Revised Commercial Code Paradoxically Blocks Governance Reform

President Lee Jae-myung recently stated at a capital market forum that "it is abnormal for companies to have price-to-book ratios of only 0.3 to 0.4 times, where liquidation would yield double the profit." This declaration signals his commitment to breaking the chronic undervaluation plaguing Korean markets. The Financial Services Commission has also unveiled measures to improve capital market fundamentals, including publishing lists of low-PBR companies and facilitating voluntary mergers and acquisitions for restructuring underperforming firms. The policy was interpreted as an attempt to reform by exposing undervalued companies to hostile M&A.

One expert recently observed that the Korea Zinc management dispute could be viewed as a test case for normalizing Korea's capital market under this policy framework. In 2024, Youngpoong brought in private equity firm MBK Partners to launch a tender offer at 1.6 times PBR, successfully securing an overwhelming stake in Korea Zinc. While more people now seem to agree, many experts at the time already assessed this move as a rational attempt aligned with market principles.

However, reality has proven somewhat paradoxical. The Commercial Code amendments consecutively passed under the current administration are now functioning as mechanisms that tie the hands of the largest shareholder who secured these shares. Korea Zinc's existing management has already neutralized Youngpoong's voting rights and defended the board by exploiting legal loopholes through cross-shareholdings and third-party allotment capital increases. Furthermore, they can now utilize separate election of audit committee members, the 3% voting rights cap on the largest shareholder, and cumulative voting systems. This explains growing anxiety within Youngpoong that they may permanently lose any opportunity for board and governance reform.

The Commercial Code revision originated from the goal of improving governance to enhance corporate value. The government is also accelerating modernization by blocking spin-off listings, pursuing a two-tier KOSDAQ system, and opening paths for hostile M&A. Yet concerns persist that sophisticated legal maneuvering will distort the intent of these improvements and exploit regulatory gaps. The Korea Zinc case clearly demonstrates how the revised Commercial Code can function as a deliberate defense mechanism for incumbent management that has become minority shareholders.