🚨 Commercial Law Amendment Impact: Corporate Governance Revolution Through Minority Shareholder Rights Enhancement

Today Korean Economic News | 2025.07.14

📌 The Era When Shareholders Become Real Owners - New Chapter Opened by Commercial Law Amendment

💬 The Commercial Law amendment that passed the National Assembly on July 3rd is signaling fundamental changes to Korean corporate governance. This amendment, containing key provisions such as expanding directors' "fiduciary duty to shareholders," mandatory electronic shareholder meetings, and strengthening the 3% rule for audit committee elections, is expected to transform the decision-making structure of companies that have been operated centered around owner families. Particularly, with the substantial strengthening of minority shareholder rights, shareholder activism will be activated, and companies will enter an era where they must pursue more transparent and shareholder-friendly management. Experts evaluate that "this amendment will advance the sophistication of the Korean stock market by one step."

1️⃣ Easy Understanding

A law amendment has been made that makes us rethink who the real owners of companies are. With shareholder rights that had been largely ineffective now being substantially strengthened, the paradigm of corporate management is expected to change significantly.

First, let's understand what "Commercial Law" is. Commercial Law is the basic rule that governs corporate establishment, operation, and dissolution. It's the most fundamental law that regulates how companies should be created and operated, and what the rights and duties of shareholders and management are.

The core of this amendment is strengthening "shareholder-centered management." In the past, while shareholders were said to be company owners, in reality, owner families or major shareholders decided everything. Minority shareholders had difficulty attending shareholder meetings, and even when they attended, it was hard to have meaningful voice.

But now the situation will change. The biggest change is "mandatory electronic shareholder meetings." All listed companies must allow online participation in shareholder meetings. This is a revolutionary change. In the past, shareholders living in rural areas had to come to Seoul to attend meetings of Seoul-based companies. Most minority shareholders had to give up due to time and cost burdens.

The second important change is "directors' fiduciary duty to shareholders." Previously, directors only had a duty of loyalty to the "company," but now they also have direct obligations to "shareholders." Simply put, this means directors must primarily consider shareholder interests when making decisions.

Third is "strengthening the 3% rule for audit committee elections." Audit committee members play important roles in monitoring company management, and now if shareholders with 3% or more ownership oppose, it becomes difficult for those audit committee candidates to be elected. This is a mechanism to prevent major shareholders from appointing only people favorable to them as audit committee members.

How will these changes affect our lives? First, it's good news for stock investors. With minority shareholder rights strengthened, companies are more likely to manage more transparently and return more profits to shareholders.

Also, companies now have to pay more attention to "shareholder opinions." It becomes difficult to pursue only owner family interests or make opaque decisions as in the past. This will bring effects of improving corporate management transparency and efficiency in the long term.

Ultimately, this Commercial Law amendment is expected to be an opportunity for Korean capitalism to mature one step further.

2️⃣ Economic Terms

📕 Fiduciary Duty to Shareholders

Fiduciary duty to shareholders is a legal obligation for directors to primarily consider shareholder interests in company management.

• Previously there was only a duty of loyalty to the "company," but this amendment explicitly states duties to "shareholders."
• Directors can be held legally responsible if their decisions harm shareholders.
• Legal grounds have been established for minority shareholders to receive equal protection.

📕 Electronic Shareholder Meeting

Electronic shareholder meeting is a system allowing participation and voting in shareholder meetings through online platforms.

• It increases minority shareholder participation by solving offline attendance constraints.
• Real-time Q&A and electronic voting are possible, greatly improving transparency and accessibility.
• Listed companies must build electronic shareholder meeting systems.

📕 Audit Committee 3% Rule

The audit committee 3% rule is a system that restricts audit committee elections if shareholders with 3% or more ownership oppose.

• Audit committee members serve independent roles monitoring and checking company management.
• It prevents major shareholders from appointing only people favorable to them as audit committee members.
• It has effects of securing audit committee independence and expertise, improving corporate governance.

📕 Shareholder Activism

Shareholder activism is activity where shareholders actively intervene in corporate management to pursue increased corporate value.

• It appears in forms of demanding management replacement, dividend policy changes, business structure improvements, etc.
• Cases of minority shareholders taking collective action through solidarity are increasing.
• It has positive effects of improving corporate transparency and profitability, along with potential conflict elements with management.

3️⃣ Principles and Economic Outlook

✅ Necessity and Meaning of Corporate Governance Improvement

• Let's examine the governance problems of Korean companies and the changes this amendment will bring.

  • First, owner-centered closed governance structure was a chronic problem of Korean companies. Most Korean large corporations have structures where founder families control companies with minority stakes. For example, in Samsung Electronics' case, Chairman Lee Jae-yong's family stake is only around 5%, but they exercise substantial control through complex circular shareholding structures. In such structures, minority shareholder opinions were difficult to reflect, and sometimes decisions were made for owner family private interests. Representative cases include Samsung C&T-Cheil Industries merger and various transactions between Hyundai Motor-Hyundai Mobis. Such decisions often helped strengthen owner family control but harmed minority shareholders.

  • Second, formalization of shareholder meetings and lack of minority shareholder participation was a serious problem. Existing shareholder meetings were mostly held on weekday mornings in Seoul, lasting only 30 minutes to 1 hour. Minority shareholders residing in rural areas found attendance itself difficult, and even when attending, limited question time prevented proper communication. Also, major agenda items already had predetermined outcomes through major shareholder voting rights, making minority shareholder participation less meaningful. In such situations, shareholder meetings were merely formal events for legal procedures. Mandatory electronic shareholder meetings are revolutionary changes that can solve these structural problems.

