Korean Conglomerates Scramble to Defend Against Stronger Shareholder Powers (Image supported by ChatGPT)
SEOUL, July 7 (Korea Bizwire) — South Korea’s major conglomerates are scrambling to respond after the National Assembly passed sweeping amendments to the Commercial Act championed by President Lee Jae-myung’s administration.
The reform, more aggressive than the version previously vetoed by former President Yoon Suk-yeol, introduces expanded shareholder rights and tighter oversight of corporate boards.
At the center of business concern is the extension of the so-called “3% rule” — a restriction that limits the voting rights of large shareholders and their affiliates to 3% when appointing audit committee members.
Previously applicable only to internal directors, the rule will now apply to outside directors as well, further constraining the influence of controlling shareholders on board decisions.
The amendments also broaden directors’ fiduciary duties from solely serving the company to including shareholders, raising concerns among Korea’s business community about a potential increase in shareholder lawsuits and hostile takeover attempts, particularly from activist hedge funds.
Samsung Electronics headquarters in Seocho-dong, Seocho-gu, Seoul (Image courtesy of Samsung Elecs)
Despite longstanding opposition, major corporations including Samsung, Hyundai Motor, SK, and LG are now shifting their focus to risk mitigation.
According to industry sources, these conglomerates are conducting internal reviews and hosting external seminars to assess the law’s impact. Many are also strengthening compliance systems and seeking to improve board transparency and efficiency.
In parallel, companies are preparing for additional reforms, including the possible expansion of cumulative voting and mandatory separate elections for audit committee members.
Seoul Yeouido Financial District Skyline (Image courtesy of Yonhap)
Economic organizations and business lobbies are expected to push for greater corporate input in upcoming legislation and step up investor relations efforts.
Still, business leaders are urging the government and legislature to consider introducing countermeasures that would help companies defend against hostile takeovers.
Specifically, they are calling for the adoption of corporate defense mechanisms widely used in advanced economies, such as:
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Dual-class shares, which grant founders or executives more voting power;
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Poison pills, which allow existing shareholders to buy shares at a discount to dilute hostile bidders;
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Golden shares, which grant veto rights over key decisions regardless of ownership volume.
SK Group’s headquarters, the “SK Seorin Building,” located in Seorin-dong, Jongno District, Seoul. (Image courtesy of SK Group)
Currently, none of these are legally permitted in South Korea.
Executives also emphasized the need to adopt a “business judgment rule” — a legal doctrine that protects directors from liability if they act in good faith, with due care and adequate information, even if their decisions later lead to losses.
“With these new legal burdens, controlling shareholders need at least basic tools to defend management rights,” said Park Joo-geun, CEO of corporate analysis firm Leaders Index.
“Now that shareholder protections have advanced, it’s time for Korea to seriously consider adopting poison pills and golden shares like other developed economies.”
M. H. Lee (mhlee@koreabizwire.com)
