Korea is witnessing a major shift in corporate governance, with lawmakers focusing on tighter director accountability and stronger shareholder protection. Recently proposed amendments to the Korean Commercial Code and Capital Markets Act reflect this trend, signaling a move toward greater transparency and fairness in corporate decision-making.
On November 19, 2024, the Democratic Party, the majority party in the National Assembly, proposed an amendment to the Korean Commercial Code aimed at reshaping director responsibilities. The proposed amendment expands the directors’ duty of loyalty to apply not only with regards to the company but also its shareholders, reinforcing their obligation to act in the best interests of all investors. It also mandates cumulative voting for listed companies with total assets exceeding KRW 2 trillion, ensuring minority shareholders have a stronger voice in board elections. Additionally, the proposed amendment increases the number of independent audit committee members, to be elected separately from controlling shareholders, to further limit the influence of major stakeholders. If enacted, these changes would make it easier to hold directors liable for decisions – such as capital transactions, intra-group mergers, and stock swaps – that unfairly disadvantage general shareholders in favor of controlling shareholders.
Moreover, on December 2, 2024, the Financial Services Commission announced a proposed amendment to the Capital Markets Act, reinforcing protections for shareholders in key corporate transactions. Under the proposed amendment, companies undertaking mergers, demergers, stock transfers, or major asset sales must actively ensure that shareholder interests are safeguarded. The proposed amendment also closes a loophole concerning spin-offs, where parent companies list newly spun-off subsidiaries, often diluting the interests of its existing minority shareholders. These new provisions aim to level the playing field and prevent unfair dilution of shareholder value. Further bolstering transparency, the revised Enforcement Decree of the Capital Markets Act, which became effective on November 16, 2024, requires boards to publicly disclose statements detailing the purpose, expected benefits, and fairness of major corporate transactions, such as merger considerations and ratios. For example, if a board member opposes a merger, the board must also publicly disclose such director’s dissent. These measures are designed to enhance transparency and accountability at the board level, making sure that directors engage in meaningful review and deliberations of proposed transactions and are held accountable for decisions which are against the interests of the company or general shareholders.
These regulatory changes have sparked concerns within corporate circles. Many companies fear that imposing stricter director accountability could lead to an increase in the number of legal disputes, including criminal complaints alleging breach of fiduciary duty. Companies are also wary of heightened activist investor engagement, which could introduce new challenges for management decision-making.
While it remains uncertain whether these proposed amendments will pass the National Assembly, the trend toward stronger director accountability and shareholder protection is undeniable. To stay ahead of these changes, many companies are reviewing their compliance programs, exploring structural changes, such as introducing majority-of-minority voting requirements for transactions affecting minority shareholders, forming independent special committees composed of external directors, and adopting advisory shareholder proposals.
With increased scrutiny on corporate governance, businesses operating in Korea must stay ahead of compliance trends and ensure that their governance frameworks are robust enough to withstand increased oversight. Strengthening internal controls and implementing proactive compliance strategies now – before regulations take full effect – will be critical in maintaining stability, avoiding legal risks, and reinforcing shareholder confidence in an evolving regulatory landscape.
