DR & AJU Legislation & Government Relations Consulting Center's latest issue of its specialized legislative journal, the Policy & Business Report, is now available in digital format.
Controversies Over the Amendment to the Commercial Act Expanding Director’s Duty of Loyalty: Legislative Acceleration Expected
On January 22, the Legislation and Judiciary Committee of the National Assembly examined an amendment to the Commercial Act that seeks to expand the scope of directors’ duty of loyalty to include shareholders. The committee members discussed the issue for five hours but failed to reach a conclusion. The agenda will be further reviewed in the next subcommittee meeting before being proposed to the general meeting.
The Democratic Party has endorsed the amendment proposed by Vice Chairperson Lee Jung-mun as its official stance. The key revision in the bill changes the phrase “directors shall perform their duties in good faith for the interest of the company” to “directors shall perform their duties in good faith for the interest of the company and the shareholders.” The bill also mandates cumulative voting for large listed companies, increases the number of separately selected auditors for such companies, and introduces provisions for independent directors of listed companies and electronic shareholders meetings.
On January 15, the Legislation and Judiciary Committee held a public hearing to gather opinions from academic and business circles. Supporters of the amendment emphasized its effect in protecting minority shareholders and boosting the domestic capital market. Opponents, however, expressed concerns about the risk of excessive lawsuits, the undermining of corporate management due to foreign speculative investments, and increased shareholder confusion.
A survey commissioned by the Federation of Korean Industries and the Korea Listed Companies Association to Mono Communications examined the listing maintenance costs of Korea’s top 600 listed companies. The result indicated that if the amendment is passed, companies expect the listing maintenance costs to rise by an average of 12.8%. Specifically, KOSPI-listed companies expect a 15.8% increase, while KOSDAQ-listed companies foresee a 9.8% increase.
Moreover, a survey commissioned by the Federation of Korean Industries to the Korea Academy for Leaders of Management gathered responses from 25 professors at major law schools, including Cambridge University, Cornell University, and Hitotsubashi University. The survey revealed that 68% of the respondents believed that the primary subject of directors’ fiduciary duty is the company, while 32% viewed it to encompass both the company and shareholders. Additionally, 8% considered the subject to be shareholders alone, while 4% included the company, shareholders, and interested parties. The Korea Academy for Leaders of Management interpreted these results as an indication that foreign commercial law experts generally view the distinction between company and shareholder interests as insignificant.
As the first-ever Korean law firm to issue specialized legislative journals, DR & AJU LLC has been publishing the monthly Policy & Business Report since August 2019. The January 2025 issue of the P&B Report conducted a full inspection of legislation proposed to the National Assembly Subcommittee, Standing Committee, and Plenary Session from the opening of the 22nd National Assembly on December 15, 2024, to January 14, 2025, and selected and analyzed legislation with significant impact on corporate activities. In the case of major legislation, key mentions of legislators, members of the Standing Committee, and government officials are included.
*DR & AJU Legislation & Government Relations Consulting Center provides P&B Report subscription service. Please contact us at Ic@draju.com for further inquiries.
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