'Articles Amendment' Loophole... Law Firms Lead the Undermining of the Commercial Act Reform [Outside Directors on Trial]⑤

Suspicions Over Law Firms Recommending Loophole Amendments to Companies
Capping Number of Directors to Avoid Elections... Legislative Intent Undermined
Shareholders Still Face Burden of Proof Despite Introduction of Fiduciary Duty

Although the amendment to the Commercial Act has established an institutional framework to strengthen the independence of outside directors, there are suspicions that major law firms have actively recommended that companies amend their articles of incorporation in ways that would undermine the effectiveness of these measures. Critics argue that the legislative intent to enhance the board's oversight function through the appointment of independent outside directors is being undercut, as law firms are leading the way in creating workarounds.

Kim Woochan, Professor of Business Administration at Korea University, stated on June 15, "A significant number of companies amended their articles of incorporation at this week's general shareholders' meeting to prepare for the implementation of the new system, which has diminished the impact of the reform." He pointed out, "For the expansion of the separate election of audit committee members to have a real effect, companies should not have responded by adjusting the maximum number of directors or the length of their terms."

The audit committee must be composed of at least two-thirds outside directors. The separate election system for audit committee members limits the voting rights of major shareholders to 3% during the appointment process, thereby increasing the chances that candidates recommended by minority shareholders are appointed. However, some companies have amended their articles of incorporation to keep the number of directors at the current level. If the agenda item for director appointment is not put forward, it is effectively impossible for candidates for outside directors recommended by minority shareholders to join the board, experts warn.

There are also allegations that major law firms, exploiting companies' concerns, have proposed defensive strategies that undermine the intent of the system. Professor Kim commented, "As concerns grew that outside directors recommended by shareholders could be exposed to litigation risks due to the amendment of the Commercial Act, law firms actively proposed countermeasures such as amending the articles of incorporation." He argued, "As a result, these actions have ultimately worked to weaken the practical impact of the system."

The lack of effective mechanisms to ensure outside directors fulfill their fiduciary duties is also cited as a concern. The current amendment does not provide separate enforcement measures to hold directors accountable, and the existing structure requires shareholders to directly file lawsuits and prove their claims. Since the burden of proof for breaches of fiduciary duty still lies with shareholders, it is interpreted that it remains difficult for such cases to lead to actual litigation.

This content was produced with the assistance of AI translation services.