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[Editorial] Revision, but for whom?

Revised bills of commercial law, Fair Trade Act feared to dampen business activity

The government and the ruling party are seeking a swift legislative passage of revised bills on commercial law and the Fair Trade Act.

The bills have clauses that will tighten regulations on Korean companies.

Under the revised bill on commercial law, cumulative voting will be compulsory and an auditing member of the board of directors must be elected separately from other members who are elected by major shareholders.

Cumulative voting enables minority shareholders or speculative capital to elect directors they recommend.

The point of the separate selection of an auditing director is that the voting rights a major shareholder can exercise shall be limited to 3 percent, no matter how large his or her equity holding is.

Similarly to cumulative voting, this clause will allow minority stockholders who oppose controlling shareholders to join forces to elect an auditor they favor and make use of the auditor to demand higher dividend payments or asset sales.

Few countries enforce compulsory cumulative voting and the separate selection of an auditor.

The bill to revise the Fair Trade Act allows the prosecution to investigate suspected cartels separately from the Fair Trade Commission. Even without accusations filed by the commission, the prosecution will be able to investigate on its own. Few countries allow two agencies to investigate cartels separately.

The bill also allows anyone -- not only a trading partner of a business, but also competitors, their employees, and civic groups -- to file for charges over related issues such as prices and bidding. Business activity will likely be dampened.

When Minister of Justice Park Sang-ki visited the Korea Employers Federation on Monday to explain the bill on the commercial law, Sohn Kyung-shik, chairman of the federation, expressed concerns that if it was passed, the bill will increase the power of speculative capital.

If the revised bill lines the pockets of speculative investors while cornering Korean companies, for whom is the law designed?

On the same day when Minister of Trade, Industry and Energy Sung Yun-mo met leading members of the Association of High Potential Enterprises of Korea, they expressed worries that the two bills may dispirit businesspeople. They appealed to the government to “make them want to keep doing business.”

These words imply a difficult reality. Businesses have already been hit by a corporate tax hike, minimum wage hike and a reduction in the maximum hours employees can work in a week.

If laws weaken major shareholders’ managerial control of their companies, they will be driven to pay more attention to the defense of their management rights than investment.

The Korea Economic Research Institute forecast that if a compulsory cumulative voting and the separate election of an auditor passes the parliament, half of board seats in seven of the 30 largest Korean companies in terms of market capitalization will likely be seized by speculative capital.

Despite business circles’ concerns and pleas, the government holds its ground, listening to pro-government civic groups’ calls for the reform of large Korean companies.Business sentiment must be alive, but it is going the other way around. A survey of Korea’s 600 largest companies by the institute found that the business prospect for December measured by the business survey index fell to the lowest in 22 months.

The administration under President Moon Jae-in vows to push deregulation, but little has been deregulated properly. The European Chamber of Commerce in Korea criticized Korea’s “Galapagos regulations,” referring to regulations found only in Korea as if the country was developing like the Galapagos Islands after being long cut off from the rest of the world.

Though the chamber did not target the revised bills directly, it hit the mark regarding the stuffy business environment in Korea.

To make matters worse, labor issues drive businesspeople to despair. Union members of one company locked up one of its directors and beat him. Businessmen may have been terrorized at the news.

With unions allowed to act as they like, the desire to keep doing business here will vanish.

If both the government and unions press businesses harder, they will have no choice but to give up or move offshore.