Revised Commercial Act Push Threatens Corporate Autonomy, Needs Review from Scratch

Political circles are once again showing signs of pushing ahead with the Revised Commercial Act. Most of the provisions that failed in the National Assembly in the past have been revived, including the separate election of audit committee members, mandatory cumulative voting, and the expansion of directors’ fiduciary duty to shareholders. Under the banner of addressing the “Korea discount,” the proposal emphasizes stronger shareholder rights and corporate governance reform, but in substance it moves in a direction that excessively restricts corporate autonomy. A legal approach that intervenes even in the details of corporate management, rather than increasing confidence in the capital market, could instead undermine market dynamism and corporate competitiveness.

Applying the same governance structure to all companies weakens autonomy and responsible management. This Revised Commercial Act mandates cumulative voting for all listed companies and includes provisions limiting the voting rights of controlling shareholders to 3% when electing audit committee members. In addition, it seeks to expand the scope of directors’ fiduciary duty from “the company” to “all shareholders” and to impose even procedural elements such as electronic shareholders’ meetings and electronic voting. The stated goal of improving management transparency is understandable, but methods detached from reality can damage firms’ operational flexibility and may instead erode the foundation of responsible management.

Making cumulative voting mandatory may appear to strengthen the rights of minority shareholders, but it also risks becoming a channel for intervention by outside speculative capital. Forces seeking hostile mergers and acquisitions (M&A) can use cumulative voting to place their preferred candidates on the board and influence management as a whole. Such a structure increases managerial instability and makes it difficult for companies to make decisions from a long-term perspective. Contrary to its intentions, it contains structural risks that could threaten corporate value.

Expanding legal intervention even into the method of electing audit committee members could also shake the structure of “responsible governance,” a basic principle of corporate management. The amendment increases the number of separately elected audit committee members to two and limits the voting rights of controlling shareholders and related parties to 3%, effectively preventing controlling shareholders from participating in the appointment of audit committee members. This creates a structure in which responsibility remains but authority does not—a distorted governance structure in which oversight is strengthened, management judgment is constrained, and the owner is excluded from decision-making.

Expanding directors’ duty from “loyalty to the company” to “loyalty to all shareholders” makes the scope of responsibility ambiguous, raising directors’ legal risks and potentially discouraging business judgment. On the surface, it may look like a measure to strengthen shareholder rights, but in reality it increases the likelihood of unnecessary litigation and encourages directors to settle into conservative, risk-averse decision-making. Ultimately, this hinders corporate initiative and innovation and leads to a weakening of long-term growth drivers.

Corporate autonomy should be guaranteed to the greatest extent possible. Companies should be able to determine and operate the governance structure best suited to them according to their industry, organizational culture, and management strategy. Rather than uniform legal compulsion, it is preferable to present institutional options and hold firms accountable for the choices they make. A system in which companies autonomously choose their governance structure and the market evaluates the results is the very foundation of the market economy. The government and the National Assembly should respect corporate diversity and autonomy.

The National Assembly should pursue a cautious approach that reflects business realities, rather than a one-size-fits-all legal amendment. Management environments vary by industry, size, and governance structure, yet applying the same regulations to all listed companies is excessive intervention. Transparent governance is important, but rather than mandating it wholesale by law, it is preferable to encourage companies to choose autonomously and take responsibility. Excessive legislation discourages investment and management and damages companies’ long-term competitiveness. What the National Assembly needs now is a balanced legislative philosophy that respects market diversity and autonomy.

It is time to restore market autonomy. This Revised Commercial Act seeks to control the business front lines with a uniform law, without considering the realities and diversity of companies. An approach that tries to solve every problem through legislation upsets the balance between autonomy and responsibility and instead hampers corporate innovation and long-term growth potential. Corporate autonomy is not merely freedom in management; it is the foundation that allows the market to develop on its own. Only in an environment where autonomy and responsibility are in harmony can companies truly become competitive. I hope the Revised Commercial Act, which undermines corporate autonomy, will be withdrawn.

Kyumin Han, Researcher, Center for Free Enterprise (CFE)

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Original title: 기업 자율성 해치는 상법개정안 재추진, 원점 재검토 필요

Author: Gyu-min Han

Date: 2025-06-26

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=27829