On July 11, a public hearing was held by the Legislation and Judiciary Committee of the National Assembly to gather expert opinions on the proposed additional amendments to the Commercial Act. (Image courtesy of Yonhap)
SEOUL, July 25 (Korea Bizwire) — A vast majority of publicly listed South Korean companies are expressing deep concerns over potential adverse effects of a second wave of corporate law reforms, warning that new regulations could further undermine corporate growth and governance stability.
According to a survey released Thursday by the Korea Chamber of Commerce and Industry (KCCI), 76.7% of 300 listed firms said the proposed amendments to the Commercial Act—including mandatory cumulative voting and expanded rules for electing audit committee members—could negatively impact their growth trajectories.
The findings come in the wake of a recent expansion of fiduciary duties for company directors and amid discussions about further reforms aimed at enhancing shareholder rights.
Business leaders worry these reforms could distort the already fragile growth ladder from mid-sized to large enterprises. The KCCI noted that as of the end of 2023, 574 mid-sized companies regressed to small-sized status, while only 301 firms moved up the ladder.
Among the concerns, 74% of respondents said they see a risk of management control being threatened under the proposed rules. Specifically, 38.6% acknowledged a low but present risk, 28.7% anticipated a high likelihood due to shareholder structures, and 6.7% believed they would be directly exposed to hostile takeovers.
Companies also raised red flags about increasing the number of audit committee members required to be elected separately from board members. Nearly 40% feared that external nominees could dominate audit committees and escalate boardroom tension.
Other concerns included difficulty in vetting candidates (37.9%), delays in decision-making from overlapping roles (16.5%), and potential leaks of trade secrets through rival-backed nominees (5.8%).
Corporate leaders called for urgent follow-up measures to the first round of reforms before advancing new legislation. The most requested remedies included clear legal interpretation guidelines (38.7%), reforms to ambiguous breach-of-trust laws (27%), and revisions to subordinate regulations (18.3%).
The current interpretation of fiduciary duty—which now includes obligations to shareholders—has created confusion, particularly around whether criminal breach-of-trust charges could apply to business decisions traditionally protected under the “business judgment rule.”
When asked about the most problematic aspects of the current breach-of-trust law, 44.3% cited vague legal criteria, followed by excessive penalties (20.7%), easy prosecutorial access (18.3%), outdated standards (12%), and misuse by rivals (4.7%).
KCCI further criticized South Korea’s unique three-tiered criminal framework for breach of trust, noting that the Special Economic Crimes Act—which allows harsher penalties based on outdated financial thresholds—exists only in Korea and hasn’t been updated since 1984.
“With rising risks of shareholder litigation, the time is now to modernize legal standards and reduce uncertainty in corporate governance,” the KCCI said.
M. H. Lee (mhlee@koreabizwire.com)
