The government-proposed amendments to the Enforcement Decrees of the Commercial Act and the Capital Markets Act will let the Korean government infringe upon the autonomy of business management with a lower law violating a higher law, panelists pointed out at a seminar organized by the Federation of Korean Industries (FKI) on Dec. 3.
Honorary professor Choi Joon-seon at the Sungkyunkwan University Law School remarked that the amendments are contradictory to the principle of separation of powers and will shake the national legal system. “The enforcement decree as a lower law will interfere with management rights outside the scope of the Capital Markets Act as a higher law,” he said, adding, “According to the enforcement decree, exercising a de facto influence on a dividend payment policy and revising the articles of association as an effort for governance structure improvement are not regarded as activities affecting management rights, which make no sense at all.”
The amendment to the so-called 5 percent rule of the Capital Markets Act was criticized, too. According to Article 147 of the act, every large-scale stock acquisition in a listed corporation must be reported to the Financial Services Commission and Korea Exchange.
“The amendment predetermines a specific example of passive investment and may distort the intent of large-scale shareholding during application to specific situations, which is worrisome,” said professor Yook Tae-woo at the Kangwon National University School of Law.
Seminar participants also pointed out that general investment activities according to the amendment to the enforcement decree of the Capital Markets Act include those that may affect management rights by abusing rights and relaxing the duty of reporting based on that classification is inappropriate given that the original purpose of the duty is to protect investors and ensure fair competition with regard to management rights.
“No corporate governance structure can be uniformly applied to every enterprise, and yet it seems that the government is intending to force companies to adopt an ideal governance structure of its own making,” said Park Yang-kyun, head of the Policy Department of the Federation of Middle Market Enterprises of Korea, continuing, “What is urgent is to tighten the five percent rule in order to protect investors and management rights and prevent abuses with anti-hostile M&A measures such as dual class voting rights and poison pills absent unlike in other countries.”
In addition, they pointed out the importance of the National Pension Service’s more independent and professional fund management. “The National Pension Service has to concentrate on profitability enhancement as a financial investor in order to better play its core role, that is, ensuring the livelihood of senior citizens,” said Kim Dong-wook, head of the FKI’s Social Policy Department, adding, “It is urgent for the National Pension Service to intervene less in the management of companies and enhance the independence and professionalism of its fund management.”