Who does a corporation belong to? Korea revisits shareholder rights amid corporate reform.

In a world where national security and future competitiveness hinge on cutting-edge technology—and where governments and companies increasingly operate in tandem—Korea must reconsider its governance model.

Park Su-ryonThe author is the industry news desk head at the JoongAng Ilbo.

A recent amendment to Korea’s Commercial Act has clarified that corporate directors owe fiduciary duties to shareholders. While many in the business community remain skeptical, some voices signal a shift in perspective. One executive at a major conglomerate reflected, “When outside directors were first introduced, many said it would destroy Korean companies. But did it? Not a single company collapsed as a result. This amendment is part of an unstoppable tide of history. We need to adapt quickly.”

The comment is both unexpected and telling.

The National Assembly passes a partial amendment to the Commercial Act during a plenary session on July 3. The revised bill expands corporate directors’ fiduciary duty to include both the company and its shareholders, requiring directors to protect shareholder interests and treat all shareholders fairly in the course of their duties. It also includes the so-called “3 percent rule,” which limits the voting rights of the largest shareholder and related parties to 3 percent when appointing or dismissing audit committee members. The amendment was promulgated on July 15 following Cabinet approval. [YONHAP]

In 1998, following the Asian financial crisis, Korea introduced outside directors to rein in the unchecked power of chaebol leaders and improve transparency. The business sector fiercely resisted the reform at the time, but ultimately accepted it — though many outside directors became little more than rubber stamps.

Now, Korean corporations face a new wave of governance reform. Many are responding by demanding greater protections for management, including poison pills and dual-class shares to shield controlling shareholders from activist investors. SK Group Chairman Chey Tae-won, who also serves as chair of the Korea Chamber of Commerce and Industry, expressed concern over a proposal by the ruling party that would mandate the cancellation of treasury shares. “If that passes,” he said, “who would want to buy back their own shares?”

The subtext is clear: treasury stock has been one of the few available tools for defending management control in Korea’s hostile M&A environment. Yet it remains to be seen whether such arguments can win over a skeptical public.

Chey Tae-won, chairman of the Korea Chamber of Commerce and Industry, delivers opening remarks at the 48th KCCI Summer Forum held at Lahan Select Hotel in Gyeongju, North Gyeongsang, on July 16. [YONHAP]

The government’s rapid pace of reform is also raising eyebrows. Following the early June presidential election, the Lee Jae Myung administration swiftly passed the initial amendment, and now seems ready to push for second and third waves of reform. Yet it has yet to introduce complementary laws that would shield directors’ good-faith business decisions from criminal liability. Nor has it presented a broader strategy for reviving Korea’s aging manufacturing sector. In this context, some view the reforms as punitive rather than constructive.

Still, corporate leaders risk public backlash if they focus solely on preserving management rights without offering a credible roadmap for governance improvement. If history is any guide, the business community will once again adapt under pressure — but should it always be reactive rather than proactive?

The debate over treasury shares offers a useful lens. Whether retained for future use or canceled to enhance shareholder value, neither approach contributes as much to long-term competitiveness as reinvesting that capital into R&D or new business development. In the United States, leading tech companies have set new records for share buybacks in recent years, to the delight of investors. Yet the broader economic effects have been mixed. The concentration of capital in a few dominant software firms has left many others behind. There’s been little to no job growth in the process.

That’s why, during the Biden administration, the Democratic Party introduced a 1 percent excise tax on annual share buybacks exceeding $1 million. Critics argue that U.S. executives who receive stock-based compensation have been using buybacks to inflate their own wealth, rather than reinvesting in innovation.

Given that the revised law is now in effect, perhaps it is best understood as part of Korea’s evolving capitalist landscape. While many Western countries have begun to move beyond shareholder primacy, recognizing its limitations, Korea is only now confronting its own outdated corporate practices. In some cases, shareholders in Korea do not even receive the basic rights their ownership should guarantee. The Lee administration has seized on this discontent, using governance reform to fuel a stock market rally.

But the real challenge begins now. Share prices may climb in the short term, but there is little evidence that the structural health of Korean industry will follow. The old global trade order has unraveled, and Korean firms now face an uncertain future. Short-term investors may remain unconcerned, but corporate workers, subcontractors, and tax-hungry central and local governments are already feeling the pressure.

Legally, shareholders are the owners of a corporation. But companies do not exist solely to serve their financial interests.

That is why these reforms must not be consumed only as a stock-boosting mechanism. In a world where national security and future competitiveness hinge on cutting-edge technology — and where governments and companies increasingly operate in tandem — Korea must reconsider its governance model. What kind of corporate board can best navigate this landscape? What kind of leadership structure is truly fit for the 21st century? These are the questions Korean companies have yet to fully answer.

People visit the stand of Huawei during the Mobile World Congress (MWC) at the Shanghai New International Expo Centre in Shanghai on June 18, 2025. [AFP/YONHAP]

Other Asian competitors offer instructive examples. Taiwan’s TSMC, a global leader in semiconductors, has built a board composed mostly of foreign experts, with eight out of nine members being non-Taiwanese. This independent and technically savvy board has continued to thrive even after its founder stepped down. Meanwhile, China’s Huawei operates under a vastly different model. Its founder holds less than 1 percent of shares, while 98 percent are held by employees who elect the board. Huawei reinvests 20.8 percent of its revenue into R&D — compared to Samsung’s 11.6 percent — and has emerged as a major rival to Nvidia in AI development.

Compare that with Apple, which continues to prioritize share buybacks while falling behind in AI development. Which company, then, appears more innovative, more disruptive?

As Korean firms face succession challenges and renewed scrutiny under the revised Commercial Act, they would do well to study these cases. Governance is no longer a secondary concern — it is the key to competitiveness in the post-globalization era.

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.