November 21, 2024

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Federation of Korean Industries Vice Chairman Kim Chang-beom (front row, fifth from left) and 16 conglomerate executives pose for a photo after issuing an emergency joint statement, urging lawmakers to withdraw amending the Commercial Act, at a Seoul hotel, Thursday. (Federation of Korean Industries)

The top executives of 16 major Korean conglomerates, including Samsung, SK, Hyundai Motor and LG, on Thursday issued a rare joint statement opposing a proposed revision to the Commercial Act, which aims to increase the duties of corporate board members.

“The proposed revision will lead to excessive litigation and potential attacks from overseas speculative investors, thereby hindering the normal management activities of board members,” the business leaders said. “This will obstruct the discovery of new growth engines and ultimately result in the devaluation of domestic companies and the stock market.”

It is rare for major corporate executives to issue a joint statement. This declaration is a response to the Democratic Party of Korea’s push to revise the Commercial Act despite concerns from the ruling party and some in the business community.

The proposed revision aims to extend directors' fiduciary duty beyond the company's board of directors to shareholders. It also stipulates that directors must protect the interests of all shareholders and treat them equitably. Under the current Commercial Act, board members have fiduciary duty to the company's board of directors only.

The amendment further includes provisions such as introducing cumulative voting in the election of directors, increasing the number of audit committee members elected separately, renaming outside directors as independent directors and adopting electronic general shareholder meetings.

While protections for minority shareholders are considered necessary, some observers say such measures should be addressed through a "targeted" approach, such as revising the Capital Market Act.

The executives stated, "Many legal scholars are also concerned that the proposed amendments, including the expansion of directors' fiduciary duty, could undermine the foundation of the current corporate system.”

“There is a need to improve systems to prevent unintended harm to minority shareholders when restructuring a company to streamline its management. However, amending the Commercial Act could significantly disrupt overall corporate management, making an alternative approach, such as revising the Capital Market Act, more desirable,” the statement further read.

The Democratic Party has adopted the Commercial Act amendments as party policy and aims to pass them by the end of the year.

On Thursday, the top executives stated their belief that now is not the right time to put more pressure on businesses, citing business uncertainties at home and abroad.

“If current challenges persist, the Korean economy may fall into an inescapable quagmire,” they said. "Recently, our economy has been experiencing continued low growth due to weakened growth drivers, and even exports, which have been the cornerstone of the economy, are facing an uncertain future due to weakened competitiveness in key industries and the spread of protectionism. To reduce economic uncertainty and revive growth drivers, companies must take the lead.”

They called for regulatory reforms to stimulate the economy, saying more substantial support should be given to high-tech industries such as semiconductors, batteries, mobility, bio, energy and industrial materials, given that their global rivals are already fully supported by their own governments.

Next week, a meeting between the Democratic Party, economic organizations and major companies will be held to share opinions on the matter. At this upcoming meeting, the business representatives are expected to once again express their wish to halt discussions on the Commercial Act amendments.

By Jie Ye-eun (yeeun@heraldcorp.com)