Korea Corporate Governance Reform 2026: What Foreign Investors Need to Know

Korea’s corporate governance landscape is undergoing significant transformation in 2026, with sweeping reforms designed to strengthen minority shareholder rights, improve board accountability, and address the long-standing “Korea discount” that has deterred foreign investment. These changes represent the most substantial governance overhaul in decades and have critical implications for foreign investors operating in or considering entry into the Korean market.

Table of Contents

Understanding the Korea Discount

For decades, global investors have referred to the “Korea discount”—a phenomenon where Korean listed companies trade at lower valuations compared to their global peers despite strong fundamentals. This discount has been attributed to several structural issues:

• Complex ownership structures dominated by controlling shareholders
• Limited transparency in corporate decision-making processes
• Weak protection for minority shareholders
• Low dividend payouts compared to international standards
• Governance concerns around board independence

The Korean government has set an ambitious target of lifting the KOSPI index to 5,000 by addressing these governance challenges. To support this objective, a comprehensive series of policy initiatives and regulatory reforms were introduced throughout 2025 and early 2026.

Key Reforms Taking Effect in 2026

1. Mandatory Cumulative Voting for Large Companies

The amended Commercial Code now mandates cumulative voting for director elections at large listed companies with assets exceeding KRW 2 trillion (approximately USD 1.44 billion).

What is cumulative voting?

Unlike traditional voting where shareholders vote separately for each director position, cumulative voting allows shareholders to pool all their votes and allocate them strategically. For example, if there are 3 director positions and you own 100 shares, you have 300 total votes that can be distributed however you choose (all 300 to one candidate, 150-150 split, etc.).

Why it matters for foreign investors:

• Increased board representation: Minority shareholders can concentrate votes to elect at least one director
• Enhanced accountability: Directors must be more responsive to diverse shareholder interests
• Greater transparency: Improved oversight of management decisions
• Better alignment: Corporate actions more closely align with shareholder value creation

Companies subject to this requirement began implementing cumulative voting at their annual general meetings (AGMs) in early 2026.

2. Expansion of Audit Committee Member Requirements

The reform expands the number of audit committee members requiring separate election from one to two. This applies to companies with:

• Assets exceeding KRW 2 trillion
• Foreign ownership of 30% or more

Key provisions:

• At least two audit committee members must be elected through a separate voting process
• The 3% voting cap rule now applies to both appointment and removal of independent audit committee members
• Enhanced independence requirements for audit committee qualifications

Impact on foreign investors:

This change significantly strengthens the audit committee’s independence from controlling shareholders, providing foreign investors with:

• More reliable financial reporting
• Reduced risk of accounting irregularities
• Stronger internal controls
• Enhanced protection against related-party transactions

3. Enhanced Independent Director Standards

The reforms introduce stricter definitions and requirements for “independent directors”:

• Expanded disqualification criteria: More situations that disqualify someone from being considered “independent”
• Minimum ratio increases: Larger companies must have higher percentages of independent directors
• Enhanced disclosure: Companies must disclose detailed information about director independence assessments

4. Improved Shareholder Proposal Rights

Foreign minority shareholders now have enhanced rights to:

• Propose agenda items for AGMs with lower ownership thresholds
• Request special audits with streamlined procedures
• Access corporate information more readily
• Challenge transactions that harm minority interests

Compliance Timeline and Deadlines

Practical Implications for Foreign Investors

For Portfolio Investors

If you hold minority stakes in Korean listed companies:

Action items:

1. Review current holdings: Assess which portfolio companies are subject to the new rules
2. Engage with management: Understand how companies plan to implement cumulative voting
3. Prepare for AGMs: Develop voting strategies to maximize influence
4. Monitor compliance: Ensure companies are meeting new audit committee requirements
5. Exercise new rights: Consider using enhanced shareholder proposal mechanisms

Expected benefits:

