The government is pushing a number of bills that can demotivate businesses and threaten major shareholders’ managerial control.
The Ministry of Justice unveiled a commercial code revision bill which calls for the adoption of multiple derivative actions, among others.
The Fair Trade Commission announced a bill that would open up its exclusive right to accuse businesses over certain anticompetitive acts to the prosecution.
The Ministry of Employment and Labor disclosed a labor union bill to allow laid-off workers or unemployed persons to join unions.
Multiple derivative actions allow a shareholder in a holding company to sue a board member of a subsidiary despite not owning shares directly at the subsidiary level. This can be abused by speculative foreign hedge funds to pressure the management of Korean companies to act in their interests after securing equity in their holding companies.
The commercial law revision bill also requires shareholders to elect an auditor separately from board members and restricts the voting rights of the major shareholder to 3 percent in electing an auditor. The ministry says this is needed to enable an auditor to inspect business activity free of influence from large shareholders, but businesses are concerned that an alliance of outside institutional investors may have an influence on the election of an auditor to seek short-term profits such as dividend increases rather than a long-term growth. Currently, an auditor is to be selected from board members elected by shareholders.
An auditor has authority to access any data on the audited company, so the bill runs the risk of exposing important information to its rivals if the election of an auditor was influenced by a fund related to the competitors.
If the Fair Trade Commission’s exclusive right to accuse businesses over certain collusive acts is abolished, not only the commission but also the prosecution will be able to investigate companies separately. Under the current law, the prosecution can indict businesses only when the commission files a complaint for certain grave collusions such as price fixing or bid rigging.
Companies worry about the possibility of being doubly investigated by the commission and the prosecution. Consumers and civic groups will be able to make accusations against businesses with the prosecution. This may embroil companies in frequent suits.
The revision bill doubles fines slapped on businesses for violating the Fair Trade Commission Law. It also tightens regulations against inter-subsidiary transactions in a move to weaken the influence of holding companies over their subsidiaries.
If laid-off workers or unemployed persons are allowed to join a labor union under the Labor Ministry’s revision bill, companies worry that militant unionists from outside, or former employees who hold a grudge against them, will interfere in labor disputes and increase the likelihood of them turning violent. The ruling party proposed a bill to require employers to pay severance allowances to employees if they quit or are fired after working for at least a month, rather than the current year.
These bills failed in the previous National Assembly due to concerns about their side effects, but the government is pushing them again now that the ruling party has won a wide majority in the parliament.
The Korean and world economy is in a dire situation particularly due to shocks from COVID-19. Though the government projects the nation to grow 0.1 percent this year, most economic institutes at home and abroad predict a recession.
Many businesses have suffered considerable economic damage from the coronavirus. President Moon Jae-in compared the current economic crisis to “wartime conditions.” The government and the ruling party have emphasized business activity in getting the country out of the crisis, but they push bills that will put a damper on business activity.
Moon envisioned “egalitarian economy” in a recent address, and the ruling party vows to realize “economic justice” and pass “fair economy” bills. The Moon administration says it will raise the international competitiveness of companies under the visions. But one cannot but wonder why it seeks to tighten business regulations at difficult times like this.
As a matter of fact, companies have been daunted by pro-labor policies of the Moon administration. The “business-friendly environment” that Moon and the government pledge to foster sounds confusing and hollow. The government says it will make efforts to bring manufacturing and services back to the country from overseas, but it moves in the opposite direction. No war can be won with ideological slogans.