Conflict Between Ruling and Opposition Parties at Commercial Law Public Hearing... Ruling Party "Fear Marketing" vs Opposition "Threat to Management Rights"

[Financial News] The Democratic Party is accelerating follow-up legislation on the commercial law amendment. Previously, the commercial law amendment processed at the National Assembly on the 3rd did not include the cumulative voting system and the expansion of separate election of audit committee members, but the Democratic Party plans to include these in additional legislation at the July extraordinary session. However, the opposition parties, including the People Power Party, are voicing concerns that our companies could become vulnerable to attacks from foreign hedge funds.
The National Assembly Judiciary Committee held a public hearing on the 11th to hear expert opinions on the commercial law amendment. The Democratic Party is pushing for the mandatory cumulative voting system for companies with total assets of 2 trillion won or more and the expansion of separate election of audit committee members.
At the public hearing that day, there was a continued clash of opinions between the ruling and opposition parties over the follow-up legislation on the commercial law amendment. Democratic Party lawmaker Jeon Hyun-hee said, "The Korean stock market has long suffered from the Korea discount due to an outdated, non-transparent governance structure and has yet to be resolved. This public hearing was held to strengthen corporate transparency and protect shareholders through this commercial law amendment, and to restore trust among not only foreign investors but also domestic investors in the domestic capital market."
Democratic Party lawmaker Park Kyun-taek also emphasized, "The cumulative voting system and separate voting system promoted by the Democratic Party aim to include at least one audit committee member through the alliance of minority shareholder forces, thereby securing corporate transparency." Park particularly pointed out the opposition to the commercial law amendment, saying, "It is exaggerated as fear marketing, as if a minority party becomes the first party and even takes over the regime."
However, concerns continued from the opposition. People Power Party lawmaker Joo Jin-woo said, "Everyone sees it as a structure between small shareholders and major shareholders, but if you look at it as a structure between foreign shareholders, i.e., hedge funds, and domestic investors, I think the risk is considerable," adding, "If foreign hedge funds decide to combine with the cumulative voting system to appoint the board, they can appoint more directors than existing small shareholders under a much more favorable structure."
People Power Party lawmaker Kwak Kyu-taek pointed out, "In the case of the cumulative voting system, it was discussed between the ruling and opposition parties to discuss it again later," adding, "As the commercial law amendment is passed, the amendment of the breach of trust law, which companies are concerned about, should be done first to prevent its side effects." He continued, "There is talk that our stock value is falling, but it doesn't seem to be because there is no cumulative voting system. Rather, it seems that the excessive regulations applied only to our companies are causing the stock market to be undervalued."
Previously, the commercial law amendment passed at the National Assembly plenary session on the 3rd included expanding the duty of loyalty of directors from the existing company to 'company and shareholders.' In addition, it included the transition of outside directors to independent directors, the mandatory electronic general meeting of shareholders for listed companies with assets of 2 trillion won or more, and the so-called '3% rule,' which limits voting rights to a total of 3% by combining the shares of the largest shareholder and special related parties when appointing or dismissing an outside director who is an audit committee member. Previously, the 3% rule was applied only when selecting an internal director as an audit committee member, but it was expanded and combined to an outside director audit committee member. However, during the ruling and opposition party negotiations at that time, the expansion of the cumulative voting system and the separate election of audit committee members was postponed as a supplementary legislative task, and the public hearing was held that day.
The Democratic Party plans to pursue additional amendments to the commercial law at the July extraordinary session. In addition, during the regular National Assembly session in September, it is also accelerating the institutionalization of the 'mandatory retirement of treasury shares,' which is also a pledge of President Lee Jae-myung. According to the Democratic Party's KOSPI 5000 Special Committee, the plan is to institutionalize the mandatory retirement of treasury shares through an internal opinion-gathering process from this month to August and to promote it at the regular National Assembly session in September.

cjk@fnnews.com Choi Jong-geun Kim Hyung-gu Reporter