[Editorial] Withdraw the Ruinous Revised Commercial Act Immediately; Government Must Be Cautious on Capital Markets Act

The Democratic Party of Korea’s Revised Commercial Act, which seeks to include shareholders among the beneficiaries of directors’ duty of loyalty under commercial law, will bring about an irreversible slump in the Korean economy. The moment the vague and abstract concept of “shareholder interests” is inserted into the scope of directors’ duty of loyalty, there is a strong likelihood of unrestrained attacks and waves of litigation by outside forces seeking to seize and shake up corporate boards.

In particular, this would be little different from opening the gates of our industries to anti-business forces constantly looking for opportunities to target Korean companies. It would also drive corporate management to focus only on producing short-term results in the wrong direction, making long-term innovation and investment even more difficult. This “worsening revision” can only be expected to undermine entrepreneurship and deepen confusion in internal corporate decision-making.

The foundation of the economy is business, and creative and autonomous corporate activity is the root of restoring people’s livelihoods. Korean companies are already suffering managerial difficulties due to various external risks and the fragmentation of supply chains, and it is obvious that they would suffer a very serious blow from the Democratic Party’s Revised Commercial Act. In a word, it is nation-ruining legislation. It is difficult to find legislative precedents for it anywhere in the world. It is an anachronistic regulation that runs counter even to global standards.

One cannot help but ask whether the opposition party, which previously agreed to abolish the financial investment income tax, is now pushing ahead with this unreasonable revision of commercial law because it is watching the reaction of a small core support base. The task now facing the political world is to abolish outdated governance regulations. The Revised Commercial Act, which seeks to turn back the clock, must be withdrawn immediately.

The government has announced an alternative: instead of including a duty of loyalty to shareholders in the Revised Commercial Act, it will reflect related provisions in an amendment to the Capital Markets Act. Under this proposal, only about 2,400 listed corporations would be subject to the rule, and boards would be required to protect shareholders’ interests only in four types of actions, such as mergers and splits. Of course, compared with the opposition party’s Revised Commercial Act, this has the advantage of being far less restrictive and more specific in scope. However, it still falls short of easing corporate concerns. “Shareholder interests” could still easily turn into a weapon that obstructs efficient corporate management.

The government, too, must act cautiously and ask whether it is moving to revise the Capital Markets Act as a countermeasure to the opposition party’s Revised Commercial Act despite the side effects that can be expected. If a board is truly loyal to the interests of the company, shareholders will naturally benefit as the company grows and develops. Rather than forcing through excessive legal revisions and creating new regulations, it would be more desirable to seek a virtuous cycle that encourages companies’ voluntary advancement in management.

Original title: [논평] 망국적 상법 개정 즉각 철회하고, 정부 역시 자본시장법 개정 신중해야

Author: Center for Free Enterprise (CFE)

Date: 2024-12-02

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=comment&pn=2&idx=27127