In 2025, during ordinary general shareholders’ meetings, the engagement of minority shareholders in companies – such as through partnerships with activist funds – and their raising of issues, as well as campaigns soliciting proxies to exercise dissenting votes through shareholder proposals, continue to increase, drawing attention from capital market investors and listed companies. One of the fundamental reasons for the growing demand to enhance shareholder value, which includes facilitating the exercise of minority shareholder rights and improving corporate management and shareholder returns attained through such facilitation, is the expansion of legal means for minority shareholders to raise issues against controlling shareholders and management. This expansion became possible due to amendments to the Commercial Code and the Financial Investment Services and Capital Markets Act (the “FSCMA”), which aimed to strengthen minority shareholder rights. These amendments have led to improved regulations, such as holding separate elections for audit committee members and allowing multi-tiered shareholder derivative actions.

The most controversial issue in the effort to strengthen regulations for protecting the rights and interests of minority shareholders revolves around the move to broaden directors’ duty of care and fiduciary duty to the companies, as outlined in the Commercial Code, to include a direct responsibility to protect shareholders.

On November 14, 2024, the Democratic Party of Korea (“DPK”), which holds the majority of seats in the National Assembly, adopted and initiated proposed amendments to the Commercial Code. It announced its intent to actively pursue these amendments (proposed by National Assembly Member Jeong-Moon Lee; see the newsletter sent in November 2024 (Link) for details). The amendments cover the following initiatives:
 

• To stipulate directors’ duty of care to protect all shareholders’ interests;

• To stipulate a provision to support virtual shareholder meeting system;

• To require the appointment of independent directors who are not influenced by the largest shareholder in listed companies;

• To expand the number of directors who are audit committee members appointed through separate elections in large listed companies; and

• To require cumulative voting when appointing directors in large listed companies.
   

In light of these developments, on February 24, 2025, the 1st Legislation Review Sub-committee of the Legislation and Judiciary Committee of the National Assembly passed an alternative bill to amend the Commercial Code, reflecting some of the above initiatives. This proposal (i) extends the directors’ duty of care to encompass both companies and shareholders, and (ii) stipulates a provision that supports the virtual shareholder meeting system for listed companies. The alternative bill was also passed at the plenary meeting of the Legislation and Judiciary Committee on February 26, 2025. The majority party, DPK announced its plan to deal with the alternative bill at the plenary session of the National Assembly on March 13 after a plenary meeting of the Legislation and Judiciary Committee.
 
The proposed amendments to the Commercial Code, which DPK had previously pushed forward, encountered considerable opposition from companies and economic organizations that raised concerns about infringing on the autonomy and efficiency of corporate decision-making. As a result, it appears that the decision was made to prioritize and advance the alternative bill. This bill includes the key initiative of expanding the directors’ duty of care, as well as the stipulation of a provision supporting the virtual shareholder meeting system, which faced relatively less opposition among the proposals in the previous amendment. That said, DPK stated that the proposed amendments (i) to require the appointment of independent directors who are not influenced by the largest shareholder in listed companies, (ii) to expand the number of directors who are audit committee members appointed through separate elections in large listed companies, and (iii) to require cumulative voting when appointing directors in large listed companies, none of which are included in the alternative bill, will also be further deliberated by the Legislation and Judiciary Committee.
 
In response to the alternative bill, eight economic organizations expressed their concern on the day the bill passed the sub-committee. They claimed there is a high possibility that the legislation could lead to excessive lawsuits against directors, and that activist funds might misuse the amended law as a tool for management attack. Against this background, there is a need to observe the legislative developments, such as the resolution passed at the plenary meeting of the Legislation and Judiciary Committee, the passage at the plenary session, and the government’s potential exercise of the right to request reconsideration (veto right). However, DPK, the majority party, is known to have a strong will to push forward the bill. Once the alternative bill is passed at the plenary session, it will be enforced one year after its promulgation, in accordance with the provisions of the addenda.
 
Various discussions are ongoing in the business and academic circles regarding the scope of application following the legislation of the alternative bill. There is a general consensus that fundamental and far-reaching changes in corporate governance, directors’ responsibilities, the exercise of minority shareholder rights, and the operation of the general shareholders’ meetings will occur. Therefore, it is necessary to maintain a vigilant perspective. In particular, in restructuring transactions such as mergers, spin-off mergers, comprehensive stock swaps, and stock transfers, directors often find it difficult to raise issues from the perspective of protecting the company’s interests. During these transactions, conflicts of interest may arise between controlling shareholders and minority shareholders due to unfair merger ratios or the infringement of minority shareholders’ interests. In such cases, unlike in the past, lawsuits may be filed against directors for their breach of duties to shareholders and their direct civil/criminal liabilities related thereto, and as a result, the risk of liability for directors and management may intensify. In addition, as the duty to protect shareholders’ interests evolves into a general principle applicable to all decisions made by directors, it is vital to secure both the substantive legitimacy and procedural fairness of major corporate management decisions, to amend and improve corporate internal control and compliance systems, and to ensure the adequacy of operating procedures of the board of directors and the general meeting of shareholders, among others. Accordingly, practical inspections of these elements may be needed.
 
Lastly, it should be noted that implementing the virtual shareholder meeting system may also require reviewing necessary procedures, such as amending the articles of incorporation and introducing an operating system for the virtual general meetings of shareholders.