South Korean companies are demanding stronger measures for management protection be included in the revised commerce law aimed to bolster shareholder’s rights.

“Korean business groups are already facing growing challenges following the introduction of the reduced workweek, hikes in minimum wage and tighter fair trade regulations,” said Sohn Kyung-shik, chairman of Korea Employers Federation (KEF), in a consultation meeting with Justice Minister Park Sang-ki on Monday to discuss the commercial law reforms. “The upcoming revisions (to the commercial law) could add an even bigger burden.”

The comment by the head of the country’s business lobby group representing Samsung Group, Hyundai Motor Group and other major conglomerates came after Korean lawmakers from the ruling and opposition parties recently agreed to embark on the process of reforming the country’s commercial law.

The liberal government under President Moon Jae-in has been pushing to amend the commercial law as part of Moon’s campaign pledge to reform family-run conglomerates. The justice ministry in April proposed to the National Assembly a new set of rules aiming to overhaul the corporate governance structure of chaebols and rein in the power of owner families that currently control their sprawling empires with a limited stake.

The parliament will mainly discuss the revisions to the commercial law that will stipulate cumulative voting and separate auditor election. A separate auditor election aims to appoint an independent auditor outside of the board of directors and to limit the voting rights of the main shareholder to 3 percent. There is also a rule to make cumulative voting mandatory, which would afford greater authority to minority shareholders by allowing them to focus their votes on a single candidate or issue.

Korean companies worry that the new rules could open the door for more hostile forces to sway management by making it easier for them to dominate the board or the auditory committee.

“Korean companies are already under the threat of hostile foreign capital,” said Sohn.

This fear has become even more pervasive after the faceoff between U.S. activist hedge fund Elliott Management and Korea’s largest auto conglomerate Hyundai Motor Group this year. Elliott successfully struck down Hyundai Motor’s restructuring plan in May and has continued to exert its influence over the group, pushing forward its own overhaul plan and demanding better shareholder returns and improved governance.

To bolster the defense mechanism of companies, the business sector has been calling out for a legal reform of its own, mainly the introduction of two policies.

One is a dual class stock system that attaches more voting rights to special classes of shares to allot more control to certain shareholders. The policy is currently in place in Japan and the United States.

Another is the shareholder rights plan, more commonly known as the “poison pill” strategy, which is used by companies to fend off hostile takeovers. The plan gives existing shareholders the right to purchase additional shares at a discount, diluting the bidder’s interest and raising the cost of the bid substantially.

By Kang Gye-man and Kim Hyo-jin

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]