Remaining Commercial Act amendments would fulfill presidential pledge on corporate governance reform
Complete execution of presidential pledge on CG reform may drive KOSPI beyond 5,000
Significant foreign capital inflow likely over the next 12~24 months
Should legislation on cumulative voting fail to pass this week, foreign investor confidence could wane, potentially pushing KOSPI below 3,000
Isn’t it more democratic for minority shareholders, who own 58% of outstanding shares, to elect at least one or two independent directors to represent their interests?
Chaebol and their lobbying agencies must stop seeing minority shareholders as inherent threats
On July 28th, 2025, a second set of amendments to the Commercial Act advanced, passing the Legislation and Judiciary Committee in the National Assembly. These key reforms center on two provisions: mandating cumulative voting for listed companies with assets exceeding W2 trillion, and expanding the number of audit committee members subject to separate elections from one to two. The ruling party is aiming to pass this amendment in the National Assembly on August 4th
.
Our Forum strongly supports both the first amendment to the Commercial Act—which passed the National Assembly on July 3rd and was promulgated on July 15th immediately after being approved in the cabinet meeting—and this second amendment. The first amendment included: expanding the duty of loyalty for directors from the company to all shareholders, limiting voting rights of controlling shareholders and their affiliates to 3% in separate audit committee member elections (who are also BoD member), renaming “outside directors” to “independent directors”, and making e-shareholder meetings mandatory. The second amendment aims to correct boards effectively controlled by controlling shareholders, prevent self-serving decision-making, protect the rights of minority shareholders, and improve equity valuation.
Among KOSPI 200 companies, 93% have a controlling shareholder, with an average ownership of 42%. With an average shareholders’ meeting attendance rate of 74%, the current one-vote-per-director system enables controlling shareholders to unilaterally appoint 100% of board members. Isn’t it more democratic for minority shareholders, who collectively own 58%, can at least one or two independent directors to represent their interests?
Chaebol and their lobbying agencies must stop seeing minority shareholders as inherent threats—they, too, are rightful owners of the company. Instead of resisting them, controlling shareholders and management should focus on persuasion, seek alignment, and aim for inclusive governance.
The same principles of independence and impartiality apply to all independent directors. When minority shareholders elect independent directors, whether through cumulative voting or separate audit committee elections, these directors are, in principle, expected to exercise independent judgment and make decisions free from allegiance to any single party or faction. Crucially, if management performs effectively and the board functions equitably, even independent directors elected by minority shareholders will support sound corporate proposals and actively work to enhance overall shareholder value. This is precisely what true alignment among shareholders, the board, and management entails. Claims from some chaebol lobbying agencies, suggesting that independent directors supported by minority shareholders would compromise board confidentiality, are unfounded. Directors are explicitly bound by rigorous board regulations and are legally liable for any breach of confidentiality.
According to the G20/OECD Principles of Corporate Governance, shareholder rights and treating all shareholders equitably is the starting point of good governance. Furthermore, the corporate governance framework should protect and facilitate the exercise of shareholders’ rights and ensure the equitable treatment of all shareholders, including minority and foreign shareholders.
The first and second amendments to the Commercial Act are directly in line with the Democratic Party of Korea's (DPK) presidential campaign pledges on corporate governance reform, initially announced on May 28th. Under the subheading "We will protect minority shareholders' rights through improved corporate governance," the party's manifesto outlined six specific commitments:
● Codify directors’ duty of loyalty to shareholders to ensure that all shareholder interests are considered;
● Mandate that companies of a certain size appoint a minimum number of independent directors who can effectively serve as checks on management’
● Gradually expand the scope of separate audit committee elections in large, listed companies;
● Amend rules so that articles of incorporation cannot exclude cumulative voting—thereby promoting it in large, listed firms;
● Mandate e-voting and proxy voting in large, listed companies and promote advisory shareholder proposals; and
● Address concerns about concentration of economic power due to excessive control with minimal equity holdings.
The additional amendments expected to be debated in the regular National Assembly session this September correspond to another critical section in the same manifesto, titled:
“We will root out expropriation by controlling shareholders that take advantage of capital transactions”.
