South Korea’s acting president vetoed a landmark bill that would heighten corporate boards’ accountability to shareholders, siding with conglomerates in their dispute with reform advocates.
Han Duck-soo’s veto, announced Tuesday, quashes an amended commercial code that was passed by the opposition-controlled parliament in March. The bill proposed to rewrite the code to include boards’ fiduciary duties to shareholders and not just to the company itself.
The proposed change “could hinder active management activities by directors due to uncertainties over civil and criminal liabilities in overall decision-making,” Han, who is also the prime minister, said in a live-televised cabinet meeting. “It would not only go against the protection of general shareholders but also negatively impact the entire national economy.”
Han’s move was widely expected after his recent meeting with industry representatives, including SK Inc chair Chey Tae Won, and the ruling party leader’s vow to garner the veto. Still, the bill rejection marks another setback for investors who have argued that the limited parameters of boards’ fiduciary duty hurt corporate governance and weigh on the stock market.
“It is deeply disappointing, as global investors will interpret this as the Korean government’s opposition to basic investor protections in the equity market,” Lee Chang Hwan, CEO of Align Partners Capital Management Inc, said. “However, given the strong will of the Korean electorate, I believe the broader arc of history will not be reversed.”
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South Korea’s opposition parties issued a joint statement urging the acting leader to reverse the veto and vowed not to give up on their efforts to change the law. The reform advocates’ drumbeat for change could grow louder if the Constitutional Court rules on April 4 to uphold the removal of impeached President Yoon Suk Yeol, a ruling that would trigger a presidential election.
Despite the veto, the parliament’s approval was nonetheless viewed by market watchers as a step forward in Korea’s efforts to improve corporate governance. Korean boards’ insular approach with other insiders, including founding family members at “chaebol” conglomerates, deters some foreign investors and contributes to lower stock valuations known as the “Korea Discount,” investors said.
The bill also has supporters among market regulators. Lee Bokhyun, governor of the Financial Supervisory Service, has said the changes to the code — even if they could have side effects — should be enacted to maintain the momentum of the government’s campaign to enhance shareholder value.
The veto is “an act of deceiving the public and tyranny to serve the interests of chaebol,” a committee of lawmakers from the Democratic Party and other opposition parties said in their joint statement.
