Popular Korean Concept of Corporate Governance Rules
by Brendon Carr
This post got its start from a comment I left over at the Marmot’s Hole. Over there, a guest poster made his observations about chaebol companies being like the Mafia—a point I’m unwilling to make, lest I get whacked—and the popular conception about corporate-governance practices.
Commenter “captbbq” (how I wish there were real names to go with the handles!) noted:
I work in an ex-chaebol corporation but every once in a while something funny goes on…
The day before we had a share-holder meeting, they announced ever-so-innocuously that everyone should go up to the big conference room for the rehearsal. Then we sat through a ten minute coaching of when we were to yell (I forgot the exact Korean phrases but I’ll approximate in English) “we have no objection” and “no that is not needed” and then the pursuant speech by the chairman and our appropriate responses to it.. It was only after that that the realization finally made it through my thick skull that something wasn’t quite right when the chairman said “all right guys, that was perfect, just remember, don’t wear your company pins tomorrow when we do this”.
It was then it all added up:
1. Why do we need to rehearse a shareholders meeting? The vast majority of us aren’t even shareholders (well in our competitors maybe)
2. In light of number one, what are we doing telling the chairmen if his policies are ok with us or not?
3.Why are we not supposed to look like employees and lastly: why do my co-workers keep making jokes about me representing the “foreign investors”?
Most Koreans know nothing of the law. Nothing at all. It’s not relevant to their lives — the law is an alien construct overlaid on their 5000 year-old society, by force, only in this century. The law and government has been the tool of fascist oppression, in varying degrees, from 1910 to 1992 (some would say 1997).
The function of the law in Korea has generally been to establish means by which the ruling class (whether they are Japanese or Korean) exercises control over the general populace. As a result, everyone here is trying to make themselves as inconspicuous as possible, or to bribe the petty functionaries of the ruling class to look elsewhere and harass someone else.
It’s correct to describe the prevailing legal culture as an “avoidance” model rather than a “compliance” model. It’s probably not possible for anyone to be in compliance with all the relevant Korean laws, all the time, for they seem to be written and promulgated in a way to ensnare rather than to regulate. By keeping everyone out of compliance at all times, the state then has a handy bludgeon to wield when someone gets out of line—This is because you’re a lawbreaker, see? You don’t deny you were breaking the law, do you?
Now, a “critical legal studies” theorist — or Korean misdirectionalist — would say the same is true of the United States, but at least in the United States we have a separation of powers and the limited-sovereign conception traceable back to the Magna Carta.
In the American system, in theory at least, all powers stem from the people and are granted to the government. Korea’s legal system reserves all powers to the government ab initio and the people are permitted to do what the government allows them to do. If not expressly permitted, an activity is forbidden — this is the nature of the so-called “positive list” system.
The system whereby judges are recruited directly from the Judicial Research and Training Institute (i.e., just as they are starting their careers) and appointed as civil servants without tenure ensures a pliant judiciary not eager to oppose the government.
This is also why Korean democracy is a winner-take-all system. Whosoever takes control of the government, controls all.
Over at the Marmot’s Hole, the question was asked:
Just curious… is the regular Korean (someone who doesn’t work in corporate or that kind of field) aware of the practices you talk about, like [choreographed ‘shareholder’ meetings stuffed with company employees], etc… If people are aware of it, then does it mean that it continues because people feel helpless to do anything about it since the practices are so entrenched?
The answer is no — the general public, and the more ignorant members of the government too, for that matter — have no idea about corporate governance nor about shareholders rights. They think in terms of an individual “owner” of a corporation and that owner having utter and complete control and knowledge of all aspects of the corporation’s business.
Imagine a case where a multinational company — for the purpose of argument, Apple, because its CEO is well-known and closely identified with the company — suffers a loss in Korea due to fraud. Could you believe the police and prosecutors persistently requesting Steve Jobs to appear at the police station to swear out a complaint? I can, because I’ve experienced it in a similar case. After all, he’s the “owner” of that company. In our fraud case we had to prepare and submit a detailed brief explaining the concept of a limited-liability company and its separate legal personality, because the (very mature) fraud investigator couldn’t wrap his head around the idea of a corporation being its own entity. Yet limited-liability corporations have been in existence in Korea for over 100 years.
In such a culture, the “owner” of a company gets to do whatever he wants with the assets of that company, including its people. It’s very much a “family business”, sole-proprietorship conception that is applied in the popular imagination to Samsung, Hyundai, and Posco. In the case of state-owned companies, the owner is the President.
But we live in a democracy now. My daughter, born in Seoul in 1997, was born free (plus she’s an American citizen, which means she was free no matter how things turn out here). Korea’s insitutional and legal framework is better suited to a fascist dictatorship than to a democratic state. The challenge, as I see it, for modern Korea and its fledgling (but seemingly well-rooted) democratic order, is to nurture independent, institutional-based (as opposed to personal-based) power centers. Getting corporate governance right is an important part of that transition.
The good news is, although there is a lot of work to do, it seems to be in steady progress. In my professional career I have witnessed profound legal change, and expect to witness much more. That’s what makes working in Korea very exciting and gratifying.
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Great Post. Keep up the good work.
Yes, I suppose a certain amount of credibility and professionalism goes out the door with a handle like that, the only problem being had I posted that under my real name, I might be in some trouble with my employer......
BTW: We also had a few people “spontaneously” jumping up and interupting the chairman asking questions off of scripts… but I forgot about that until you mentioned your eperience…