Korean businesses concerned about corporate governance reform bill

[Photo by MK DB]

South Korean businesses are raising concerns about the government and political circle’s push for corporate governance reform.

As the reform involves a proposed amendment to the Commercial Code, which would extend the duty of loyalty to shareholders as well as corporations, business groups are concerned that this approach is contrary to global standards and may cause unintended results, including a decrease in corporate value.

The business community opposed the proposed amendment to the Commercial Code, which was recently introduced by Representative Jeong Jun-ho of the Democratic Party.

The amendment seeks to ensure that the directors of local corporations owe the corporation and its shareholders a fiduciary duty of loyalty and a fiduciary duty of care.

Business groups believe that any extension of the duties to shareholders could increase the risk of litigation, making corporate directors less willing to take decisive action. Given the difficulty of satisfying the interests of all shareholders, there is also a fear of a surge in lawsuits.

In case of a conflict of interest between the company and some shareholders, corporate boards could face judicial risks that hinder their ability to make bold, swift decisions.

For example, raising capital through a rights issue benefits the company but dilutes existing shareholdings.

On the other hand, policies such as dividends and share buybacks benefit shareholders but can weaken the company‘s financial stability.