SOUTH KOREA Trends and Developments Contributed by: Bo Hee Park, Minhyun Cho, Ian Kim and Jun Hee Kwon, Jipyong LLC
Jipyong LLC 26F, Grand Central A 14 Sejong-daero Jung-gu Seoul 04527 Korea
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With the recent amendments to the Korean Commer - cial Code (KCC), the drive to resolve the so-called Korea Discount – the chronic undervaluation of the Korean stock market – and to modernise the capital market is gaining significant momentum. These reforms codify the principle that directors’ fiduciary duties extend not only to the company but also to its shareholders, thereby requiring directors to protect and equitably consider the interests of all shareholders. Furthermore, the amended KCC stipulates that listed companies with total assets of KRW2 trillion or more must: • adopt cumulative voting; and • hold hybrid shareholder meetings, which enable shareholders to participate and vote electronically in real time alongside in-person attendees. Together, these measures are expected to enhance minority shareholder participation – by facilitating broader shareholder engagement and increasing the likelihood of minority-supported board representation – and thereby potentially reshape corporate govern - ance dynamics. In addition, the KCC introduces a general requirement to cancel treasury shares. As such, companies are now expected to establish a structured framework for the holding, disposal and cancellation of treasury shares.
These amendments have been described as a deci - sive step towards accelerating the long-standing efforts to bring Korea’s corporate governance into the modern era, while also incentivising corporate direc - tors to place greater emphasis on bringing value to shareholders. Codification of Directors’ Fiduciary Duty to Given the prevalence of corporations managed by controlling shareholders, the primary governance challenge in Korea has historically been the potential conflict of interest between controlling and minority shareholders, compared to agency issues between management and shareholders that are commonly found in other jurisdictions. Furthermore, there has been a persistent public perception in Korea that directors often make key decisions based on the instructions of the controlling shareholder rather than in the best interest of the company. Shareholders Background The KCC contains provisions that grant significant powers to shareholders, such as empowering the gen - eral meeting of shareholders to make the company’s key strategic and management decisions, and also codifying directors’ duty of care and loyalty towards the company. Nonetheless, and in light of the unique circumstances of Korea’s corporate environment as discussed above, there have been constant calls for more robust protection of minority shareholder inter - ests. In particular, conflict of interest issues arising out of the transfer of wealth among shareholders during corporate restructuring – such as mergers and acqui -
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