Three economic bills pushed by the government and the ruling Democratic Party of Korea are making businesses nervous. They are amendments to the commercial law and the fair trade law, and a proposed act on the supervision of financial groups.
Businesspeople are bewildered that Kim Chong-in, the interim leader of the main opposition People Power Party, agreed to the bills in principle. They believed the conservative pro-business party would oppose the bills.
Kim said if there are any unreasonable elements within the bills, he will correct them in the parliamentary deliberation process. But his consent indicates that he agrees at least on the need for the bills.
Commercial law is like the constitution of the business world. Prudence is required when it comes to amending it.
The ruling party can pass the bills singlehandedly because it has a large majority. Businesses are afraid that it may push the legislation through like a blitz without proper deliberation. It already acted in haste when it revised the Housing Lease Protection Act, confusing the market and unfairly disadvantaging landlords.
Businesspeople oppose the latest bills because they contain poisonous and radical clauses.
In a system where double derivative actions are permitted, a shareholder of a parent company can sue the directors of the parent’s subsidiaries, even if the shareholder does not own any shares in the subsidiaries. If this change goes through, a business project may be set back due to a lawsuit brought by a shareholder even if the shareholder only owns 0.01 percent of the equity in the operator’s parent company.
Currently, the right to accuse a company of violating the fair trade law can be exercised only by the Fair Trade Commission. If this exclusivity were abolished in line with one of the proposed bills, companies would likely be embroiled in frequent lawsuits brought by civic groups, individuals and the prosecution as well as the commission.
Excessive litigation would make South Korean companies timid about investment, benefiting only their foreign competitors.
The commercial law revision requires the election of audit committee members “separately” from the board of directors elected by its shareholders.
The bill restricts to 3 percent the combined voting rights of the major shareholder and his or her “specially related” shareholders when electing auditors. This is a violation of private property rights.
Speculative foreign investors or investors seeking a hostile takeover may influence the election of audit committee members at shareholders meetings. They can access internal information, so secrets may be leaked to competitors.
Companies are struggling to keep their heads above water amid the worldwide economic impact of the new coronavirus. The sales and operating profit of Korean listed companies fell 11 percent and 15 percent, respectively, year-over-year in the second quarter.
If a company has to worry even more about its managerial rights in this situation, it will be difficult to stay focused on business.
Few would deny the need to enhance the transparency of governance structures and check the power of large shareholders, but a rush for radical change could endanger companies.
If the government and the ruling party want to strengthen the rights of minority shareholders, they must guarantee major shareholders the right to defend themselves. Businesspeople are appealing to politicians not to advocate for large companies. They want to avoid becoming victims of reverse discrimination by comparison with foreign competitors.
While the government is trying hard to revive key industries with enormous fiscal support, it is pushing malignant bills that could hold back businesses. This is a contradiction.
The concerns raised by businesses are not exaggerated. Several large companies have had their managerial rights threatened by speculative foreign capital.
Lawmakers in the rival parties should examine each article of these bills carefully. They must heed companies’ demands and try to minimize the adverse effects of the bills. Careful deliberation is required.