![The Ministry of Justice building in Gwacheon, Gyeonggi Province. [Ministry of Justice]](https://wimg.heraldcorp.com/news/cms/2026/07/23/news-p.v1.20260513.f29664fb11dc4df19fd39994b063ac38_P1.jpg)
An amended Commercial Act that replaces the "outside director" designation at listed companies with a new "independent director" title — aimed at strengthening board independence — takes effect Thursday.
The Ministry of Justice said the amended act, which is being rolled out in stages to enhance transparency and accountability at listed companies and better protect shareholder rights, takes effect Thursday. The independent director system and the 3 percent voting cap on audit committee appointments take effect immediately, while an expansion of the number of audit committee members subject to separate election and a mandatory cumulative voting requirement are set to take effect Sept. 10.
The revisions come after longstanding criticism that majority shareholders and management have wielded outsized influence over listed companies' decision-making, hindering sustainable corporate growth and the protection of minority shareholder rights. The Ministry of Justice said it pursued two rounds of Commercial Act amendments to strengthen internal controls at listed companies and reform corporate governance so that shareholder views are better reflected.
The amended act includes three key changes: renaming the outside director designation at listed companies to "independent director"; capping the combined voting rights of a largest shareholder and related parties at 3 percent when appointing audit committee members, and expanding the number of directors subject to separate election as audit committee members from one to two; and mandating cumulative voting for large listed companies — those with total assets of 2 trillion won ($1.36 billion) or more, numbering 210 companies as of end of last year.
The independent director system changes the title of outside directors at general listed companies to "independent director" and raises the minimum proportion of such directors on a board from one-quarter to one-third, with the goal of bolstering board independence. In addition, the 3 percent cap on combined voting rights will apply to the largest shareholder in all audit committee appointments and dismissals, preventing that shareholder from exercising undue influence over the process. Both measures take effect Thursday.
The number of audit committee members that large listed companies must elect through a separate vote will also increase from one to two, raising the independence of audit committees. Also taking effect for large listed companies is a mandatory cumulative voting requirement. Under the system, when two or more directors are being elected, each share carries votes equal to the number of directors up for election, and shareholders may concentrate all of those votes on a single candidate.
Cumulative voting was introduced in 1988 but had been effectively nullified after large listed companies excluded it through their articles of incorporation. The amended act bars companies from opting out of cumulative voting, increasing the likelihood that candidates backed by minority shareholders will win board seats — a meaningful gain for minority shareholder rights. The expansion of separately elected audit committee members and the mandatory cumulative voting requirement both take effect Sept. 10.
The Ministry of Justice said it plans to gather feedback from all sectors as the amended act is implemented and ensure smooth enforcement on the ground. Minister Jeong Seong-ho said the ministry would "continue working to robustly protect shareholder rights and support companies in achieving sustained growth."
bell@heraldcorp.com