The pledges under this category include:
● Institutionalizing the cancellation of treasury shares as a general rule;
● Applying fair value to capital transactions and reinforcing board accountability to protect minority shareholder interests;
● Guaranteeing allocation of new shares to parent company shareholders when a subsidiary is listed after a spin-off;
● Introducing mandatory tender offers to ensure minority shareholders share in control premiums in M&A deals;
● Introducing a merger examiner system; and
● Strengthening scrutiny of related-party transactions and unlawful succession practices by controlling families.
The manifesto also includes several other notable pledges to enhance minority shareholder rights: boosting shareholder returns at listed firms, reforming systems to attract more foreign
investors and facilitating MSCI Advanced Markets inclusion, introducing a Korean-style discovery system, and improving fairness in legal procedures.
If these pledges are fully legislated and comprehensively implemented through government policy, achieving KOSPI 5,000 during President Lee Jae-myung’s term appears possible. Regaining investor trust could lift equity valuations even further. Conversely, if the second amendment and subsequent complementary legislation fails to pass, foreign confidence may erode, pushing down the KOSPI below 3,000.
Thanks to the reform drive initiated by the Lee administration over the past three months, more than W8 trillion in foreign capital has already flowed into the Korean equity market. Should all complementary legislation be finalized in the second half of the year, substantial foreign long-term capital inflows are likely in the next 1~2 years.
Chaebol and their lobbying agencies routinely parrot the unsubstantiated claim that Commercial Act amendments will enable foreign "speculative capital" to seize control of Korean companies. This assertion is patently absurd and demonstrates a profound misunderstanding of international financial markets and global equity investors. Frankly, such rhetoric is an embarrassment and a source of mockery on the global stage. Of the thousands of foreign funds already invested in, or soon entering, Korea — excluding buyout funds — none are seeking corporate control, in our view. This was starkly highlighted at a recent government-hosted forum, where a vice-chair of an economic association, when directly asked by me, "Can you name even one foreign speculative investor that aims to take over corporate control?" fell silent. These organizations consistently fail to offer any substantive arguments. Furthermore, their own governance structures, despite being largely funded by listed company shareholders, are themselves in dire need of scrutiny.
August 3rd, 2025
Korean Corporate Governance Forum
Chairman, Namuh Rhee
Remaining Commercial Act amendments would fulfill presidential pledge on corporate governance reform
Complete execution of presidential pledge on CG reform may drive KOSPI beyond 5,000
Significant foreign capital inflow likely over the next 12~24 months
Should legislation on cumulative voting fail to pass this week, foreign investor confidence could wane, potentially pushing KOSPI below 3,000
Isn’t it more democratic for minority shareholders, who own 58% of outstanding shares, to elect at least one or two independent directors to represent their interests?
Chaebol and their lobbying agencies must stop seeing minority shareholders as inherent threats
On July 28th, 2025, a second set of amendments to the Commercial Act advanced, passing the Legislation and Judiciary Committee in the National Assembly. These key reforms center on two provisions: mandating cumulative voting for listed companies with assets exceeding W2 trillion, and expanding the number of audit committee members subject to separate elections from one to two. The ruling party is aiming to pass this amendment in the National Assembly on August 4th
.
Our Forum strongly supports both the first amendment to the Commercial Act—which passed the National Assembly on July 3rd and was promulgated on July 15th immediately after being approved in the cabinet meeting—and this second amendment. The first amendment included: expanding the duty of loyalty for directors from the company to all shareholders, limiting voting rights of controlling shareholders and their affiliates to 3% in separate audit committee member elections (who are also BoD member), renaming “outside directors” to “independent directors”, and making e-shareholder meetings mandatory. The second amendment aims to correct boards effectively controlled by controlling shareholders, prevent self-serving decision-making, protect the rights of minority shareholders, and improve equity valuation.
Among KOSPI 200 companies, 93% have a controlling shareholder, with an average ownership of 42%. With an average shareholders’ meeting attendance rate of 74%, the current one-vote-per-director system enables controlling shareholders to unilaterally appoint 100% of board members. Isn’t it more democratic for minority shareholders, who collectively own 58%, can at least one or two independent directors to represent their interests?
Chaebol and their lobbying agencies must stop seeing minority shareholders as inherent threats—they, too, are rightful owners of the company. Instead of resisting them, controlling shareholders and management should focus on persuasion, seek alignment, and aim for inclusive governance.
