Photo: KRX headquarters. Credit: Korea Exchange.
On July 3, the National Assembly 국회 passed revisions to the Commercial Act 상법 in a rare bipartisan vote. Although the legislature originally passed the revisions in March, then-Acting President Han Deok-su 한덕수 당시 대통령 권한대행 vetoed the bill. In response, the Democratic Party 민주당 brought a beefed-up bill before the Assembly after the June 3 presidential election.
The revisions to the Commercial Act include numerous provisions that strengthen the rights of minority shareholders. Under the new law, directors of a publicly traded company now owe fiduciary duties to both the corporation and its shareholders, rather than just shareholders. The votes of persons related to the largest shareholder - typically the members of the chaebol 재벌 founding family - are capped at 3%. The revisions make online shareholder meetings mandatory for companies above a certain size, and require more independent board members.
The revisions are a key step toward relieving the so-called “Korea discount,” a phenomenon where Korean corporations’ shares persistently trade significantly lower than their implied value based on sales and expected earnings. The Korea discount exists, for the most part, because at any time the chaebol founding families may raid their companies for their personal benefit at the expense of minority shareholders. By affording greater protection for shareholders, smaller investors can be incentivized to invest in the South Korean stock market over the long term, as with the stock market in the United States.
On July 5, the KOSPI index climbed to a year-to-date high of 3116.27, having gained more than 400 points since the June 3 presidential election. President Lee Jae-myung 이재명 대통령 made “KOSPI 5,000 Era 코스피 5천 시대” a campaign pledge, promising to boost the stock market by strengthening shareholder rights and lowering taxes on dividend income. (See previous coverage, “Stocks Soar on Lee Election.”)