London: PonteSud – News Desk
South Korea’s parliament passed on Thursday a revision to the Commercial Act to expand the fiduciary duty of board members to protect the interests of minority shareholders and try to boost the country’s corporate market valuations.
President Lee Jae Myung, who was elected last month, had pledged to support the legislation to help eliminate what is known as the “Korea discount”.
The discount refers to the lower valuations that South Korean companies typically trade at relative to their global peers, partly reflecting the dominance of family-owned conglomerates that have been criticised for putting their interests ahead of other shareholders.
A previous version of the bill approved by parliament was vetoed by the conservative government of Lee’s predecessor. The latest version was a compromise backed by the conservative main opposition party.
“I am confident that the stock market improvements of revising the Commercial Act and eliminating negative competition factors will make the situation better than now,” Lee said at a news conference earlier on Thursday.
Lee said he had expected the country’s benchmark KOSPI stock index to rise above 3,000 points just by normalising the country’s system, after six months of a leadership vacuum, and reaffirmed his pledge to usher in a period when the index tops 5,000.
It has been part of Lee’s “KOSPI 5,000” initiative to amend the Commercial Act, along with other market reforms including winning an upgrade from emerging market to advanced market by global index provider Morgan Stanley Capital International.
“The amendment will raise foreign investors’ confidence in domestic capital markets and the possibility of South Korea winning developed market status from index provider MSCI in the coming years,” said Seo Sang-young, an analyst at Mirae Asset Securities.
However, groups representing both large and small businesses expressed concern that the amendment does not do enough to protect directors from lawsuits, or company boards from speculative investors.
“We hope that discussions on ensuring defence measures for management rights will take place as soon as possible,” said a statement from eight local business lobby groups, including the Federation of Korea Industries, the Korea Chamber of Commerce & Industry and the Korea Federation of SMEs.
The government plans to set up a task force on winning developed market status, the country’s vice finance minister said this week, after MSCI said last month in its annual review that it would continue to monitor market accessibility in South Korea.
