed out that, based on KOSPI200 companies, although the average stake held by controlling shareholders is 42%, they single-handedly appoint 100% of the board. The Forum questioned, "Isn't it democratic for ordinary shareholders, who hold the remaining 58% stake, to be able to elect at least one or two independent directors to represent their interests?"

In particular, the Forum stressed that both the first and second amendments are in line with President Lee's fair economy pledges. The policy pledge booklet released by the Democratic Party in May included ▲codifying directors' duty of loyalty to shareholders ▲mandating the appointment of a certain ratio of independent directors ▲gradually expanding the separate election of audit committee members at large listed companies ▲revitalizing cumulative voting at large listed companies ▲mandating electronic voting and proxy solicitation, and encouraging advisory shareholder proposals ▲addressing concerns about economic power concentration by preventing excessive control through minority stakes, among other measures.

The Forum stated, "The supplementary Commercial Act amendment to be discussed at the regular National Assembly session in September will implement the pledges under the subheading 'We will eradicate private interest appropriation by controlling shareholders abusing capital profit and loss transactions' in the same policy pledge booklet on fair economy," mentioning ▲strengthening board responsibility ▲institutionalizing the allocation of new shares to ordinary shareholders of parent companies when subsidiaries are listed after a physical division ▲introducing mandatory tender offers, among others.

The Forum also said, "If all of the above pledges pass the National Assembly and are implemented as policy, achieving KOSPI 5000 during President Lee Jaemyung's term is entirely possible. Restoring trust will drive stock prices even higher," adding, "if all supplementary legislation is completed in the second half of this year, large-scale, high-quality, long-term foreign capital inflows into the Korean stock market, amounting to five to ten times the 8 trillion won already invested, can be expected within one to two years."

On the other hand, "the Forum also warned that if the second amendment and subsequent supplementary legislation are derailed, the KOSPI could fall back below 3,000 due to foreign selling. The Forum criticized, "For the past 20 to 30 years, our government and companies have failed to keep their promises, which is why they have been treated as outcasts in the international financial community. That is the so-called 'Korea discount.'"

The Forum also delivered a stern message to business circles and economic organizations opposing the second amendment. The Forum insisted, "Business circles and economic organizations should not antagonize ordinary shareholders. They are also the 'owners' of the company. Controlling shareholders and management should instead persuade them to become allies and pursue open management together." The Forum continued, "Business circles and economic organizations keep parroting that amending the Commercial Act will allow foreign speculative capital to seize control of companies. This is black propaganda that ignores the nature of international finance and foreign capital, and it is also a laughingstock in the international community." The Forum pointed out, "The governance of economic organizations, which are run with the money of listed company shareholders, also needs to be scrutinized."

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