South Korea’s major conglomerates may face diminished control over board governance if the National Assembly passes the additional revision to the Commercial Act, according to industry analysis.
According to a report released Tuesday by the local market analysis firm Leaders Index, about 38 percent of shares held by owner family and aligned parties in the country’s 50 largest business groups could have their voting rights stripped in the election of audit committee members following the revision.
The research examined 130 publicly traded affiliates under Korea’s 50 business groups that have family ownership and calculated their “friendly shares” — shares held by owner family, affiliated companies and charity foundations operated by conglomerates — at 40.8 percent on average.
But with both the so-called “3 percent rule” from the first round of Commercial Act revision and the new rules in the upcoming second round, 37.8 percent of those family-aligned shares would be deprived of voting power, it said.
The first round of revisions, passed last month, included the “3 percent rule” of capping the voting rights of the largest shareholders and related parties at 3 percent when electing audit committee members. In practice, this means even if an owner family holds 40 percent of a company’s shares, they can only exercise 3 percent of those votes in an audit committee election.
The ruling Democratic Party-controlled parliament is also expected to vote this week on a second round of revisions to the act. If passed, the bill would mandate cumulative voting at companies with assets exceeding 2 trillion won ($1.44 billion) and increase the number of separately elected audit committee members from one to two. These provisions were excluded from the first round amid pushbacks from businesses and opposition lawmakers.
The revisions, which aim to protect minority shareholders and improve corporate governance at Korea’s family-owned conglomerates, would substantially weaken founding family control, observers say.
In contrast, the state-run National Pension Service, which owns more than 5 percent stakes in 74 of the 130 companies on the list, is expected to be able to exert greater influence under the revisions. With owner-family votes restricted, the pension fund could emerge as a key swing voter in the boardroom.
“If the second round of Commercial Act revisions passes the National Assembly, the National Pension Service will secure the same voting rights as the shares held by the owner family and related parties, strengthening its power in both annual and extraordinary shareholder meetings,” said an official at Leader’s Index.
