Commercial law revision would install measures to broaden measures of control at chaebols

By Kim Kyung-rok, staff reporter

The Ministry of Justice has put forward a bill that would revise the commercial act that would limit the tyrannical behavior of chaebol chairmen, whose behavior is a chronic problem that affects large corporations in Korea.

The bill contains provisions that would strengthen the authority of chaebol boards of directors and audit boards to monitor and direct management. The bill would also introduce a cumulative voting system to increase the rights of minority shareholders.

On July 15, the Ministry of Justice announced that it would be submitting a commercial act revision that would attempt to restore the normal function of boards of directors and strengthen the rights of minority shareholders.

The bill would make it mandatory chaebol to appoint an executive committee. This would enable the board of directors, which has been effectively under the control of company management, to actually oversee management and counter its influence. The revisions would also introduce a system for selecting an independent audit board.

The bill prepared by the Ministry of Justice would introduce a number of new systems. There is a cumulative voting system, which would enable minority stockholders to elect board members (registered executives) who would represent their interests. There is an electronic voting system, which would make it possible for stockholders who have not been able to exercise their stockholder rights because they could not attend the general meeting to vote even while away. Finally, there is a multiple derivative suit system, which would allow the stockholders of a parent company to sue the management of a subsidiary for damages.

The objective of the revision to the commercial act, said Seo Bong-gyu, director of the commercial law department with the Ministry of Justice, is to “reinforce the legal basis for developing a more transparent and healthy corporate management culture.”

This bill directly targets the current management structure of chaebol in Korea. At important subsidiaries of major groups such as Samsung, Hyundai Motor, SK, and LG, the presidents of these subsidiaries - who are heavily influenced by the head of the group - also serve as the chair of the board.

While more than half of the board members are from outside the company, they are unable to do much more than rubberstamp the chair’s decisions. In effect, the board of directors has been robbed of its original function - to monitoring the actions of management and providing a check to its power.

Large corporations are protesting the bill. “The commercial law revision bill contains sections that do not match global standards and sections that would actually discriminate against majority shareholders,” said Bae Sang-geun, economic director for the Federation of Korean Industries (FKI). “There are also some sections that would damage the founding principle of a publicly traded company, namely that one share equals to one vote, instead of one vote per person.”

“We must also ask whether this revision is intended to benefit speculators and other big players,” Bae added.

The bill will be submitted to the National Assembly before the end of the year. Lawmakers have already proposed a number of commercial act revisions containing similar material to the National Assembly.

“I agree with the overall intention of the Ministry of Justice’s bill,” said Kim Sang-jo, a professor at Hansung University and director of Solidarity for Economic Reform. “However, I am unsure whether the intention of the revision can be adequately carried out because of all of the exceptions and preconditions in the bill. The National Assembly needs to discuss how it can be made more effective.”

　

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