S.Korea corporate law reform gains bipartisan support

South Korea's ruling Democratic Party’s proposal to strengthen protections for minority investors and enhance board independence has secured the backing of the main opposition People Power Party (PPP), in rare bipartisan support for legislation aimed at delivering on President Lee Jae-myung's economic pledges.

The conservative PPP on Wednesday agreed to expand the fiduciary duties of board members to act in the interests of not only companies, but also individual shareholders – the most contentious part of the reform, which drew strong opposition from the business community.

The proposed bill is stricter than the Democratic Party’s earlier proposal, which the then-acting president vetoed in March.

Its passage would mark a significant achievement for liberal President Lee Jae-myung, who took office early last month.

A subcommittee of South Korea’s National Assembly Legislation and Judiciary Committee, which oversees corporate law revisions, approved the proposed overhaul of the Commercial Act on Wednesday.

The bill is expected to advance to a full committee meeting on Thursday before heading to a plenary session for final approval.

“I believe bipartisan agreement, rather than disagreement, can send a more positive message to the market,” said Jang Dong-hyuk, a lawmaker of the People Power Party and member of the judiciary subcommittee.

VOTING CAP FOR TOP SHAREHOLDERS

Another contentious provision in the amended Commercial Act is the so-called 3% rule, which limits the voting power of top shareholders and related parties to 3% each when appointing outside directors.

The ruling and opposition parties also agreed to replace the term "outside director” with “independent director" to underline the role's independence from internal directors and executives.

Listed companies need to increase the proportion of independent directors to more than one-third of the board, up from more than one-fourth under the current law.

The amended bill also makes it mandatory for listed companies with assets exceeding 2 trillion won ($1.5 billion) to offer electronic shareholder meetings in addition to in-person gatherings, enabling remote participation.

The bill could have passed with the support of the ruling party alone, which holds a majority in the National Assembly.

But the ruling party sought the backing of the opposition as a symbol of their support for the first legislation passed under Lee's administration.

The amendment faced strong backlash from business leaders, who argue the bill could threaten management rights and limit decision-making flexibility.

They said the stricter fiduciary duties would be nearly impossible to meet, as not every board decision can align with the interests of minority shareholders.

They also warned that the tougher fiduciary standards could raise the risk of embezzlement accusations against directors.

CUMULATIVE VOTING ON HOLD

Meanwhile, the two parties decided to put on hold the introduction of a cumulative voting system designed to allow minority shareholders to concentrate their votes on specific board members in proxy fights.

They also shelved an earlier proposal of applying the 3% voting cap when selecting auditors from among external board members.

A separate proposal to raise the number of audit members elected separately from the board of directors to at least two from the current one was also put on hold.

Amid pushback from the business community on the amended bill, the two parties said they will revisit the measure after the amended law takes effect.

Write to Hyun-Woo Kang and Sul-Gi Lee at hkang@hankyung.com

Yeonhee Kim edited this article.