The Korea Herald


Revised Commercial Act weigh on firms ahead of shareholders meeting season

By Bae Hyunjung

Published : Dec. 14, 2020 - 16:56

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South Korea's companies (Yonhap) South Korea's companies (Yonhap)

South Korea’s listed companies are under growing pressure to overhaul their audit systems in time for their regular shareholders meetings, slated for February and March next year, due to a new set of corporate regulations set to take effect soon.

As the new rules restrict the voting power of owner families in the appointment of auditors, conglomerates will focus on defending their managerial authority from external influence while smaller businesses are likely to struggle to attract qualified personnel.

The Korea Listed Companies Association recently sent out an official letter to member firms, delivering the gist of the “Three Acts for Fair Economic Order,” officials said Monday. The Kosdaq Listed Companies Association, a group of firms on the nation’s tech-heavy secondary bourse, is also drafting a similar message for its member firms.

On Wednesday, the National Assembly passed the revision bill of the Commercial Act that requires listed companies to name at least one auditor from outside their board and limits the voting power of the largest shareholder and family members in the appointment process.

While the original bill applied a 3 percent cap to the combined voting power of the top shareholder and affiliated people, the final version allows them to cast their 3 percent votes separately. The alleviation took into account business circles’ backlash that the restriction would infringe upon shareholders’ rights.

The revised commercial law rounds out the “fair trade regulation trio,” along with the revision bill of the Fair Trade Act and the legislation bill of the Financial Conglomerate Supervision Act.

Unique among the three legislative tracks, the commercial act revision is to take effect without delay, after a 15-day notice period.

Facing the imminent new regulations, most companies are now obligated to select a new external auditor in time for their shareholders’ meetings in the first quarter of next year.

“The government underlines that it has ‘alleviated’ the original 3 percent rule for the sake of shareholders’ rights,” said an industry official who refused to be identified.

“But in reality, the change has limited impact as there are few cases in which family members or other interested parties hold more shares than the top shareholder.”

Concerns have also mounted that the lowered threshold for minority shareholders may excessively infringe upon management rights and consecutively hinder corporate stability.

In the initial legislative stage, the ruling Democratic Party of Korea had vowed to obligate small shareholders to hold their stocks for six months or more before they could exercise their rights. That rule, however, was eliminated from the final version, allowing any shareholder that holds 1 percent to 3 percent of total shares to influence the board.

The burden of restructuring the audit board weighs heavier upon small and medium-sized businesses, where the human resources pool is limited, market watchers said.

“Usually, listed companies would fix their shareholders’ list starting December and gear up for the March shareholders meeting, right after closing their annual accounts in the year-end,” said an official.

“But as (the ruling party) pushed ahead with the law revision in this season of the year, SME working-level officials now find themselves bewildered by the sudden change.”

Key business lobby groups here filed a petition with the National Assembly on Monday, seeking a grace period for the revised Commercial Act.

“We are at a loss on how to overcome the difficulties as several of the approved bills are set to deliver a heavy blow to the economy,” said the Korea Enterprises Federation, Korea Federation of SMEs, Federation of Middle Market Enterprises of Korea, and Korea Listed Companies Association in a joint statement.

“We demand that at least some of the regulations be adjusted during the extraordinary parliamentary plenary session (in January).”

By Bae Hyun-jung (