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Biz lobbies, PPP rebuke DP's corporate 'good faith law' push

Published: 25 Feb. 2025, 18:42

SHIN HA-NEE
[email protected]

A parliamentary subcommittee under the Legislation and Judiciary Committee convenes a meeting at the National Assembly in western Seoul on Feb. 24. [NEWS1]

Business lobbies are strongly pushing back against the liberal Democratic Party's (DP) passage of a controversial amendment to the Commercial Act in a National Assembly committee on Monday aimed at bolstering minority shareholder protection and ultimately resolving the so-called Korea discount.

A parliamentary subcommittee under the Legislation and Judiciary Committee unilaterally passed a bill to revise the Commercial Act to expand the scope of responsibility of corporate board directors under the "good faith" provision. Five DP lawmakers unanimously voted in favor of the bill, while conservative People Power Party (PPP) legislators left the meeting room in protest.

The bill, therefore, now moves to a plenary session scheduled for Thursday, where it will be tabled for final approval by the legislature.

The PPP said on Tuesday that it would request acting President Choi Sang-mok to veto the bill if the DP railroads it during the plenary session.

Korea’s eight business lobby groups, including the Federation of Korean Industries and the Korea Chamber of Commerce and Industry, issued a statement expressing “deep concerns” over “excessively tightening the reins on corporate governance.”

“The proposed amendment to the Commercial Act will result in a surge in lawsuits against board directors and will be exploited by activist funds to attack companies over management rights, turning Korea into a difficult place to run a business,” the statement said.

“Higher legal risks and greater threats from speculative capital would undermine corporate competitiveness and exacerbate the Korea discount, causing significant damage to innocent retail investors.”

The business lobbies stressed that the bill would “stifle growth for companies and undermine industrial foundations,” urging policymakers to reconsider the amendment.

Under the current law, board directors are subject to a duty of loyalty to the company, compelling them to prioritize corporate well-being over personal gains in decision-making. The proposed amendment aims to expand the clause to obligate directors to serve the interests of not only the company but also all shareholders in a bid to prevent the owners of major stakes — such as a company's owning family — from sacrificing gains for minor shareholders for their own financial benefit.

In December, the government announced a plan to revise the Capital Markets Act instead of the Commercial Act, which would apply only to public companies and to a relatively smaller scope of operations.

BY SHIN HA-NEE [[email protected]]