This is an excerpt from an interview with Peter Verrengia, president and senior partner of Communications Consulting Worldwide, a business consulting unit of Fleishman-Hillard. CCW, co-founded by Verrengia in 2004, assists global companies in identifying ways to address the risks and opportunities that companies face in managing their corporate reputations. Throughout his 30-year career as a communications consultant, Verrengia provided consultation services for global Fortune 50 enterprises and startups and non-for-profit organizations. He led the team that supported ExxonMobil in its merger communications and provided communications advice to both sides of JP Morgan Chase combination. Over the past five years, he has been extensively involved in assisting many Asian companies with the establishment of their global communication strategies. - Ed.



Korea Herald: Why is communication with shareholders such a big issue both at the national level and the corporate level?

Verrengia: Communication is essential to the successful functioning of the capital markets. Without the expectation that a market will require a flow of information from companies that is reliable, timely and fair, nations and their capital markets face a discount from investors. Investors have an expectation they will have information that they can trust, and access to management to ask questions about that information, regarding results, planned expenditures, and cash flow, as well as management`s view of the market and competitors and strategies. The more information, the better they are able to manage risk. Less information and less personal interaction between investors and management lead to a discount the value of a company`s securities. Good communications serves everyone`s interest.



KH: What is your assessment of the way Korean companies and government officials handle communications with foreign shareholders? Any good examples or bad examples?

Verrengia: Korean companies and government officials have gotten more comfortable with the kind of open, two way dialogue that is the norm in major financial centers. For example, companies have to seek out and address the questions that shareholders have, and they need to accept doubt or criticism as part of the investment process. The major Korean companies have all faced challenges or transactions that have led them to adapt to the expectations of foreign investors. At the same time, investors are learning to expect a productive relationship with Korean companies.



KH: What is general perception of foreign investors on corporate governance of Korean conglomerates? And what should be done to enhance the image of Korea Inc. or dispel the image of "Korea discount" in the mid-to-long term strategy?

Verrengia: Corporate governance is important in every market, and every market has a history of governance evolution or issues. There is no perfect governance system and many choices. But in major financial markets, certain standards apply. One important feature of good governance is independent directors who put the interests all of shareholders ahead of management`s self-interest, and who can challenge or reject management`s initiatives or strategies. And that includes independent, qualified directors who can provide oversight for reliable scrutiny of financial reporting systems and financial results. That is beginning to happen in Korea, for example at SK. Another important issue for foreign investors is the structure of Korean companies. Cross shareholdings and lack of transparency prevent investors from understanding where value is created in the organization and how accountability works. They tend to dislike money from the listed company they invested in going to support investments or activities in another company belonging to the group. It limits returns on their investment, and violates a core principle that most investors believe-they see the company`s money as the shareholders` money, not the group`s money, even thought the group itself is an investor. Improving governance, transparency, shareholder communications, and moving to a holding company structure can help to address a few reasons for the discount.



KH: There`s been growing discontent with the role of foreign capital among the Korean public. What do you think should be done to help the public overcome the misconception?

Verrengia: It is up to regulators and corporate executives to help the public understand that access to foreign capital is essential in the global economy, especially if Korean companies are to continue to grow and create opportunities for employees and growth for the economy. The fear of abusive investors can be addressed by demonstrating the successful relationship many Korean companies have with overseas shareholders. The best defense against hostile investors is full valuation versus similar investments in other markets. There will always be individual companies with short-term problems that make them targets. But, by continuing to produce business success, and by developing a more transparent, interactive relationship with all investors, Korean companies and the Korean public will have less to fear, and more to gain.



KH: Korea has a handful number of global brands such as Samsung Electronics, LG Electronics and Hyundai Motor. What are the major shortcomings to keep up with its international or Asian rivals in building strategic relationship with global investors?

Verrengia: Today, Korean products are visible and respected around the world. Not all Korean companies are yet as are well know or well understood as their global business plans require. By the notion of "made in Korea" is not a handicap for corporate success. That is not true yet for most Chinese companies, but they are growing so fast that companies like Lenovo and Hwawei will not be exceptions for long. The same is true in India, also their brands are a step behind China`s. Korean brands and companies have a small window to push ahead. They should use the opportunity presented by the challenges in the western economies, and the more aggressively communicate the balance of quality and price Korean brands are now beginning to known for. That, plus an open attitude to changes in corporate governance and transparency, and a more active approach to the ongoing dialogue with global investors will give Korea and its companies a larger place on the world stage. Finally, the leaders of Korean companies need to think of themselves and their companies as members of a global marketplace as much as representatives of Korea as a nation and an economy. This evolution will take time.



By Kim Jung-min