After the launch of the Lee Jae-myung administration, following the first amendment to the Commercial Act, a "stronger" second amendment passed, and corporations are said to be deep into "intensive study of the Commercial Act" as of the 29th. Large law firms are also seeing a flood of requests from corporate officials for advice related to the Commercial Act.
Accordingly, the seven major law firms (Kim & Chang, Bae, Kim & Lee, Bae, Kim & Lee; Lee & Ko; Shin & Kim; Yulchon; HwaWoo; and Jipyung) all formed response teams for the amended Commercial Act between May and July this year. At the "Commercial Act amendment seminar" that Shin & Kim LLC held in Jul., more than 1,000 corporate officials attended in person and online. Kim & Chang is said to have held its own Commercial Act seminars or participated in external seminars more than 100 times this year.
In the legal community, there is analysis that, as in 2022 when the Serious Accidents Punishment Act took effect, this year's "anti-corporations law boom" will drive law firm revenue.
◇ "You must leave objective evidence that decisions were made with shareholders' interests in mind"
The first amendment to the Commercial Act, which passed the National Assembly in Jul., newly created directors' duty of loyalty to shareholders. It means directors must work not only for the company but also for the interests of shareholders. In the second amendment, passed in Aug., new provisions were added for listed companies with asset over 2 trillion won to mandate "cumulative voting" and expand the "separate election of audit committee members."
Corporations are said to most often ask law firms about ways to respond to the "duty of loyalty to shareholders" and about legal risks. In the law firm industry, there is an outlook that, "If a corporate decision is evaluated as running counter to shareholders' interests, shareholders could file direct damages claims against the corporation's directors or file criminal complaints for breach of duty."
On this, Lee Dong-gun, head of the corporate governance strategy center at Sejong (29th class of the Judicial Research and Training Institute), said, "You must leave objective evidence that, in the corporate decision-making process, you carefully considered measures that would help the interests of the company and all shareholders," and added, "You will also need grounds for why you judged that the decision would benefit the company and shareholder interests."
◇ "To protect the board, limit the number of directors who can be appointed at once"
There are also said to be many inquiries about defense strategies regarding the "cumulative voting" introduced in the amended Commercial Act. Cumulative voting is a system that allows a shareholder to concentrate voting rights on a particular director candidate. For example, under cumulative voting, if Company A, in which a minority shareholder holding 10 shares is electing five directors, that minority shareholder can exercise 50 voting rights. These voting rights can be concentrated on one candidate.
Lee said, "It is now impossible to fundamentally block a minority-shareholder-side director from entering the board." He continued, "To reduce the impact of cumulative voting, you can use a method that limits the number of directors who can be appointed at one time," and added, "If you do this, minority-shareholder-side directors cannot be seated en masse through cumulative voting, so you can prevent the board's composition from being overturned."