The same principles of independence and impartiality apply to all independent directors. When minority shareholders elect independent directors, whether through cumulative voting or separate audit committee elections, these directors are, in principle, expected to exercise independent judgment and make decisions free from allegiance to any single party or faction. Crucially, if management performs effectively and the board functions equitably, even independent directors elected by minority shareholders will support sound corporate proposals and actively work to enhance overall shareholder value. This is precisely what true alignment among shareholders, the board, and management entails. Claims from some chaebol lobbying agencies, suggesting that independent directors supported by minority shareholders would compromise board confidentiality, are unfounded. Directors are explicitly bound by rigorous board regulations and are legally liable for any breach of confidentiality.
According to the G20/OECD Principles of Corporate Governance, shareholder rights and treating all shareholders equitably is the starting point of good governance. Furthermore, the corporate governance framework should protect and facilitate the exercise of shareholders’ rights and ensure the equitable treatment of all shareholders, including minority and foreign shareholders.
The first and second amendments to the Commercial Act are directly in line with the Democratic Party of Korea's (DPK) presidential campaign pledges on corporate governance reform, initially announced on May 28th. Under the subheading "We will protect minority shareholders' rights through improved corporate governance," the party's manifesto outlined six specific commitments:
● Codify directors’ duty of loyalty to shareholders to ensure that all shareholder interests are considered;
● Mandate that companies of a certain size appoint a minimum number of independent directors who can effectively serve as checks on management’
● Gradually expand the scope of separate audit committee elections in large, listed companies;
● Amend rules so that articles of incorporation cannot exclude cumulative voting—thereby promoting it in large, listed firms;
● Mandate e-voting and proxy voting in large, listed companies and promote advisory shareholder proposals; and
● Address concerns about concentration of economic power due to excessive control with minimal equity holdings.
The additional amendments expected to be debated in the regular National Assembly session this September correspond to another critical section in the same manifesto, titled:
“We will root out expropriation by controlling shareholders that take advantage of capital transactions”.
The pledges under this category include:
● Institutionalizing the cancellation of treasury shares as a general rule;
● Applying fair value to capital transactions and reinforcing board accountability to protect minority shareholder interests;
● Guaranteeing allocation of new shares to parent company shareholders when a subsidiary is listed after a spin-off;
● Introducing mandatory tender offers to ensure minority shareholders share in control premiums in M&A deals;
● Introducing a merger examiner system; and
● Strengthening scrutiny of related-party transactions and unlawful succession practices by controlling families.
The manifesto also includes several other notable pledges to enhance minority shareholder rights: boosting shareholder returns at listed firms, reforming systems to attract more foreign
investors and facilitating MSCI Advanced Markets inclusion, introducing a Korean-style discovery system, and improving fairness in legal procedures.
If these pledges are fully legislated and comprehensively implemented through government policy, achieving KOSPI 5,000 during President Lee Jae-myung’s term appears possible. Regaining investor trust could lift equity valuations even further. Conversely, if the second amendment and subsequent complementary legislation fails to pass, foreign confidence may erode, pushing down the KOSPI below 3,000.
Thanks to the reform drive initiated by the Lee administration over the past three months, more than W8 trillion in foreign capital has already flowed into the Korean equity market. Should all complementary legislation be finalized in the second half of the year, substantial foreign long-term capital inflows are likely in the next 1~2 years.
Chaebol and their lobbying agencies routinely parrot the unsubstantiated claim that Commercial Act amendments will enable foreign "speculative capital" to seize control of Korean companies. This assertion is patently absurd and demonstrates a profound misunderstanding of international financial markets and global equity investors. Frankly, such rhetoric is an embarrassment and a source of mockery on the global stage. Of the thousands of foreign funds already invested in, or soon entering, Korea — excluding buyout funds — none are seeking corporate control, in our view. This was starkly highlighted at a recent government-hosted forum, where a vice-chair of an economic association, when directly asked by me, "Can you name even one foreign speculative investor that aims to take over corporate control?" fell silent. These organizations consistently fail to offer any substantive arguments. Furthermore, their own governance structures, despite being largely funded by listed company shareholders, are themselves in dire need of scrutiny.
August 3rd, 2025
Korean Corporate Governance Forum
Chairman, Namuh Rhee