How will Commercial Act changes impact South Korea’s stock market?

Also at the parliament.

Earlier on Thursday lawmakers passed a revision to the Commercial Act in a move that broadly seeks to bolster Korea's corporate market valuations.

Our correspondent Park Jun-han explains.

Listed companies in South Korea will now have to be more cautious when making important decisions.

This comes after the revision of the Commercial Act was passed in the National Assembly on Thursday.

The amendment was one of President Lee Jae Myung's core economic pledges that he had consistently made.

One of the key changes in the bill is the expansion of the “Duty of Loyalty” — from serving the company to also serving its shareholders.

This means corporate directors must now consider the interests of minority shareholders when making decisions.

An economic expert projected that the asset market will regain momentum as the policy changes will boost individual investor sentiment.

"This is seen as a positive move for market development, as it encourages minority shareholders who were previously deterred by weak protections. The revision also introduces civil and criminal liability for directors in cases of conflict between controlling and minority shareholders."

Also, the “Three Percent Rule” limits the combined voting rights of a listed company’s largest shareholder and related parties to 3 percent when electing audit committee members, in a bid to strengthen corporate independence and better protect minority shareholders.

For example, if the owner, and their son and daughter were to exercise their voting rights, they could collectively exert up to 9% of voting rights when electing audit committee members.

However, the amendment caps the combined voting rights of the largest shareholder, and all those directly or indirectly related to them, at 3% when electing directors to serve on the committee, including outside directors.

This enhances the autonomy of individual shareholders and activist funds by reducing the controlling influence of the owner and related parties.

Regarding the Three Percent Rule, a corporate governance expert called it one of the most significant and tangible changes in corporate governance law.

“By capping the voting power of the largest shareholders and parties related to them to a combined 3%, it is now possible for a coalition of minority shareholders or an activist fund to place an independent director. As minority investors become increasingly assertive, this marks one of the most significant shifts toward improving corporate governance in South Korea.”

The business community, meanwhile, has voiced concerns that the revision of the law could restrict important decisions such as future investments.

Among them, some are calling it an “anti-corporate law” and argue that it might encourage shareholders to sue management whenever they lose money.

Park Jun-han, Arirang News.