[Editorial] Veto inevitable
Democratic Party pushing Commercial Act revision that businesses adamantly oppose
The ruling People Power Party will ask acting President Choi Sang-mok to veto the Commercial Act amendment that opposition parties are pushing unilaterally.
Floor leader Kweon Seong-dong said the bill is anti-corporate and poses a serious threat to business management activity. Kweon urged Lee Jae-myung, chair of the Democratic Party of Korea, to scrap the market-distorting law first if he wants to lead a party for centrist conservatives as he has vowed.
A day earlier, the majority opposition party passed the Commercial Act amendment unilaterally through a subcommittee of the National Assembly's Legislation and Judiciary Committee despite opposition from the ruling party, the government and business circles. It reportedly plans to pass the bill in the Assembly plenary session on Thursday.
Currently, the Commercial Act requires corporate board members to act in the best interests of their companies. The bill would expand their fiduciary duties to cover the interest of shareholders as well.
The business community has opposed the revision out of concern that if it becomes a law, small shareholders will likely sue company directors frequently, claiming they suffered economic damage due to management decisions by the board. Directors will likely be embroiled in a flood of litigation. Companies will also become an easy target of takeover bids by speculative foreign funds.
Decisions on necessary investments or mergers and acquisitions could be delayed or negatively affected by the possibility of being sued by shareholders. Shareholders are diverse, ranging from individual investors to activist funds. It is practically impossible to meet their different interests, which are sometimes conflicting.
Businesses have made many pleas for the withdrawal of the Commercial Act revision.
The chief executives of 16 big companies issued a joint statement in November last year, calling for a halt to the amendment.
Eight business lobbies, including the Federation of Korean Industries and the Korea Chamber of Commerce and Industry, issued joint statements on Sunday and Monday urging reconsideration of the bill.
The issue of expanding director duties to satisfy the interests of shareholders stemmed from a split-off practice by which a company carves out part of its profitable assets or divisions to create a new subsidiary and lists it on the stock market. In this case, small shareholders in the parent company are prone to see their stock price fall. The government and rival parties agree on the necessity of correcting this problem.
However, revising the Commercial Act as a means to achieve this goal is tantamount to taking a sledgehammer to crack a walnut.
The Commercial Act has a wide-ranging impact on about one million businesses across the country, including unlisted small and mid-sized companies.
When it comes to protecting the interests of small shareholders in the process of mergers or split-ups, there is an alternative. That is to revise the Capital Markets Act that regulates listed companies. Pinpoint revision is the right answer.
Dealing with the problem broadly, such as by requiring directors to meet the interests of shareholders as well as those of companies, is off the mark. Above all, this method has the adverse effects of atrophying management, discouraging investment, and endangering managerial control.
In November last year, when Lee Jae-myung visited the Korea Exchange, he said that if the Capital Markets Act were revised to address the divestment practice in question, it would be unnecessary to revise the Commercial Act.
Then he shifted ground apparently to gain votes from small shareholders in anticipation of a possible early presidential election. He seems to have come back to square one as labor and progressive civic groups who form his base condemned his recent emphasis on "pragmatism."
Companies are beset by rising American protectionism and languid domestic sales. Now is the time for the government and the National Assembly to foster an environment of help for them.
Management should not be imperiled under the pretext of protecting small shareholders. The amendment of the Commercial Act will inevitably be vetoed. Legislators should work out a new, more business-friendly bill.
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