• Greater voice in board composition
• Improved information access
• Better protection against value-destructive transactions
• More transparent governance practices

For Strategic Investors and M&A Participants

If you’re planning acquisitions or significant investments:

Due diligence considerations:

1. Governance structure review: Assess how target companies are adapting to new requirements
2. Board composition analysis: Evaluate independence and qualifications of current directors
3. Audit committee scrutiny: Review audit committee composition and effectiveness
4. Shareholder agreements: Ensure existing agreements comply with new voting rules
5. Transition planning: Account for governance restructuring in deal timelines

Negotiation leverage: The reforms provide new tools to negotiate:

• Board representation rights
• Audit committee participation
• Information access provisions
• Decision-making veto rights

For Companies Establishing Korean Subsidiaries

If you’re forming a new Korean company or subsidiary:

Structuring considerations:

1. Capitalization planning: Asset thresholds trigger different requirements
2. Governance framework: Build in cumulative voting and audit committee structures from inception
3. Director recruitment: Ensure qualified independent directors are identified early
4. Compliance systems: Implement governance and reporting systems that meet new standards
5. Shareholder documentation: Draft articles of incorporation and shareholder agreements with new rules in mind

Industry-Specific Impacts

Technology and Startups

Many Korean technology companies rely on concentrated founder ownership. The cumulative voting requirements may:

• Challenge founder control at larger companies
• Attract more foreign VC investment due to improved governance
• Accelerate professionalization of boards
• Create pressure for exits before reaching the KRW 2 trillion threshold

Manufacturing and Conglomerates

Traditional Korean chaebols and large manufacturers face the most significant governance transformation:

• Complex ownership unwinding: Some conglomerates may simplify structures
• Family control dilution: Founding families must adapt to power-sharing
• Succession planning impacts: New governance may influence generational transitions
• Foreign partnership opportunities: Enhanced governance may facilitate foreign joint ventures

Financial Services

Banks, insurers, and asset managers already face stringent regulations but will see:

• Heightened scrutiny: Financial services boards now face dual regulatory and commercial law requirements
• Compliance costs: Additional reporting and governance infrastructure needed
• Competitive advantage: Well-governed financial institutions may attract more foreign capital

Comparison with International Standards

Korea’s 2026 reforms bring the country closer to OECD governance standards:

While Korea still maintains some unique features (like the 3% voting cap on controlling shareholders), the 2026 reforms represent substantial alignment with global best practices.

Challenges and Criticisms

Despite the positive direction, some challenges remain:

Implementation Concerns

• Technical difficulties: Companies report challenges in administering cumulative voting systems
• Shareholder confusion: Many retail investors don’t understand how to use cumulative voting effectively
• Proxy advisory influence: Concerns about excessive power of proxy advisory firms
• Compliance costs: Smaller companies approaching the KRW 2 trillion threshold face significant new costs

Remaining Gaps

• Virtual AGMs: Debates continue about whether virtual meetings reduce transparency
• Enforcement: Questions remain about regulatory capacity to enforce new requirements
• Controlling shareholder influence: Some argue reforms don’t go far enough to curb controlling shareholder power
• Foreign ownership barriers: Certain sectors still restrict foreign ownership regardless of governance improvements

Recommendations for Foreign Investors

Before Investing

1. Conduct enhanced governance due diligence: Go beyond financial analysis to deeply assess governance structures
2. Engage legal counsel experienced in Korean corporate law: The reforms create new legal complexities
3. Understand the transition period: Companies are still adapting; expect some implementation variance
4. Review shareholder agreements carefully: Ensure existing agreements don’t conflict with new mandatory provisions

After Investing

1. Actively participate in AGMs: Exercise your cumulative voting rights strategically
2. Build relationships with other minority shareholders: Coordinate to maximize collective influence
3. Monitor audit committee performance: Use enhanced access rights to oversee financial reporting
4. Stay informed on regulatory developments: Further reforms are expected through 2027
5. Consider shareholder proposals: Use new rights to raise concerns about governance or strategy

