On March 13, the National Assembly passed and submitted to the government a proposed amendment to the KCC, aiming to impose “fiduciary duties toward shareholders” on directors of joint stock companies.

The government has consistently demonstrated a firm commitment to improving corporate governance and enhancing shareholder returns to protect general shareholders. We strongly agree with the fundamental intent of the proposed amendment.

Still, the proposed amendment may significantly affect the managerial environment and competitiveness of most companies, including small, medium-sized, and large ones.

We found it necessary to seek alternatives to minimize adverse impacts through more in-depth discussions. After extensive deliberation, we would like to ask for the National Assembly’s reconsideration of the proposed amendment.

The government understands that the proposed amendment aims to ensure that directors fairly consider the interests of all shareholders in the corporate decision-making process, not just those of certain groups such as controlling shareholders.

However, it can in reality be difficult to determine, based solely on the language of the proposed amendment, which decisions fairly consider the interests of all shareholders. As a result, there is concern about unexpected confusion that may arise in various decision-making processes within companies.

Due to this lack of clarity, the proposed amendment is likely to extend beyond its original purpose of preventing unfair infringement on the interests of general shareholders. It may rather undermine companies’ active management activities, as directors could face uncertainty regarding civil and criminal liabilities in the overall decision-making process.

The proposed amendment would not only counteract the protection of general shareholders’ interests but also adversely affect the entire national economy.

Despite these concerns, the National Assembly did not hold sufficient discussion about the bill to clarify its legislative intent and minimize adverse effects.

In consideration of all of the foregoing, the government proposed an alternative of amending the Financial Investment Services and Capital Markets Act (“FSCMA”), which can more effectively protect general shareholders in capital transactions that are highly likely to infringe on their interests, such as a merger or spin-off of a listed company.
 
We believe that amending the FSCMA will help establish practices for protecting general shareholders and enhancing corporate governance, with a focus on listed companies. Additionally, as relevant court precedents are established, a gradual expansion of the scope of application will better align with practices in the country.

We would like to emphasize that this veto does not reflect a disagreement with the fundamental intent of the proposed amendment to the KCC, as passed by the National Assembly. We are suggesting exploring alternative approaches to achieving investor protection and enhancing corporate governance, while also preventing the restriction of companies’ management activities amid highly uncertain economic conditions both inside and outside of Korea.