Fast reading
- National Assembly passed a revision to the Commercial Act last week in a bid to enhance corporate governance and improve minority shareholder rights. However, the long-term effectiveness of the amended Act may depend on judicial interpretation.
- The Korean Stock Exchange (KOSPI) has risen 33% YTD and is now close to the all-time high.
- A potential headwind is the implementation of higher US tariffs on the country’s export-reliant economy. US President Donald Trump announced a 25% tax on goods imported from South Korea this week will go into effect on 1 August.
South Korea’s National Assembly passed a long-awaited revision to the Commercial Act1 last week in a bid to enhance corporate governance and improve minority shareholder rights in the country.
The move is part of efforts to tackle the so-called ‘Korea Discount’, which sees South Korean companies persistently trade at lower valuations than their global peers.
The amendment comes one month after Lee Jae-myung was elected president, following months of upheaval triggered by former president Yoon Suk-yeol’s declaration of martial law in December and his subsequent impeachment.
The revision to the Commercial Act – coupled with the launch of the ‘Corporate Value-Up Programme’ last year 2 – has helped bolster optimism among investors. The Korean Stock Exchange (KOSPI) has risen 33% YTD3 and is now close to an all-time high.
Figure 1: South Korean stocks on a tear
Questions remain
While the amendment should support efforts to improve corporate governance and attract more foreign investment into the country a number of questions remain, says Jonathan Pines, Head of Asia ex-Japan at Federated Hermes Limited, who has long been an advocate for improved minority shareholder rights in South Korea.
“With the fiduciary duty law change, at least some of the reason for the [Korea] discount has been removed. The immediate impact will be to hopefully end the most egregious – but frequent – conduct of group restructurings that favour controlling shareholders at the expense of minority shareholders. It will also contribute to a gradual governance culture shift already underway,” he says
But, while the law is still on paper, its long-term effectiveness will depend on judicial interpretation, Pines warns.
“The next key measure to watch for is differential taxation on companies with higher and lower dividend payout ratios. If properly formulated and implemented, this could be as significant as the fiduciary duty law, as it might result in fewer companies hoarding cash,” he says.
“Pitfalls to watch for are a decline in improving governance momentum as controlling shareholders resist substantive change – particularly in regard to capital management – preferring to pay lip service to minority shareholders’ and government’s desires.”
With the fiduciary duty law change, at least some of the reason for the [Korea] discount has been removed.
More to be done
The amendment to the Commercial Act represents another step in the right direction for corporate governance reform in South Korea, says Olivia Lankester, Director, Sustainability (GEMS) at Federated Hermes, adding that a lot more still needs to be done.
“[The latest reforms] missed an opportunity to go further in reducing the influence of controlling shareholders – for example, via cumulative voting and extending the 3% rule to more than one audit committee member. However, these issues may be revisited later in the year,” Lankester says.
A potential headwind to the strong performance of South Korean stocks this year is the implementation of higher US tariffs on the country’s export-reliant economy. US President Donald Trump announced a 25% tax on goods imported from Japan and South Korea this week – in addition to new tariff rates on a dozen other nations – that will go into effect on 1 August.
Trade talks between Seoul and Washington are ongoing.
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1 The South Korean Commercial Act, also known as the Commercial Code, regulates business activities and companies within South Korea. It was first enacted in 1962 and has been amended multiple times. The Act covers various aspects of commercial law, including general provisions, commercial transactions, companies, insurance, and maritime transport.
2 The Value Up initiative in South Korea is a government-led program launched in February 2024 to address the « Korea discount » and boost the valuations of Korean companies. It aims to improve corporate governance, enhance shareholder returns, and encourage companies to disclose their value-up plans. The initiative includes tax incentives and other measures to support companies taking steps to increase their corporate value, and it encourages voluntary adoption of higher governance standards.
3 Bloomberg, as at 10 July 2025.
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