Acting president vetoes bill expanding corporate directors' fiduciary duty to include shareholders

Acting President Han Duck-soo speaks during a Cabinet meeting in Seoul, April 1. Yonhap

Acting President Han Duck-soo on Tuesday vetoed an opposition-led bill expanding the fiduciary duty of corporate directors from solely the "company" to both the "company and its shareholders."

The amendment to the Commercial Act, which was passed by the opposition-controlled National Assembly last month, was vetoed by Han at a Cabinet meeting and will be sent back to parliament for a revote.

In addition to expanding corporate directors' fiduciary duties, the bill mandates the adoption of electronic shareholder meetings for listed companies.

"I deeply agree with the basic spirit of the bill," Han said at the meeting. "However, given the large influence this bill can have on the business environment and competitiveness of not only big companies, but the majority of companies, including small and medium-sized enterprises, I determined there was a need to find an alternative solution that minimizes the side effects through more in-depth discussions, and following serious reflection, intend to demand the National Assembly's reconsideration."

Han said that while the bill appears to be aimed at ensuring fair treatment of the interests of all shareholders, not just controlling shareholders, it does not clearly define what constitutes fair treatment in a company's decision making, putting corporate directors at risk of civil and criminal liability and possibly discouraging their active involvement in management.

"This would not only go against the protection of general shareholders but also have a negative impact on the national economy as a whole," he said.

To address these side effects, the government has instead proposed an amendment to the Capital Markets Act to require directors of only listed companies to safeguard shareholders' interests when engaging in mergers or spinoffs.

The Capital Markets Act amendment would apply to only around 2,500 listed companies, whereas a revised Commercial Act would also affect around 1 million unlisted companies.

"I earnestly plead with the National Assembly to take both the bill whose reconsideration the government is demanding today and the alternative proposed by the government, and once again hold in-depth discussions to find a desirable solution," Han said.

During the Cabinet meeting the government also promulgated a revision to the national pension scheme following its approval by the National Assembly last month.

The revision was agreed by the rival parties in a landmark deal that called for paying more in premiums — up from 9 percent to 13 percent — and receiving more in pensions — up from a nominal income replacement rate of 41.5 percent to 43 percent. (Yonhap)