(March 13): South Korean lawmakers voted to expand corporate boards’ fiduciary duty standard, a landmark move that may spur changes at large family-controlled businesses that dominate the market.

The opposition-controlled National Assembly on Thursday approved a bill that would rewrite the commercial code to include boards’ fiduciary duties to shareholders and not just to the company itself. Whether the bill would be ultimately enacted is uncertain, as it could be vetoed by Acting President Choi Sang-mok. The ruling party’s leader said earlier it will ask Choi to veto the bill.

The proposal is a crucial component of a long-awaited corporate governance reform pushed by investors and activists. Korean boards’ insular approach with other insiders, including founding family members, at “chaebol” conglomerates deters some foreign investors and contributes to lower valuations known as “Korea Discount”, they argue.

Lawmakers from the both parties engaged in a nearly half-hour debate on the commercial code revisions, weighing its pros and cons before proceeding to a vote.

“This is the very minimum step that we need to restore market confidence,” said Oh Gi Hyoung, a lawmaker in the main opposition Democratic Party (DP).

The commercial code, written in the 1960s when the government relied on family-controlled chaebols for growth, has provided legal grounds for such companies to push ahead with some questionable deals that were opposed by other shareholders.

The ruling party and companies have opposed amending the code, calling it an anti-business move. They’ve lobbied the president to veto the bill. Choi, who is also the nation’s finance minister, has 15 days to veto once the government receives the vote result.

The Federation of Korean Industries, one of the nation’s biggest business lobby groups, said the revision will trigger a spate of lawsuits from shareholders and hinder mergers and big investment.

“The move will lead to the value down of the national economy by driving companies to be targets of speculative capital,” the group said in a statement.

Still, another lawmaker said the bill’s passage, supported by more than 14 million retail investors, will be a way to resolve Korea Discount and restore confidence from global investors.

“If you want to stop the attack from activist funds, approve the revised commercial act and help boost stock prices with shareholder returns,” said Lee Soyoung, a DP lawmaker. “What feeds speculative capital is low stock price valuations, not the revised commercial code,” she said.

Many major Korean businesses have controlling shareholders whose interests don’t align with minority shareholders, especially in mergers and other capital transactions, said Lee Sang-Hoon, a professor at Kyungpook National University Law School.

Given this arrangement, corporate boards often feel safe in making decisions that may go against minority shareholders’ interests, according to Lee, who called for revising the commercial law after the 2015 merger of two Samsung-controlled companies.

“Even if it gets vetoed, this is still very meaningful,” Lee said. “This is the first step toward the biggest change in some 60 years.”

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