Photo: Major chaebols hold a press conference opposing the proposal for greater shareholder protection. Credit: Yonhap.
On November 20, the Democratic Party 민주당 proposed a bill in the National Assembly 국회 that would amend the Commercial Act 상법 to stipulate that the directors of a corporation have the duty to act in the equal interest of all shareholders. Currently, South Korea’s corporate directors only have the duty to act in the best interest of the corporation, not its shareholders.
The lack of a legal obligation to shareholders has long been criticized as a key loophole that has allowed chaebol 재벌 to maintain their control. Because the founding families of chaebol conglomerates will never sell their stakes in the company, they can act in ways that depress share values, hurting smaller investors in the process. The persistence of this practice has been the leading cause of the so-called “Korea Discount”, the discrepancy between the share prices of South Korean corporations and the consistently higher value of those corporations.
In 2015, for example, the Samsung Group 삼성그룹 engineered a merger that artificially lowered the stock price of Samsung C&T 삼성물산, the de facto holding company for the group, so that the group’s successor Lee Jae-yong 이재용 could acquire control of the chaebol group on the cheap, to the detriment of minority shareholders in Samsung C&T - which included the National Pension Service 국민연금, which manages South Korean taxpayers’ pension fund.
On November 21, the 16 largest chaebol groups in South Korea held a joint press conference opposing the proposed Commercial Act amendment. Representatives of the conglomerates claimed that requiring shareholder protection would lead to “proliferation of litigation and attacks by foreign speculative capital.” People Power Party chairman Han Dong-hun 한동훈 국민의힘 당대표 said the ruling conservative party also stands in opposition, and warned that the proposed amendment “may sow chaos, because the interests of large shareholders are often in conflict with small shareholders.”