Yoon Seok-yeol, of the conservative People Power Party, won Korea’s 20^th Presidential Election held on March 10, 2022 (link).  The key pledges of the elected candidate regarding corporate governance and corporate law are summarized below; please refer to the following summary to predict changes in corporate governance regulations in the next administration.

1.   Revision of regulations on related parties and introduction of a takeover defense system 

• There will be improvements to the current regulatory system governing related parties, which form the core set of laws and regulations governing stakeholder transactions and conflicts of interest.  There will also be reasonable adjustments to the defined scope of relatives, such as recognizing exceptions in cases with proof of no joint economic relationships.  

• As a way for venture business founders to attract investments without diminished control, and secure stable management control, advanced measures to defend management control will be introduced, such as the multiple voting right system for venture businesses.

2.   Improvements in minority shareholder protections and management control premium systems

• In order to strengthen requirements for vertical spin-offs and institutionalize shareholder protection measures, (i) listing after a spin-off of a subsidiary will be strictly restricted, (ii) where a new business is split and listed as a separate company, relevant regulations will be revised, such as granting preemptive rights to shareholders of the parent company upon listing of the subsidiary, and (iii) when subscribing to a subsidiary’s public offering shares, the parent company's existing shareholders will be granted a preemptive right to subscribe to a certain percentage of new shares at the public offering price.

• In order to reorganize the requirements for delisting of shares and expand the phased management system in the process of delisting, listed shares should not be abruptly delisted despite the necessity of maintenance of listing.  

• In order to restrict trading of large number of shares by insiders, including the management, (i) relevant systems will be improved so that large-scale, unrestricted stock sales by insiders will not cause general shareholders to suffer damages, (ii) insiders’ sale of stock on exchange will be limited to certain time and other limitations, and (iii) the practice of paying high control premiums only to controlling shareholders will be reviewed by preparing a plan to grant appraisal rights to shareholders of the acquired company when management rights change by buying and selling stock shares.

• In order to improve the short sale system, (i) short selling monitoring and delivery organization will be established to strictly enforce illegal short selling, (ii) the collateral ratio of individual investors, which is higher than that of institutions and foreigners, will be reasonably adjusted; and (iii) introduction of a short-selling circuit break for excessive stock price falls will be actively considered.

• In order to improve capital markets transparency and fairness, (i) transparency in accounting and public disclosure will be enhanced, and (ii) the effectiveness of sanctions will be strengthened by reorganizing the entire process, including the investigation and punishment of securities crimes such as use of insider information and stock price manipulation. 

3.   Improvement of appraisal rights (stock options) system 

• In order to ensure the flow of top talents to venture companies, tax exemption limit will be raised to KRW 200 million when exercising appraisal rights (stock options), and KOSDAQ-listed companies will also be subject to special treatment in taxation on profits from exercising stock options to support the listing of venture companies.

4.   Strengthened ESG management

• ESG evaluation indicators will be standardized, and customized support, such as corporate status evaluation, financial and tax support, management and legal consulting, will be strengthened using ESG indicators.  Diverse ESG-related joint project programs between large enterprises, SMEs and venture companies will be prepared and promoted in which large enterprises transfer their ESG management capabilities and provide technical cooperation to their business partners that are SMEs and venture companies. 

Pursuant to the elected candidate’s key pledges, we anticipate a number of changes to corporate governance and capital market regulations, appraisal rights system, and ESG management regulations; therefore it will be necessary to strategically prepare for these changes.  

[Korean version]