KLRI : KOREA LEGISLATION RESEARCH INSTITUTE

I. Background and Purpose of Research

▶ New trends in E.S.G. discourse and corporate governance for corporate sustainability emerge 

○ The term E.S.G. first appeared in the mid-2000s in the UN Global Compact report

- E.S.G. is a set of principles that emphasise the following key issues: :  For a company to be sustainable, it can no longer focus solely on the pursuit of profit, but must also take into account environmental and social factors. 

▶ Review of the core contents of corporate governance and ways to improve corporate governance for shareholders and shareholders' meetings from the perspective of E.S.G.

○The purpose of this study is to review the purpose and nature of the company and the corporate governance of shareholders and shareholders' meetings from the perspective of E.S.G. and to suggest improvement issues in order to be able to make decisions that take into account the environmental and social factors of the company. 

- The purpose of this paper is to examine the components of such a desirable corporate governance and to examine institutional improvement issues that can be addressed by examining environmental and social factors. 

 

Ⅱ. Contents

▶ Problems with Korean Corporate Governance: Governance for the benefit of controlling shareholders  

○ Governance has nn clear legal definition, and there are cases of confusion between corporate governance and ownership structure, especially tunneling by controlling shareholders.  

○ As the number of individual investors has increased rapidly in recent years, they are actively engaged in shareholder activism, such as criticizing or suing controlling shareholders for their misuse of power.  

 ▶ Necessity of introducing a company law with the purpose of pursuing profits and stakeholder clauses 

○ The pursuit of profit is the reason for a company's existence. At this point, we will examine who owns the company and whose interests should the company operate for. 

- Shareholder capitalism (maximising profits for shareholders) and stakeholder capitalism (considering various stakeholders other than shareholders) are opposed.  

- In particular, it examines whether company law should include a provision stating that the company's objectives should include consideration of the interests of its stakeholders, in light of the growing E.S.G. discourse.  

- The English Companies Act and the French Pacte loi have explicit provisions in their company laws that require the company's objectives to include consideration of stakeholder interests

- The Korean Commercial Code provides only an abstract definition of the interests of the company. Therefore, it is necessary to introduce the principle rule that "the company must consider the interests of stakeholders along with the interests of shareholders" This will contribute to the realization of E.S.G.. 

▶ Tasks for improving corporate governance to realise E.S.G.: Shareholders and shareholders' meetings   

○ "How do controlling shareholders perceive E.S.G.?" is key to implementing E.S.G. in corporate governance. Furthermore, it is necessary to   establish fair and efficient corporate governance through the protection of general shareholders. 

○ Key issues for establishing corporate governance for the realisation of environmental and social factors 

- Strengthening minority shareholder rights(appointment of auditors, concentrated voting system, minority shareholder majority, disclosure of shareholder list, expansion of representative lawsuits) 

○ Enabling shareholder meetings as a key platform for communication between shareholders and the company 

- Practicalisation of convening procedures such as notices of general meetings, introduction of advisory shareholder proposal system, introduction of virtual general meetings, etc. 

○ By applying the issues for improving shareholders' meetings to hypothetical situations, we examine whether these issues contribute to the realisation of E.S.G. 

 

Ⅲ. Expected Effects

▶ This study identifies key issues for improving corporate governance for the realisation of E.S.G., focusing on shareholders and shareholders' meetings, and suggests future research directions. 

○ Research on directors' responsibilities and duties, management judgement principles, and disclosure for the realisation of E.S.G. will be conducted as a follow-up to this study.