Urgent Call for Active Participation in Completing
the Amendment of the Commercial Act
to Fulfill Directors' Duty to Shareholders
The Korean capital market and economy are facing a severe crisis, having dropped to the bottom in global rankings.
Domestic investors are increasingly diversifying their portfolios away from Korea to the U.S. and Japan, while foreign investors are being advised to reduce their exposure to Korea. Furthermore, promising companies like Coupang and Toss are increasingly opting to list on U.S. stock exchanges in search of higher valuations. The Korean market is steadily losing the attention of the public.
The most significant culprit contributing to the crisis in Korea's capital market and economy is the systemic failure of basic corporate governance principles.
A corporation is the cornerstone of a market economy, where managers work for the benefit of all shareholders and the shareholders’ oversight of the management is ensured through checks and balances. This is an undeniable principle proven repeatedly in history.
The fiduciary duty of directors to protect the interests of all shareholders is the most basic and fundamental cornerstone of a functioning corporate system. Unfortunately, in Korea, this principle has existed only in textbooks.
Fortunately, the Korean government made a significant breakthrough when it opened discussions on amending the Commercial Act as part of its Value Up policy. Now, both the legislative and judicial branches have effectively agreed on are vision that would clearly specify directors' duties of loyalty and protection toward shareholders. The majority party in the National Assembly has adopted it as an official stance, and the Supreme Court has also expressed clear support.
Some corporate managements have issued urgent statements falsely claiming that mandating fiduciary duties for directors constitutes excessive regulation and that it will lead to foreign takeovers of domestic companies. But how is it excessive for the Commercial Act to include provisions that protect the most basic rights and interests of all shareholders, who are the true owners of the company? Is it restricting the government when the Constitution mandates direct presidential elections?
At this critical time when Korea is growing into a developed economy and its economic strength and cultural influence are reaching out to the world, we must not allow the country’s future to be sacrificed by a small, privileged minority who still cling to the outdated ideologies of the developmental dictatorship era in the 1970s.
We are already witnessing the beginning of a vicious cycle: shareholders’ interests are being violated with no legal protection, leading to a self-driven “national flight” of capital to overseas markets, which in turn exacerbates domestic stagnation and economic slowdown. Time is running out.
We must urgently return to the fundamentals of corporate governance. By doing so, we can resolve the Korea Discount in the capital market, which is one of the key steps to solving numerous social and economic issues such as extreme crowding into real estate assets, unaffordability of housing, falling birth rates and aging population.
The legislation of directors’ duty of loyalty to all shareholders is an essential first step in revitalizing our capital markets and economy. It will send a powerful message to those who are leaving our market to look back and return.
We strongly urge the government and political circles to demonstrate their commitment to the future of our nation by actively participating in the completion of the Commercial Act amendment to ensure the fiduciary duty of directors to all shareholders. This is the path to securing future happiness and stability for the overwhelming majority of citizens over time.
A joint statement by investors and the general public urging the full implementation of the directors’ duty to shareholders.
November 28, 2024
Signed by
109 supporters and
Korean Corporate Governance Forum Chairman, Namuh Rhee
Vice Chairmen, Joo-young Kim, Hyung-kyoon Kim, Hyeseop Sim, Joonbum Cheon, Joonchul Choi
Urgent Call for Active Participation in Completing
the Amendment of the Commercial Act
to Fulfill Directors' Duty to Shareholders
The Korean capital market and economy are facing a severe crisis, having dropped to the bottom in global rankings.
Domestic investors are increasingly diversifying their portfolios away from Korea to the U.S. and Japan, while foreign investors are being advised to reduce their exposure to Korea. Furthermore, promising companies like Coupang and Toss are increasingly opting to list on U.S. stock exchanges in search of higher valuations. The Korean market is steadily losing the attention of the public.
The most significant culprit contributing to the crisis in Korea's capital market and economy is the systemic failure of basic corporate governance principles.
A corporation is the cornerstone of a market economy, where managers work for the benefit of all shareholders and the shareholders’ oversight of the management is ensured through checks and balances. This is an undeniable principle proven repeatedly in history.
The fiduciary duty of directors to protect the interests of all shareholders is the most basic and fundamental cornerstone of a functioning corporate system. Unfortunately, in Korea, this principle has existed only in textbooks.
Fortunately, the Korean government made a significant breakthrough when it opened discussions on amending the Commercial Act as part of its Value Up policy. Now, both the legislative and judicial branches have effectively agreed on are vision that would clearly specify directors' duties of loyalty and protection toward shareholders. The majority party in the National Assembly has adopted it as an official stance, and the Supreme Court has also expressed clear support.
Some corporate managements have issued urgent statements falsely claiming that mandating fiduciary duties for directors constitutes excessive regulation and that it will lead to foreign takeovers of domestic companies. But how is it excessive for the Commercial Act to include provisions that protect the most basic rights and interests of all shareholders, who are the true owners of the company? Is it restricting the government when the Constitution mandates direct presidential elections?
At this critical time when Korea is growing into a developed economy and its economic strength and cultural influence are reaching out to the world, we must not allow the country’s future to be sacrificed by a small, privileged minority who still cling to the outdated ideologies of the developmental dictatorship era in the 1970s.
We are already witnessing the beginning of a vicious cycle: shareholders’ interests are being violated with no legal protection, leading to a self-driven “national flight” of capital to overseas markets, which in turn exacerbates domestic stagnation and economic slowdown. Time is running out.
We must urgently return to the fundamentals of corporate governance. By doing so, we can resolve the Korea Discount in the capital market, which is one of the key steps to solving numerous social and economic issues such as extreme crowding into real estate assets, unaffordability of housing, falling birth rates and aging population.
The legislation of directors’ duty of loyalty to all shareholders is an essential first step in revitalizing our capital markets and economy. It will send a powerful message to those who are leaving our market to look back and return.
We strongly urge the government and political circles to demonstrate their commitment to the future of our nation by actively participating in the completion of the Commercial Act amendment to ensure the fiduciary duty of directors to all shareholders. This is the path to securing future happiness and stability for the overwhelming majority of citizens over time.
A joint statement by investors and the general public urging the full implementation of the directors’ duty to shareholders.
November 28, 2024
Signed by
109 supporters and
Korean Corporate Governance Forum Chairman, Namuh Rhee
Vice Chairmen, Joo-young Kim, Hyung-kyoon Kim, Hyeseop Sim, Joonbum Cheon, Joonchul Choi