The passage of the Yellow Envelope Act (amendments to Articles 2 and 3 of the Trade Union and Labor Relations Adjustment Act) and the Commercial Act amendment has intensified concerns among the business community regarding management uncertainty. Corporations that have been working as 'One Team' with the government ahead of tariff negotiations with the U.S. are now visibly perplexed as anti-business bills continue to pass in the National Assembly.
On the 25th, eight economic organizations (The Federation of Korean Industries, Korea Chamber of Commerce and Industry, Korea Enterprises Federation, Korea International Trade Association, Korea Federation of Small and Medium Enterprises, Federation of Middle Market Enterprises of Korea (FOMEK), Korea Listed Companies Association, and Korea KOSDAQ Association) issued a joint statement expressing their regret over the passage of an additional amendment to the Commercial Act in the National Assembly.
The second amendment to the Commercial Act mandates a concentrated voting system to strengthen the voting rights of minority shareholders in large listed companies with assets of over 2 trillion won, and raises the number of audit committee members to be elected from one to at least two. This follows last month's passage of a first amendment that included the strengthening of the duty of care for directors and limited the voting rights of the largest shareholders to 3% under the so-called '3% rule,' with the subsequent legislation being even stricter.
The economic organizations remarked, 'We are regretful that only a month after the first amendment to the Commercial Act in July, an additional amendment has passed through the National Assembly. Given that this amendment may likely increase the risk of management disputes and litigation, we hope the National Assembly will strive for balanced legislation that minimizes legislative side effects.'
The business community is concerned that external capital may exploit the Commercial Act amendments as a means to disrupt management control. This is due to a higher likelihood of foreign activist funds with minority equity interests gaining access to corporate boards and interfering in decision-making.
The concentrated voting system allows shareholders in a meeting to receive votes equivalent to the number of directors to be elected for each share, enabling them to cast all those votes for a single candidate. For instance, if three directors are to be elected, three votes are allotted per share and can be concentrated on one candidate. This has the effect of enhancing the voting rights of minority shareholders, yet there is potential for certain factions to leverage this to expand their influence.
With the expansion of the separation of election for Commissioners from one to at least two, there are forecasts that outside nominees will dominate the audit committee, further intensifying board oversight. There are also concerns that audit committee members, having easier access to management information, may increase the likelihood of confidential information leaks.
Corporations are demanding the establishment of minimum management control defense mechanisms. Representative measures introduced in major developed countries such as the U.S., Japan, and Canada include ▲differential voting rights system (granting more voting rights per share to founders or major shareholders), ▲poison pill (granting existing shareholders the right to purchase stock at a lower price than market value in the event of management threats), and ▲golden shares (allowing entities such as the government to exercise veto rights over specific shareholder meeting proposals).
Following the passage of the Yellow Envelope Act and the second amendment to the Commercial Act, the business community is facing a more complicated situation in response to U.S. tariff pressures. On the 25th (local time), major group leaders and economic organization heads plan to accompany the South Korea-U.S. summit to discuss detailed aspects of investment plans.
The Democratic Party of Korea has announced plans to pursue a third amendment containing mandatory destruction of treasury stocks following the second amendment to the Commercial Act. The rationale is to enhance shareholder value by mandating the destruction of treasury stocks held by corporations within a specified period. While stock buybacks can effectively reduce the total number of shares and elevate stock prices, corporations are concerned about the infringement of management autonomy and the loss of defense mechanisms during management disputes.