National Assembly Set to Approve Major Corporate Governance Reform (Image supported by ChatGPT)
SEOUL, July 2 (Korea Bizwire) — South Korea’s ruling and opposition parties have reached a landmark agreement to pass a long-disputed amendment to the Commercial Act that includes the so-called “3% rule,” sparking concern across the business community over heightened risks to corporate governance and investment certainty.
The amendment, scheduled for a vote in the National Assembly on July 3, will cap the voting rights of a company’s largest shareholder and related parties to 3% when appointing audit committee members. The bill also expands directors’ fiduciary duties to include not only the company but also its shareholders, and mandates electronic voting in shareholder meetings.
However, proposals to require cumulative voting and expand the number of outside audit committee members were excluded and will be revisited after future public hearings.
On July 2, Rep. Kim Yong-min of the Democratic Party, chair of the first subcommittee on bill review under the National Assembly’s Legislation and Judiciary Committee, strikes the gavel to open a subcommittee meeting to review proposed amendments to the Commercial Act and other bills. (Photo: Yonhap)
The bill’s passage follows years of political stalemate and a presidential veto under the previous administration. President Lee Jae-myung has expressed strong support for the reform, and the ruling People Power Party recently reversed its opposition, paving the way for bipartisan consensus.
South Korea’s corporate sector has voiced strong reservations, arguing that the reforms could expose companies to an uptick in shareholder lawsuits and leave them more vulnerable to activist hedge funds, including foreign ones. Business leaders are particularly alarmed by the 3% rule, warning that it could disrupt boardroom control even when a major shareholder holds a clear equity majority.
“If hostile forces take over the board, it could lead to decisions that run counter to the majority ownership,” said one industry official. “There’s deep concern over how companies should navigate this going forward.”
Another executive emphasized the need to clearly define the limits of directors’ liability to reduce excessive litigation: “The principle of business judgment should be codified, and the current rules on breach of duty revised to provide legal safeguards for management.”
This undated file photo shows the headquarters of the Korea Electric Power Corp. in Naju, some 280 kilometers south of Seoul. (Image courtesy of Yonhap)
Energy giants such as Korea Electric Power Corp. and Korea Gas Corp. may also feel the impact. These state-run firms have historically operated at a loss to maintain low energy prices in line with public policy goals. With directors now bearing stronger legal obligations to protect shareholder interests, these companies could face pressure to raise utility rates more assertively.
An energy industry official noted, “We’ll work with the government to ensure that our actions do not contradict shareholder interests.”
The reform bill marks a significant shift in South Korea’s corporate governance landscape, but business groups continue to call for further review to mitigate unintended consequences and maintain global competitiveness.
M. H. Lee (mhlee@koreabizwire.com)
