The Korean market faces a pivotal decision: embrace modern market and corporate practices or persist with outdated approaches. An open letter from the Asian Corporate Governance Association (ACGA) highlights the urgency for change. Here, Yoo-Kyung (YK) Park, Managing Director of Emerging Markets Equities Fundamental at APG and Chair of the ACGA Korea Working Group, discusses what needs to change in Korea.
Published on:
5 February 2025
In a nutshell
• The current law has failed to prevent the destruction of shareholder value.
• The open letter calls on Korea’s National Assembly to adopt an amendment that establishes a director’s duty of loyalty to all shareholders.
• The amendment would also enhance investors' ability to engage with Korean companies on sustainability issues such as climate change.
The ACGA is a Hong Kong-based, investor-led organization focused on corporate governance research and advocacy. Its members—more than 100 institutions managing assets exceeding USD 40 trillion globally—collectively push for enhanced governance practices. Among the key advocates is YK Park, who co-authored the open letter urging Korea’s National Assembly to amend the Commercial Code. The proposed amendment explicitly embeds directors’ duty of loyalty to all shareholders, marking a significant step toward aligning the interests of boards of directors with both controlling and minority shareholders.
Why is the amendment crucial for institutional investors like APG?
“Currently, the rights of minority shareholders in Korean companies are poorly understood and inadequately protected. As a result, there have been repeated instances where major corporations in which we invest on behalf of our pension fund clients have made decisions—such as corporate restructuring that benefits only owner families and poor capital management—that have disproportionately destroyed minority shareholder value.”
What drives the strong opposition from the business community to the amendment?
"Many of Korea's largest conglomerates have historically been controlled by their founding families, who continue to wield dominant power in management, regardless of their actual shareholding size. From their perspective, management makes decisions in the best interest of the company, which they argue ultimately benefits minority shareholders. Therefore, they believe that management's control rights must be preserved.
They conveniently ignore the fact that conflicts of interest can arise—between the company and its shareholders, as well as between majority and minority shareholders. It is the board’s responsibility to oversee and manage these conflicts. For example, boards in Korea often argue that paying dividends to shareholders means a loss of capital for the company, which is not in its best interest. In markets like the Netherlands, however, the interests of shareholders and the company are generally seen as aligned, as evidenced by the fair distribution of profits to shareholders. Unfortunately, this fundamental alignment is often missing in the mindset of Korean listed companies' management. If they only intend to serve the controlling shareholder, why go public in the first place? Companies should adhere to the norms of global capital markets and represent the interests of all shareholders."
If this amendment passes, it will mark a turning point in Korea’s corporate history
Is there also a benefit to these companies if the amendment passes?
"Absolutely. The immediate effect would be a substantial reduction in valuation discounts—known as the ‘Korea Discount’—which would, in turn, limit the scope for dissatisfied investors to take action against management and boards. This would result in a more stable management environment.
Another benefit is that engaging with shareholders with diverse perspectives can broaden a company’s strategic outlook. For example, APG is a long-term shareholder with a strong focus on good governance and sustainable business practices. Our insights could help companies prepare for the future by identifying risks and opportunities they might otherwise overlook."
For APG, engagement is key to fulfilling stewardship responsibility. To what extent Is engagement with Korean companies possible?
"Engagement is one of our primary strategies for influencing corporate decisions, but there are limits to what we can achieve under the current legal framework. The proposed changes would ensure that boards are accountable not just to the company itself but also to its shareholders. Without this accountability, boards can simply dismiss our advice by claiming their sole duty of loyalty and care is to the company.
The current Commercial Code effectively undermines our ability to advocate for the sustainability goals that APG and our clients prioritize—goals that are essential for the long-term success of these companies. This is why the amendment is vital—not only for APG but for other institutional investors united through the ACGA, as well as for the broader investing public in Korea. Ideally, we hope to see this change enacted within the year."
What will APG and the ACGA do if the amendment doesn’t pass this year?
"We do not expect an easy victory, given the strong lobbying efforts by major corporations. Even if the amendment doesn’t pass this year, we will continue our efforts to ensure it happens next year. We are in this for the long haul and deeply committed to this cause. To emphasize our concerns, we have sent letters to all 300 members of Korea’s National Assembly. The Korean market is at a crossroads. If this amendment passes, it will mark a turning point in Korea’s corporate history, which has long been shaped by an eighty-year-old concept embedded in the Commercial Code."