Corporate governance reform took a major leap forward in South Korea this week. Lawmakers passed a sweeping revision to the country’s Commercial Act. The change holds corporate directors accountable to all shareholders, not just to their companies.
The National Assembly approved the bill on Thursday with strong support. Out of 298 members, 220 voted in favor, 29 opposed, and 23 abstained. The vote reflects growing demand for greater corporate transparency and fairer treatment of minority shareholders.
President Lee Jae Myung is expected to sign the bill into law soon. His administration has championed corporate governance reform as a key to ending the “Korea discount.” This term refers to South Korean stocks trading below their global peers due to weak shareholder protections.
The bill’s central change redefines fiduciary duty. Directors must now serve both the company and all its shareholders. This aims to stop favoritism toward powerful chaebol families.
Another major provision is the “3 percent rule.” It limits the voting rights of top shareholders to just 3 percent during audit committee elections. Previously, the rule applied only to internal directors. Now, it includes outside—or “independent”—directors as well.
Large listed firms must also hold electronic shareholder meetings in addition to in-person ones. And the term “outside director” will officially change to “independent director,” stressing autonomy from corporate leadership.
Corporate governance reform has excited many investors. After the bill passed, the Kospi index surged 1.34 percent to 3,116.27. That marks its highest close in nearly three years.
Analysts praised the bill as a turning point. Hana Financial’s Kim Doo-un said the law sends a clear signal to global markets. “This revision strengthens investor rights and supports long-term capital inflows,” he explained.
However, South Korea’s business community voiced concern. Several major associations warned the new rules could trigger lawsuits and activist pressure. They also feared the 3 percent cap might empower speculative investors.
Despite these concerns, both ruling and opposition parties agreed on the bill after intense talks. Some debated items, like mandatory cumulative voting, were postponed for later discussion.
Still, the momentum behind corporate governance reform remains strong. Lawmakers and stakeholders alike are now focused on follow-up legislation to balance corporate rights and investor protections.
