Ruling Party 'Treasury Stock Cancellation' vs Opposition 'Mitigation of Breach of Duty' Party Policy Review.. Commercial Law 3R Build-up

[Financial News] After the ruling and opposition parties agreed on the amendment of the Commercial Law regarding the board's duty of loyalty to shareholders, they are negotiating additional amendments such as the introduction of 'cumulative voting system' in the provisional National Assembly this July, causing tension in the business community. While both parties are preparing related follow-up legislation, the Democratic Party is focusing on the mandatory cancellation of treasury stocks, a pledge of President Lee Jae-myung, and the People Power Party is emphasizing the mitigation of breach of duty to alleviate the burden on the business community. 
According to the comprehensive coverage by this paper on the 14th, the ruling and opposition parties are negotiating the Commercial Law amendment that includes the introduction of the cumulative voting system and the expansion of separate election of audit committee members, while internally, each party is working on drafting follow-up legislation to be processed in the regular National Assembly in September as party policy. Each party is trying to promote supplementary measures necessary for the amended Commercial Law from their perspective.
First, the Democratic Party is preparing to amend the Commercial Law or the Capital Markets Act to include the regulation of mandatory cancellation of treasury stocks. This stems from the perception that the purchase of treasury stocks for management defense has become a factor in the undervaluation of the stock market. Measures such as setting limits on the holding of treasury stocks by companies or mandating their cancellation within a certain period are being discussed.
The mandatory cancellation of treasury stocks is also a presidential campaign pledge of President Lee Jae-myung, and it is being actively discussed at the level of the Democratic Party, the National Planning Committee, and the government. Individual legislative proposals include a Commercial Law amendment proposed by Representative Kim Nam-geun, which requires the cancellation of treasury stocks within one year.
The People Power Party is preparing bills to mitigate breach of duty as suggested by the business community following the amendment of the Commercial Law regarding the duty of loyalty to shareholders. There is concern that if the cumulative voting system and the expansion of separate election of audit committee members are achieved in the July provisional National Assembly, a series of lawsuits to shake management rights may occur.
Former Samsung Electronics President and current Representative Ko Dong-jin has proposed amendments to the Criminal Law and Commercial Law reflecting the Supreme Court precedent that management judgment cannot be punished as a breach of duty, and Floor Leader Yoo Sang-beom has similarly proposed a Criminal Law amendment applying the principle of management judgment.
The Democratic Party and the People Power Party are reportedly planning to promote their respective follow-up legislation as party policy. Both parties have the same approach. By next month, affiliated lawmakers will individually propose various versions of bills, gather internal and external opinions based on them, form party policy, and prepare party policy bills to be processed in the regular National Assembly in September. The Democratic Party is conducting drafting work in consultation with the government through the KOSPI 5000 Special Committee, which is in charge of the Commercial Law amendment issue, while the People Power Party is led by the newly established Policy Chief's Office and the existing Policy Committee.
There is also an expectation that a compromise can be reached as both parties consider it a plan that is being considered in the big picture, although the focus is different. The Democratic Party has stated that it will gradually review the mitigation of breach of duty after listening to the business community's suggestions, and the People Power Party is known to be open to considering mandatory treasury stock cancellation if management defense mechanisms such as poison pill (rights offering) and dual-class shares are introduced.
Representative Kim Nam-geun stated on YTN Radio, "There is some consensus on codifying the Supreme Court precedent in law, as there is concern that the prosecution can indict even if the court acquits for breach of duty," and "We are also planning to promote legislation to prevent the expansion of the scope of breach of duty in consultation with the business community." At the legislative hearing on the Commercial Law amendment by the National Assembly's Legislation and Judiciary Committee on the 11th, testimony from the People Power Party's witness, Jung Woo-yong, Vice President of the Korea Listed Companies Association, argued that supplementary measures introducing management defense mechanisms are necessary.
uknow@fnnews.com Kim Yun-ho Reporter