For Long-Term Strategic Stakes

1. Negotiate board representation: Use cumulative voting requirements as leverage in shareholder agreements
2. Push for governance best practices: Encourage portfolio companies to exceed minimum requirements
3. Establish reporting protocols: Set up regular governance reporting from management
4. Plan exit strategies: Understand how governance changes affect liquidity and exit timing

Looking Ahead: Future Reform Prospects

The 2026 reforms are not the end of Korea’s governance evolution. Anticipated future developments include:

Potential 2027-2028 Reforms

• Lower asset thresholds: Cumulative voting requirements may extend to smaller companies
• Stronger enforcement: Financial Services Commission may gain broader investigative powers
• ESG integration: Environmental and social governance standards may become mandatory
• Digital voting infrastructure: Government is exploring blockchain-based shareholder voting
• International board member requirements: Proposals for mandatory international directors at large companies

Market Impact Projections

Financial analysts project the governance reforms will:

• Reduce the Korea discount by 10-20% over 3-5 years
• Increase foreign ownership in KOSPI companies by 15-25%
• Improve dividend payouts as shareholder-focused boards gain influence
• Enhance market liquidity as foreign institutional investors increase allocations

How SMA Lawfirm Can Help

Navigating Korea’s evolving corporate governance landscape requires specialized legal expertise. SMA Lawfirm provides comprehensive support for foreign investors including:

Corporate Governance Advisory

• Compliance assessments: Evaluate whether target companies meet new governance requirements
• Due diligence support: Conduct deep governance reviews as part of M&A transactions
• Shareholder agreement drafting: Structure agreements that leverage new shareholder rights
• AGM preparation: Develop voting strategies and prepare shareholder proposals

Company Formation and Structuring

• Governance structure design: Set up new Korean entities with optimal governance frameworks
• Capitalization planning: Structure initial funding to manage regulatory threshold triggers
• Board recruitment: Identify and vet qualified independent directors
• Compliance implementation: Establish policies and procedures to meet governance requirements

Ongoing Compliance Support

• Annual AGM support: Prepare materials and coordinate cumulative voting procedures
• Regulatory filings: Manage governance-related disclosure obligations
• Audit committee support: Advise on audit committee composition and operations
• Dispute resolution: Represent shareholders in governance-related disputes

Conclusion

Korea’s 2026 corporate governance reforms represent a watershed moment for foreign investors. The introduction of mandatory cumulative voting, enhanced audit committee requirements, and strengthened minority shareholder rights significantly improve the investment environment and address long-standing concerns about the Korea discount.

While implementation challenges remain and further reforms are anticipated, the direction is unmistakably positive. Foreign investors who understand and actively engage with these new governance mechanisms will be well-positioned to:

• Secure better board representation
• Protect investment value through enhanced oversight
• Influence corporate strategy more effectively
• Benefit from improved transparency and accountability

For those considering Korean market entry, the 2026 reforms reduce governance risk and provide new tools to protect shareholder interests. For existing investors, the changes create opportunities to enhance influence and value.

The Korean government’s commitment to reaching international governance standards signals a long-term transformation that should progressively narrow the Korea discount and make Korean equities more attractive to global institutional investors.

Foreign investors who proactively adapt to this new governance landscape—whether through strategic AGM participation, carefully structured shareholder agreements, or purpose-built compliance frameworks—will find Korea an increasingly attractive and secure destination for capital.

Contact Us

If you’re a foreign investor navigating Korea’s new governance requirements or considering investment in Korean companies, SMA Lawfirm’s experienced team can provide tailored legal support.

📩 Contact us at sma@saemunan.com for a consultation on corporate governance compliance, M&A due diligence, or company formation in Korea.

Our expertise in Korean corporate law, combined with deep understanding of foreign investor concerns, makes us your trusted partner in Korea’s evolving business landscape.