The draft Partial Amendment to the Act on the Management of Public Institutions (the “Act”) was proposed in 2020 to introduce the so-called “board-level employee representation” in major listed public corporations and quasi-governmental institutions. After a prolonged discussion, the draft Partial Amendment was adjusted and integrated into an alternative of the Strategy and Finance Committee on January 5, 2022, and was proposed as an alternative to the draft Amendment to the Act on January 10, 2022. The National Assembly passed the proposed Amendment at the plenary session on January 11, 2022, and it is set to take effect six months after the promulgation.
The board-level employee representation under the Amendment applies to 36 public corporations and 95 quasi-governmental institutions designated pursuant to Articles 5 and 6 of the Act and Article 7 of the Enforcement Decree of the Act. Accordingly, major listed corporations such as Korea Electric Power Corporation, KEPCO Plant Service & Engineering, KEPCO Engineering & Construction Company, Korea Gas Corporation, Korea District Heating Corporation, Kangwon Land and Grand Korea Leisure are subject to the new system under the Amendment. Furthermore, major institutional investors including public pension funds such as National Pension Service, Teachers’ Pension, and Government Employees Pension Service are also required to implement the system. As a result, it is expected to cause a significant impact on corporate governance and capital markets.
The Amendment revises a provision of the Act governing the appointment and dismissal of directors, setting forth that non-standing directors of public corporations and quasi-governmental institutions shall include one person among the employees of the relevant public corporation/institution as recommended by the employee representative. Specifically, the Amendment requires that an employee of the relevant institution who have worked for three or more years, and is recommended by the employee representative (if there is a majority union, the leader of such union) or consented by a majority of the employees, to be appointed as a director. The term of such director shall be two years, and he or she may be reappointed on a yearly basis.
Implementing the board-level employee representation has been one of the government’s top 100 national agendas since 2017. As the agenda also seeks to spread the system into the private sector, it may become more common among private companies going forward. In addition, as for the companies doing business with the above public corporations or institutions, as well as for the companies whose major shareholders are the above pension funds, such as the National Pension Service, the new system may affect future business transactions (including changes in the transaction or bidding standards to manage the ESG and supply chain of public corporations or institutions) and exercise of minority shareholders’ rights.