  • Third, there were limitations in the existing system where directors' responsibilities and duties were ambiguous. Previously, directors only had duties of loyalty to the "company," so they often prioritized major shareholder or management interests in practice. Even when minority shareholders suffered losses, it was difficult to hold directors legally responsible. However, with this amendment, directors now have direct obligations to "shareholders," allowing minority shareholders to hold directors legally accountable for wrong decisions. This will be a powerful check mechanism making directors more carefully consider shareholder interests when making decisions.

• This Commercial Law amendment will be an opportunity for Korean companies to transition to advanced governance structures meeting global standards, which will greatly contribute to improving Korean stock market competitiveness in the long term.

✅ Economic Ripple Effects of Minority Shareholder Rights Enhancement

• Let's analyze the specific impacts minority shareholder rights enhancement will have on companies and the stock market.

  • First, corporate management transparency and efficiency are expected to improve significantly. With strengthened minority shareholder monitoring, companies must disclose information more transparently and clarify decision-making processes. Particularly, disclosures about related party transactions, executive compensation, and investment plans will become more detailed. Also, with directors bearing direct responsibility to shareholders, they will reduce reckless investments or inefficient management decisions. This will lead to improved corporate profitability and competitiveness, ultimately contributing to shareholder value enhancement. Looking at advanced countries' experiences, companies with strengthened shareholder rights often perform better in the long term.

  • Second, corporate valuation increases and Korea discount resolution effects are expected. The Korean stock market has long suffered from undervaluation problems called the "Korea discount." This was mainly caused by opaque governance structures, minority shareholder neglect, and low dividend rates. However, with improvements from this amendment, foreign investor confidence is expected to increase. Particularly, as ESG (Environmental, Social, Governance) investment becomes a global trend, interest in Korean companies with improved governance will grow. This can lead to Korean stock market valuation increases and expanded foreign investment inflows.

  • Third, expansion of shareholder-friendly policies and dividend increases are expected. With strengthened minority shareholder voice, companies are more likely to make shareholder-friendly decisions regarding dividend policies, share buybacks, and business structure reorganization. Particularly, Korean companies' dividend rates are significantly lower than global averages, and shareholder pressure is expected to gradually increase dividend rates. Also, movements to maximize corporate value through non-core business sales and subsidiary spin-off listings will increase. These changes will bring direct benefits to shareholders.

• Minority shareholder rights enhancement is not just about minority interests but an important change bringing qualitative improvement to Korean capitalism and development of the entire market.

✅ Shareholder Activism Activation and New Investment Environment

• Let's forecast shareholder activism activation due to Commercial Law amendment and resulting investment environment changes.

  • First, domestic and foreign activist fund activities will be greatly activated. Activist funds are investment methods that purchase corporate stakes and then demand specific changes from management. Previously, activist funds had difficulty achieving results due to Korean companies' closed governance structures, but this amendment has significantly changed the environment. More shareholders can participate through electronic shareholder meetings, and with strengthened directors' fiduciary duties to shareholders, activist demands can gain more power. In recent years, foreign activist funds like Elliott and Valuation have been actively operating targeting Korean companies, and such movements are expected to expand further.

  • Second, minority shareholder collective actions and solidarity will increase. While individual minority shareholder power is limited, when multiple minority shareholders unite, they can exert considerable influence. Electronic shareholder meeting systems will serve as infrastructure facilitating such collective actions. Shareholders sharing opinions and establishing joint response strategies through online platforms will increase. Also, roles of minority shareholder protection organizations and shareholder rights specialist lawyers are expected to expand. These changes will make companies pay more attention to minority shareholder voices.

  • Third, companies' IR (Investor Relations) activities and communication methods will fundamentally change. Previously, IR activities centered on major shareholders or institutional investors, but now communication with minority shareholders has become important too. Companies must provide information more frequently and in more detail, and faithfully answer shareholder questions. With real-time Q&A through electronic shareholder meeting systems, corporate management will face pressure to provide more transparent and convincing explanations. This will bring effects of improving corporate communication capabilities along with enhancing management strategy logic and consistency.

• Shareholder activism activation will make the Korean stock market more dynamic and efficient, providing better investment environments for all investors.

4️⃣ In Conclusion

The Commercial Law amendment passed on July 3rd represents a historic change that fundamentally transforms Korean corporate governance paradigms. With shareholder rights that had been formal now gaining substantial power, a true era of "shareholder capitalism" has opened.

The greatest significance of this amendment is resolving information asymmetry and participation barriers. Mandatory electronic shareholder meetings allow anyone to participate in shareholder meetings without geographical or time constraints, and strengthened directors' fiduciary duties to shareholders provide solid grounds for minority shareholders to receive legal protection.

These changes may initially burden companies. They must disclose more information, make decisions more carefully, and respond to shareholders' various demands. However, in the long term, this will contribute to competitiveness enhancement by improving corporate transparency and efficiency.

Better investment environments will be created for investors. With increased corporate information transparency and spread of shareholder-friendly policies, investment risks will decrease while profit opportunities increase. Particularly, excellent companies that had been undervalued are likely to be reevaluated.

Above all, this amendment has significance in raising Korean capitalism's maturity level by one step. As companies with advanced governance structures at developed country levels increase, global investor confidence will also rise. This will positively impact Korea discount resolution and foreign investment attraction.

Of course, change takes time. It will take considerable time for law amendments to lead to actual corporate culture and practice changes. Also, there may be temporary conflicts and confusion during shareholder activism expansion processes.

However, what's clear is that this Commercial Law amendment is an important starting point for making the Korean economy a more transparent, efficient, and fair system. The new era where shareholders become true owners - that wave of change has now begun.