‘Commercial Act amendment hurts shareholders, poses economic risks’

Acting Justice Minister Kim Seok-woo, center, speaks during a press briefing at Government Complex Seoul, Tuesday. Yonhap

The government said Tuesday that a revision to the Commercial Act, passed unilaterally by the opposition majority last month, undermines shareholder protection and could negatively impact the economy.

Acting President Han Duck-soo vetoed the bill earlier in the day.

“A reconsideration request was made as we determined that a more in-depth discussion is necessary to pursue an alternative that minimizes side effects," acting Justice Minister Kim Seok-woo said at a joint briefing by the Ministry of Justice, the Ministry of Economy and Finance and the Financial Services Commission.

The main opposition Democratic Party of Korea (DPK) criticized the government for making "a decision that disrupted the market," while the ruling People Power Party (PPP) called it “an inevitable outcome.”

The Commercial Act amendment, passed March 13, expands corporate directors’ fiduciary duties beyond the company to include shareholders. The DPK took the lead in passing the amendment while PPP lawmakers, who opposed the bill, voted against it or abstained.

The DPK said the amendment was necessary to enhance transparency in the stock market and resolve the so-called “Korea discount.” But it has faced strong protest from business groups, which argue that it could infringe on corporate management rights.

Acting President Han Duck-soo presides over a Cabinet meeting at Government Complex Seoul, Tuesday. Yonhap

“The government has been striving to improve corporate governance and increase shareholder returns to protect general shareholders. While we fully support the core intent of the bill, this amendment could negatively affect the business environment and competitiveness of most companies," the acting president said during a Cabinet meeting where he exercised the veto on the Commercial Act amendment.

During the joint media briefing, the justice ministry, which oversees the Commercial Act, explained that the bill is designed to regulate all actions of directors across all corporations, making it challenging to clearly define what constitutes fair treatment of the interests of general shareholders or all shareholders in practice.

“This lack of clarity could cause the bill to exceed its original goal of safeguarding general shareholders’ interests and instead introduce considerable uncertainty about directors’ civil and criminal liabilities, potentially stifling proactive management efforts,” Kim said.

The government proposed a revision to the Capital Markets Act as an alternative to the Commercial Act amendment. While the Commercial Act applies to all companies, the Capital Markets Act is limited to publicly listed companies.

PPP floor leader Rep. Kweon Seong-dong told reporters at the National Assembly that his party will actively negotiate with opposition parties to pass the Capital Markets Act amendment after the Commercial Act revision is rejected in a revote.

The vetoed bill will go through a revote process in the Assembly. In this case, it must pass with a majority of members present and approval from two-thirds in attendance. Falling short of that majority will lead to the bill being scrapped. With the opposition parties, including the DPK, holding 191 of the 300 seats, it is difficult for the opposition to pass the vetoed bill on its own.

“Through the Capital Markets Act, we can regulate only listed companies and examine any potential side effects before proceeding to the next step,” Kweon said.

Rep. Park Soo-min, the PPP’s floor spokesperson, also said a targeted revision to the Capital Markets Act is more appropriate, as the issue lies with listed companies.

Rep. Jin Sung-joon, the DPK’s chief policymaker, meanwhile, criticized the government for making choices that create confusion rather than restoring order to the market economy.

“Not only domestic retail investors but also major international institutions have emphasized the implementation of the Commercial Act. The DPK will not abandon its revision under any circumstances,” he said.