Time to reform Korea’s breach of trust law that keeps executives on edge

 

Democratic Party policy chief Jin Sung-joon holds a meeting with the vice chairmen of Korea’s six major business associations at the National Assembly in Yeouido, western Seoul, on June 30 to gather input from the business community on proposed amendments to the Commercial Act. [YONHAP]

 
As the ruling Democratic Party (DP) prepares to push forward amendments to the Commercial Act, party leaders met Monday with heads of the country’s six major business associations. Business representatives urged lawmakers to consider the full impact of the proposed changes, particularly measures they see as potentially harmful to corporate governance and investor confidence.
 
Jin Sung-joon, the DP’s policy chief, said his party is open to revisions if problems arise during implementation. That suggests the party will likely pass the bill as it stands and consider fixes later.
 
The amendment package includes a broader duty of loyalty for corporate directors, a requirement for separate elections of audit committee members, and a mandatory cumulative voting system. Critics argue the bill could leave listed companies vulnerable to short-term activism from foreign investors and stifle the bold, long-term investment strategies that have driven Korea’s economic rise. Such concerns may not appear clearly in economic data but could damage the country’s entrepreneurial spirit in ways that are difficult to reverse.
 
One positive sign is the DP’s apparent willingness to revisit Korea’s stringent breach of trust laws — a longstanding demand from the business community. Korea’s tough stance on corporate executives is partly due to this offense, which legal experts say is overly vague and subject to broad prosecutorial interpretation. The result is legal uncertainty that has earned Korea the nickname “a republic of executive punishment.” Some in the business world describe executives as walking a legal tightrope, constantly vulnerable to shifting interpretations of their actions.
 
Under current law, breach of trust is defined as violating professional duty for personal or third-party gain, resulting in loss to the company. But its scope is so broad that judges often reach different conclusions in similar cases. The acquittal rate for breach of trust cases is more than double that of other criminal charges, indicating inconsistency in legal outcomes. Even legal experts admit the statute’s wording is unclear, raising constitutional concerns over the principle of legal certainty.
 

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The crime is punishable under both the Criminal Act and the Commercial Act, with additional enhanced sentencing under the Act on the Aggravated Punishment of Specific Economic Crimes. That law mandates a minimum of five years’ imprisonment for gains of over 5 billion won ($3.7 million) and up to life imprisonment for offenses involving more than 50 billion won — penalties comparable to those for murder.
 
Calls to resolve breach of trust disputes through civil channels rather than excessive criminal prosecution have been growing. In the United States, there is no such crime. Japan and Germany retain the offense but apply it more narrowly, with Germany providing clearer protections for management decisions.
 
President Lee Jae Myung, who himself was indicted for breach of trust in 2023 in connection with land development scandals, understands the gravity of the issue. As his administration champions pragmatism, it should listen closely to business concerns and pursue meaningful legal reform.


Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.