[KCGF Opinion] Asian Corporate Governance Association (ACGA) issues open letter urging Korean National Assembly amend Commercial Act

24 Dec 2024



Asian Corporate Governance Association (ACGA) issues open letter 

urging Korean National Assembly amend Commercial Act



“Warning to Korea that saw collapse in market cap and diminishing global presence”


“Korea’s weighting in the MSCI EM Index has fallen from 16% to 9% while Taiwan’s rose to 19% from 12%”




On December 20th, the Asian Corporate Governance Association (ACGA), a highly respected non-profit based in Hong Kong with a membership of world-class long-term investors, issued an open letter to 300 members of the National Assembly calling for amendments to Korea's Commercial Act (attached is the original English version). With the ACGA’s approval, KCGF translated the original document and distributed it locally. With over 100 long-term investors as members, the total AUM of ACGA's members amounts to US$40 trillion, which is 51 times the size of Korea’s National Pension Service (NPS) and 24 times Korea's GDP.


The ACGA boasts an impressive roster of members, including some of the world's largest and most influential institutions. Notably, pension/SWF members include the Norges Bank Investment Management (NBIM), APG Investments, Australian Council of Superannuation Investors (ACSI), CalPERS, CalSTRS, CPPIB, Temasek Holdings and National Pension Service. Leading asset manager members include BlackRock, Vanguard, Capital Group, Fidelity, JPMorgan Asset Management, Goldman Sachs Asset Management, UBS Asset Management, Schroders, Franklin Templeton, and T. Rowe Price etc. Out of corporate members, TSMC stands out. We recommend Samsung Electronics join the Association to demonstrate its commitment to global best practices in corporate governance.


In the public letter, ACGA expressed concern over the delay in amending the Commercial Act. It emphasized that boards of directors should be accountable to all shareholders. In particular, the ACGA expressed concerns about the following four areas:


1)  out-sized power exercised by founding families even when their shareholding size might be relatively small;

2)  disproportionate decision-making authority given to corporate boards that often appear to be not independent of the company and its founding families / management;

3)  limited authority provided to shareholders with respect to agenda items that require shareholder approval; and

4)  lack of effective measures for minority shareholders to hold management and the board accountable.



The ACGA supports renaming “Outside Directors” as “Independent Directors” to better reflect their responsibilities and promote accountability. Additionally, increasing the required number of independent directors on boards can strengthen their influence and ensure more effective management oversight. At the Forum's conference on November 25, 2024, the ACGA's Korea Research Head expressed support for cumulative voting. Our Forum fully endorses the ACGA's views, which align with global standards.


Korea has been likened to a "Galapagos of corporate governance." Despite extremely low share prices, controlling shareholders often retain their control, while 15 million retail investors, 22 million NPS members, and 52 million citizens suffer the consequences. The ACGA has expressed deep concerns over the diminishing presence of Korea in the international market, citing the setbacks in corporate governance improvements as a primary factor. Korea's weighting in the MSCI Emerging Markets Index has fallen sharply from 16% in 2013 to just 9% today, trailing behind China (25%), India (20%), and Taiwan (19%). The ACGA has pointed out that any further decline would diminish the perception of Korea as a dynamic, innovative market. The Commercial Act revision is at the heart of the matter and demands the 300 members of the National Assembly’s full attention.


The recent economic instability, marked by a weak currency and plummeting share prices, is largely due to the current administration's failure to deliver on its corporate governance reform promises, which have been undermined by chaebol family lobbying. Foreign investors are losing faith in the Korean market due to the government's broken promises. The fact that Samsung Electronics, which has yet to announce a value-up plan, remains a target of foreign selling is also partially due to its outdated corporate governance practices, including a poorly functioning board of directors.


President DJ Kim proved in 1998 that bold reform and restructuring measures were instrumental in reviving the economy, bolstering the stock market, and stabilizing the exchange rate. By implementing corporate governance reforms, Korea can attract significant foreign capital, which will, in turn, revitalize the stock market, stabilize the exchange rate, and restore the positive consumer and investment sentiment. The National Assembly must prioritize the needs of the 52 million Koreans by passing the Commercial Act reform bill without delay. The choice is clear for the next meeting in early 2025.






December 23, 2024

Korean Corporate Governance Forum Chairman,

Namuh Rhee