Signage for the Hyundai Motor Co. annual shareholders meeting stands at the company’s headquarters in Seoul, South Korea.
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South Korea’s parliament on Monday approved a bill that intends to increase the accountability of corporate boards to shareholders, as the ruling party-controlled parliament pushes reforms to boost the country’s equity valuations.
The revised Commercial Act bill, a follow-up to earlier revisions passed on July 3, will force large companies to implement more separate votes when introducing audit committee members to strengthen oversight.
The bill also “aims to enable minority shareholders to elect their own representatives to the board,” said Kim Jin-wook, a Citi Research analyst based in Seoul.
The changes come as President Lee Jae Myung pledged to revive legislation to curb abuses by controlling shareholders after he signaled improving corporate governance could help eliminate the so-called “Korea Discount”, a term that refers to lower valuations of Korean companies compared with overseas peers due to their opaque governance structure.
The ruling Democratic Party holds the majority in the 300-seat parliament, making the passage of contentious bills easier after Lee’s predecessor, acting President Han Duck-soo, sided with conglomerates and vetoed the bill.
The commercial act revision has been fiercely opposed by South Korean businesses.
“We regret that the National Assembly passed a supplementary amendment to the Commercial Act just a month after the first revision, aimed at expanding the separate election of audit committee members and mandating a cumulative voting system,” The Federation of Korean Industries said in a statement on Monday.
It also urged parliament to work on ways to minimize the impact now that “the significant potential for increased management disputes and litigation risks” is expected.