Unpacking the next chapter: South Korea’s Second Wave of Corporate Governance Reforms

Reform momentum in South Korea continues. On August 25, 2025, additional amendments to the Korean Commercial Code (KCC) cleared their final hurdle in the National Assembly. Building on the July amendments discussed in our previous article, these so-called “tougher” or “second amendments” aim to strengthen shareholder rights further, signaling transformative shifts ahead for the market.

양식의 맨 위

The changes target large listed firms with assets exceeding KRW 2 trillion (“large listed companies”) and mandate two principal reforms:

1. adoption of a cumulative voting system, and

2. an increase in the number of audit committee members elected separately from the board, from one to at least two.

These measures were initially proposed alongside other July amendments but deferred for further review. They quickly re-emerged, gained momentum, and secured the necessary support within a month, underscoring a sustained push for change. They will take effect one year after the upcoming presidential promulgation, making 2027 the pivotal AGM season for companies to implement the new requirements.

 Taking a closer look

1. Cumulative voting

The cumulative voting system had already existed in South Korea, but on an opt-out basis, allowing companies to exclude it via a clause in their articles of incorporation if desired. The updated rules prohibit such exclusions for large listed companies, ensuring they apply upon request in cases where multiple seats are up for election.

Under cumulative voting, each shareholder is allocated several votes equal to their shareholding multiplied by the number of seats filled. They can concentrate these votes on one candidate or distribute them among several. This system gives minority shareholders more voting power than the traditional straight-voting system, where each share carries one vote per director candidate, and votes are cast separately for each position, often favoring controlling shareholders in the outcome.

Even with a smaller proportion of shares held, minority shareholders will now have a greater chance to elect preferred representatives to the board. By enhancing their representation in director elections, this systemic change seeks to reduce the dominance of controlling shareholders, improve minority shareholder protection, and foster more diverse and effective boardrooms.

2. Audit Committee Election

The separate election system was first introduced in 2020 to strengthen oversight and limit the influence of controlling shareholders in audit committee appointments.

Despite efforts to achieve this goal by applying a 3% cap to voting rights in audit committee elections ("the 3% rule"), it remained largely ineffective because the committee members were often chosen from board directors elected outside the rule's scope. The revised election system was then adopted to address this issue by requiring large listed companies to elect at least one audit committee member separately from the general board, ensuring the 3% rule applies and becomes more effective.

The new revision now expands the existing rule's scope to affect more than one committee member election by requiring at least two to be elected separately.

Alongside the recent extension of the 3% rule's scope adopted in July this year, this additional revision is expected to further enhance minority shareholders' influence over committee appointments and bolster the audit committee's independence and oversight function.

Market Reactions  

Both measures clearly aim to uphold minority shareholders' rights against the controlling majority by empowering their influence in key board elections. Their overarching goal is to drive greater transparency, enhance oversight, and establish more balanced, independent boards—fundamental steps to building stronger investor trust.

Despite these positive aims, market reactions remain divided. While some support the changes, others express concerns over an increased risk of management control-related disputes.

The business community fears the measures could undermine corporate growth and stability by making firms more vulnerable to activist or hostile pressure. 

In a July 2025 survey by the Korea Chamber of Commerce and Industry of 300 listed companies, 76.7% said the revisions targeting large firms could harm corporate growth and "distort the market ecosystem." Also, 74.0% believed that implementing both measures in tandem could threaten management control.

With the voting rights for separately elected audit committee members already capped at 3%, the further expansion of the requirement could enable external parties to effectively control a typical three-member audit committee and increase pressure on the board.

Other specific concerns include:

• Candidate sourcing/verification (37.9%),
• Dual-role members delaying board decisions (16.5%), and
• Potential leaks from members appointed by competitors (5.8%).

Looking Ahead: Navigating the Changes

It is difficult to predict whether these reforms will achieve their stated objectives, given scarce international precedents and a rapidly shifting regulatory landscape. What is clear is that companies will face immediate pressure as these statutory shifts reshape practices and influence shareholder behavior.

Deepening insight into evolving shareholder perspectives, communicating clearly, and addressing issues proactively will support alignment with expectations, ultimately cultivating the trust and credibility essential for long-term resilience.

Actionable priorities

A strategic and deliberate approach to understanding shareholders and building strong, effective relationships requires a well-structured and intentional plan that includes the following steps:

1. Understand Your Shareholders

Knowing who your shareholders are is the foundation for all subsequent actions. Review your shareholder register to identify key shareholders based on size, type, style, behavior, and geography to assess their influence. Where possible, examine each investor in detail to gather relevant insights into their views, interests, and expectations.

2. Engage Proactively

Once identified, initiate open communications. Ask about their opinions on regulatory developments and market outlooks. Adopting a strategic approach to engagement is essential to ensure these conversations are relevant and productive. By prioritizing shareholders based on ownership size, investment profiles, and past interactions, companies can develop targeted plans and tailor their communication to address each investor's specific concerns and needs. This approach enhances efficiency and fosters mutual understanding to build and strengthen relationships.

3. Enhance Governance and Practices

Building trust and understanding also requires sustained focus on improving governance and operational practices.

As regulations increase scrutiny on board effectiveness and fiduciary duties, companies must strengthen their board practices to demonstrate credibility and competence. Conduct a comprehensive assessment of the current board composition and practices to ensure alignment with market expectations and sensitivities. Implementing clear, transparent nomination and evaluation processes is essential, confirming that the board possesses a strong pool of the necessary skills, expertise, accountability, and diversity.

Board Skills Matrix and board evaluations are examples of how boards can help identify hidden gaps that are difficult to detect, even in nuanced aspects of board functioning such as individual performance, behavior, boardroom dynamics, oversight, risk management, and the effectiveness of supporting functions.

Closing these gaps through targeted remediation demonstrates a strong commitment to good governance. It ultimately builds stakeholder confidence and trust, which will enhance the company's overall resilience.