The Korea Chamber of Commerce and Industry (KCCI) submitted a report to the National Assembly on Dec. 3 to express its opposition to the pending amendment to the Commercial Act.
In the report, South Korean entrepreneurs said that the proposed amendment would severely infringe upon their management rights once passed.
According to them, the amendment restricts corporate management rights to an unprecedented extent. The bill stipulates separate election of audit committee members, mandatory cumulative voting, multiple derivative suits and mandatory electronic voting. At present, no country in the world is implementing those at the same time and even the United States and Japan are implementing less than half of those, according to the report.
The KCCI pointed out that the separate election of audit committee members and 3% voting rights limit are contradictory to the principle of one voting right per share, which is one of the most basic principles of the corporation system, and will infringe upon basic shareholder rights.
“Speculative foreign capitalists with minor shareholdings will join forces to appoint auditors to cater to themselves,” said the Korea Employers Federation, echoing the KCCI’s view.
Obligatory outside director appointment and cumulative voting for voting rights concentration for desired director candidates can also make South Korean enterprises more vulnerable to foreign speculators and unionized workers. They can concentrate their votes on certain director candidates in order to force companies to increase their dividends. In addition, an alliance between speculative capitalists and unionized workers can pose a serious threat to entrepreneurs.
Electronic voting can contribute to shareholder participation, yet it is vulnerable to fake news and malignant rumors. Multiple derivative suits can lead to an abuse of litigation and more management risks without clear standards.
The business community also pointed out that countermeasures against corporate bashing and weakening of control should come before any revision of the Fair Trade Act. “Any company will be perplexed if, for example, it is investigated by the Korea Fair Trade Commission and the prosecution at the same time or if their investigation results do not match each other,” said an entrepreneur.
The amendment also stipulates that internal transaction regulations should be applied to listed and non-listed subsidiaries in which owner family members’ shareholding is at least 20% instead of those in which their shareholding is 30% and 20%, respectively. According to local companies, this broader application of restrictions should be reconsidered in that owner family members’ shareholding in holding companies is high by nature.