On the 2nd, the ruling and opposition parties reached a partial agreement on the details of the Commercial Act amendment at the Legislation and Judiciary Committee's Subcommittee on Bill Review. They agreed to expand the scope of directors' duty of care from 'company' to 'company and shareholders,' convert outside directors to independent directors, and mandate electronic shareholder meetings. Discussions will continue on the separation of the auditor election, the 3% rule, and the cumulative voting system, as there are differences of opinion between the parties.
Members of the ruling and opposition parties belonging to the Legislation and Judiciary Committee met with reporters after the subcommittee's review of the Commercial Act amendment on the morning of that day.
Kim Yong-min, a member of the Democratic Party of Korea and the ruling party's secretary, said, "The introduction of the directors' duty to protect shareholders was agreed upon without any disagreement between the parties, and the conversion of outside directors to independent directors has also been agreed upon."
The two contentious issues were decided for further discussion as they could not narrow the differences.
Kim noted, "Expanding the number of auditors from one to two, or to all, and complementing the 3% rule during auditor elections, as well as the cumulative voting system, are areas of disagreement between the parties, so we decided to discuss them further in the afternoon."
The Democratic Party's proposed 'expansion of the separate election system for auditors' involves increasing the number of auditors from the current one to at least two and applying the '3% rule', which limits the voting rights of the largest shareholders and related parties to 3%. In this case, more auditors can be elected by minority shareholders. The business community has expressed concerns that this could infringe on management rights and enhance the influence of external forces, such as foreign activist funds.
The mandatory cumulative voting system entails allocating shareholders' voting rights equally to the number of directors when appointing directors (management). For example, if three directors are elected, shareholders will be able to exercise three votes per share. This could increase the likelihood of appointing a director who represents minority shareholders, thereby enhancing their rights, according to the Democratic Party's stance.
The opposition party emphasized the need for careful discussion, considering the concerns of the business community.
People Power Party member Jang Dong-hyuk said, "It seems that areas with little disagreement regarding the existing Commercial Act could reach consensus," adding, "Among the contents included in the Commercial Act amendment, the two issues (3% rule, cumulative voting system) are of the greatest concern, and the business community is expressing worry. They are concerned that management might become difficult due to hostile capital from abroad. Hence, even if the two systems are implemented, it is necessary to hear a variety of opinions from experts, shareholders, and the business community regarding what kind of complementary measures should be taken, which is the People Power Party's argument."
The Democratic Party is reportedly proposing that even if the 3% rule is excluded from the Commercial Act amendment, the plan to expand the number of auditors from one to two should be pursued.
In response, Jang said, "The separate election of auditors is fundamentally opposed by the opposition party, but we need to examine what issues exist regarding the Democratic Party's proposal," and added, "After hearing opinions, I suggested that we conduct additional negotiations among the leadership."
The ruling and opposition parties are scheduled to resume discussions on the contentious issue at 4 p.m. on the same day.