Opposition prioritizes votes over corporate survival in law revision

"The revision of the Commercial Act is a matter with a clear answer, just like the abolition of the financial investment income tax (FII tax). Issues like the 52-hour workweek exception for the semiconductor industry are difficult because there is no definitive answer, but the answer is clear for something like the Commercial Act amendment."

This was the response of a key Democratic Party of Korea (DPK) lawmaker last month when asked about the party’s push to pass the amendment. The "answer" he referred to was likely the electoral gains the DPK anticipates if President Yoon Suk Yeol is impeached and an early presidential election is called. Unlike the 52-hour workweek issue, which pits business and labor against each other, the Commercial Act revision is seen as a straightforward choice—supporting the country’s 15 million retail investors over corporations, which are far fewer in number.

The DPK had previously experienced a surge in its approval ratings—by six percentage points in just one week—following its abrupt announcement on Nov. 5 last year to scrap the FII tax. At the time, a senior party member excitedly remarked, "Retail investors are in an uproar, demanding that we quickly pass the Commercial Act revision along with the FII tax repeal."

Against this backdrop, the amendment to the Commercial Act finally passed the National Assembly on March 13. Already struggling to fend off foreign activist funds amid mounting economic uncertainty under a potential second Trump administration, South Korean corporations are now facing even greater challenges. Boardrooms are particularly tense over the new "fiduciary duty" requirement, which mandates that directors act in the best interests of all shareholders. A senior executive at a major conglomerate lamented, "Even now, outside directors exchange strategies on how to avoid lawsuits. With this revision, foreign activist funds could claim shareholder interests have been violated and file lawsuits, leaving us with no way to avoid them."

During the plenary session on March 13, DPK lawmaker Lee So-young argued, "With the Commercial Act revision in place, the Korea Discount will be resolved, leaving little room for short-term profit-seeking activist funds to enter the market." However, stock prices are influenced by a complex mix of corporate competitiveness, market conditions, and political and economic factors. There is no guarantee that the Commercial Act revision alone will eliminate the Korea Discount or boost stock prices.

Moreover, activist funds operate primarily to generate profits, meaning their actions are not necessarily tied to the valuation level of the stock market. The U.S. stock market, for instance, is often considered overvalued, yet it remains the stronghold of activist investment funds.

To be fair, some major corporations have indeed exploited minority shareholders through measures such as spin-offs. If such abuses are a concern, targeted regulations would be a more appropriate response. Instead, the sweeping, all-encompassing regulatory approach appears aimed at stoking anti-corporate sentiment among retail investors.

South Korea has already faced significant pressure from activist funds. Samsung and Hyundai Motor, for example, were hit with shareholder return demands of 30 trillion won and 8 trillion won, respectively, from U.S.-based Elliott Management in 2016 and 2018. More recently, private equity firm MBK Partners acquired Homeplus, extracted short-term gains, and then abruptly filed for corporate rehabilitation, sparking public outcry over asset stripping. Despite multiple past incidents, South Korea has now effectively opened the door even wider for activist funds—not to enhance corporate value but to erode it.

While securing votes is important, the DPK must recognize that what they consider the "right answer" may not be the right answer for South Korea’s businesses.