Korean Inc. faces regulatory bombardment from radical amendments in commerce, fair trade and financial supervisory legislations that can put them vulnerable against lawsuits from shareholders and outside predatory capital.

They lost their biggest defense after the main opposition party leader declared his party won’t oppose to the controversial bills that were shot down in the previous legislative due to the opposition from the conservative front.

The bills were resubmitted by the government after the ruling party came to command a supermajority in the legislative whose term began in June.

The most dreaded are the changes in the Commerce Act that enable companies with assets of more than 2 trillion won to appoint at least one of the auditors from outside and limit the largest shareholder’s voting right of naming auditor to 3 percent.

An official from the business circle said the revision would severely undermine the control of the largest shareholder on corporate management while giving formidable power to funds or institutional investors that can combine their forces to exert greater influence in corporate decision making.

“The regulation denies the basic rights of shareholders and cannot be found anywhere in the world,” said Kwon Tae-shin, vice chairman of the Federation of Korean Industries (FKI), adding Korean business groups would be under stronger threat like the case of Sovereign Asset Management that had threatened the management of SK Group with five funds owning 2.99 percent each in the group’s holding entity SK Corp.

Another fearful regulation is one on multiple representative shareholder litigation that would enable a shareholder owning as little as 0.01 percent stake in non-listed subsidiaries or 0.0001 percent in listed ones file a damage suit against the executive of a controlling company for mismanagement in subsidiaries.

“Companies usually operate non-listed subsidiaries to focus on technology development or other strategic purposes without external interference,” an official from a business organization said. “The revision would stall or hinder bold investments in fear of lawsuits.”

According to the Korea Listed Companies Association (KLCA), companies’ lawsuit risk would multiply by 3.9 fold if the revision passes. “Shareholders who own just 1.35 million won ($1.16 million) in a Kospi-listed firm or 1.38 million won in a Kosdaq-listed company will be able to file a law suit,” KLCA policy vice chairman Jung Woo-yong said earlier this month.

Businesses also point out to excessively injurious clauses in the proposed revision plans of the fair trade law, including the one that would remove Fair Trade Commission’s exclusive right to charge companies for unlawful activities and allow prosecution to open an investigation directly. Companies argue the FTC’s screening is necessary because there could be too many duplicated and unexamined lawsuits that would significantly hamper business activities.

The government and ruling party have also proposed regulation that requires holding companies to own more than 30 percent stake in listed units and 50 percent in non-listed ones. The business circle said that the rule would cost 30.9 trillion won ($26.6 billion) on average for business groups to adopt holding company structure, a cost that could create 244,000 new jobs.

Six business organizations including FKI, Korea Federation of Small and Medium Business and Korea Enterprise Federation released a joint statement last Tuesday to warn that the revisions would cause a serious side effect that will threaten companies’ management rights and make firms waste money on unnecessary stake purchases rather than investments or job creation.

“As the countries around the world ease business regulations to overcome the pandemic crisis, Korea should also help companies to increase investments and add jobs to overcome the crisis,” they said in the statement.

By Noh Hyun and Choi Mira

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