Revolutionizing Corporate Governance: South Korea’s New Law Puts Shareholders First!

On Tuesday, South Korea’s Cabinet approved a revision to the Commercial Act, mandating company boards to fulfill their fiduciary duty not only to their companies but also to shareholders. The liberal government views this as a crucial step to address the chronic undervaluation of the South Korean market.

Prior to this approval, boards of directors were only obligated to act in the company’s interests, not those of shareholders.

President Lee Jae Myung’s office announced that the new bill will take effect immediately upon promulgation.

Key aspects of the revision include requiring one-third of a company’s board to be composed of outside directors. It also proposes capping the largest shareholder’s voting rights at 3 percent when appointing or dismissing audit committee members, regardless of their status as outside directors, starting one year after the bill’s enactment.

Furthermore, the revision mandates that all listed companies implement electronic voting through virtual shareholders meetings alongside traditional in-person voting, beginning in 2027.

This legislation marks the first set of laws passed through bipartisan agreement on July 3.

The Cabinet also greenlit a revision bill imposing new restrictions on the South Korean president’s power to declare martial law, aiming to prevent potential abuse.

Under this bill, the Cabinet must create meeting minutes and submit them to the National Assembly if the president intends to declare martial law and seeks parliamentary approval.

The bill stipulates that obstructing a lawmaker or civil servant from entering the National Assembly could result in up to five years’ imprisonment. It also prohibits soldiers and police officers from entering the National Assembly during martial law, with violators facing up to three years in prison.

A separate revision to the Immigration Act establishes legal grounds for hiring temporary foreign workers during peak seasons in the agricultural and marine sectors through a seasonal worker program.

The bill restricts the recruitment of foreign seasonal workers to the central government, local governments, or authorized institutions. Violators could face up to three years in prison.

South Korea has been operating a seasonal worker program since its pilot launch in 2015. This year, the country anticipates hiring nearly 100,000 seasonal workers, whose rights will be protected under a legal framework six months after the bill’s promulgation.

During the Cabinet meeting, President Lee urged the government to trim the budget in areas where public funds are being spent routinely, inefficiently, or wastefully.

He also expressed gratitude to medical students for their decision to return to class.

\”I call on education authorities to swiftly implement necessary measures following their decisions. I also urge medical students to reflect on their responsibilities in safeguarding public health and lives,\” Lee stated while presiding over the Cabinet meeting at his Seoul office on Tuesday.

\”Our society lacks dialogue. We cannot assign blame to any one party, but moving forward, I hope every sector of society can engage more actively in constructive conversations.\”