[비즈한국] The Commercial Act amendment, which passed the National Assembly plenary session on the 13th, has emerged as a "hot potato" in the financial sector. The core of the amendment is the "scope of directors' fiduciary duty." Regardless of whether a company is listed or not, it specifies that the scope of a director's fiduciary duty must be expanded from the existing "company" to include "the company and its shareholders" to protect the interests of all shareholders and ensure that the interests of all shareholders are treated fairly.
However, in the business sector, there are loud voices calling for the government to exercise its right to request reconsideration (veto power), arguing that it increases uncertainty regarding the legal liability of directors and stifles management activities. Eight economic organizations argued, "Defining a director's duties through such abstract and simple legal maxims fails to provide clear standards and details on the obligations directors must bear in actual management environments," adding, "Imposing broad and general obligations on all companies to protect minority shareholders is highly likely to violate the constitutional principle of 'prohibition of excessive restriction'."
In particular, there is deep concern that "populism" will become rampant as the possibility increases that shareholders may file lawsuits for breach of trust if they are dissatisfied with any decision made by the board of directors. The small and medium-sized enterprise sector stated, "These companies have structures that are inevitably vulnerable to responding to lawsuits, and if management interference by activist funds or short-term profit-seeking activities—abusing this—leads to litigation, they will have no choice but to worry about the company's survival rather than management." Ultimately, the concern is that companies will be driven to become prey for speculative capital.
However, even though everyone agrees with the intent of the bill, opinions are divided even within the government and the ruling party. Financial Supervisory Service Governor Lee Bok-hyun proposed a public debate with the Korea Chamber of Commerce and Industry, while also stating, "I would stake my position to oppose it" despite the ruling party's demands to exercise the right to request reconsideration.
Despite the intense debate for and against the amendment, the market believes that the Commercial Act amendment will eventually be implemented unless there are any special variables. Kim Soo-hyun, a researcher at DS Investment & Securities, said, "The era of economic growth through rapid expansion has ended," adding, "A new era has opened, and management rights are now targets for management capability verification and challenge, not subjects for protection." Lee Kyung-yeon, a researcher at Daishin Securities, said, "It can be evaluated not just as 'shareholder-centrism' to strengthen shareholder rights, but as an essential and historical turning point for the advancement and normalization of the Korean capital market."
For this reason, investors are advised that it is reasonable to prepare for the possibility of the bill's amendment. Accordingly, there is a growing consensus to pay attention to value stocks, including holding companies and preferred stocks.
Eun Gye-wan, a research fellow at Shinhan Securities, said, "Revaluation of holding companies is expected due to improvements in corporate governance," adding, "While various theoretical backgrounds such as double counting and tunneling are cited as causes for the undervaluation of holding companies, realistically, governance is the most important factor." Fellow Eun also added, "In the same vein, we should pay attention to preferred stocks that are trading at a 30-60% discount compared to common stocks," noting that "a rise in stock prices is expected as the discrepancy in voting rights caused by opaque corporate governance narrows."
Na Jeong-hwan, a researcher at NH Investment & Securities, advised, "The Commercial Act amendment is a factor that raises expectations for shareholder return policies such as dividends," adding, "Investors should pay attention to value stocks that have paid stable dividends so far and possess valuation attractiveness." Along with this, Researcher Na said, "Among stocks with value-oriented tendencies, one should look at consumer-related stocks that are expected to benefit from domestic stimulus measures after political uncertainty eases in the future."
Furthermore, there is speculation that value stocks will be re-evaluated once short selling resumes in full on the 31st. It should be noted that growth stocks, whose prices rose significantly or were overvalued during the short-selling ban, may face increased short-selling pressure after the practice resumes. Kim Dae-jun, a researcher at Korea Investment & Securities, predicted, "Some view that short selling will increase stock price volatility, but that will likely only happen in the initial phase; rather, as time passes, a trend toward normalization toward fair value will emerge," adding, "The expansion of short-term volatility could be used as an opportunity to adjust the weighting of individual stocks."