[THE INVESTOR] Reforms after the 1997 Asian financial crisis improved market regulations in South Korea, however experts insist there is still room for improvement.

Government officials, regulators and academics gathered at the Organization for Economic Cooperation and Development’s Asian Roundtable on corporate governance at a hotel in Seoul on Monday to discuss recent corporate governance developments in Korea.

Jung Sun-seop, a professor at Seoul National University School of Law, said recent reforms in market regulation and legal frameworks contributed to stricter accounting practices and a better imposition of “fiduciary duty” on institutional investors when exercising voting rights of shares in the funds they manage.

 

The Act on Corporate Governance of Financial Companies, which went into effect in August this year, has brought stricter qualifications for outside directors and introduced a regular review system on the qualification of controlling shareholders, Jung noted.

“But there are still reported cases of large-scale corporate scandals. Korea has the lowest evaluation on corporate governance practices in the world,” Jung said in a panel discussion.

Professor Jang Ha-sung of Korea University asked the group why Asia’s fourth-largest economy ranks the lowest among OECD countries in corporate accounting transparency.

In response, Jung said there seems to be a discrepancy between people’s recognition of a stock-joint company.

“While companies are joint-stock companies in legal terms, people seem to recognize them as non-joint-stock companies. We should resolve this issue through the viewpoint of shareholders, rather than legality,” Jung said.

In Korea, it is considered a typical management system for owners of conglomerates, such as Samsung and Hyundai, to wield their power over subsidiaries despite their low share of stocks.

Another panel member, Jung Woo-yong, senior executive director of Korea Listed Companies Association, urged regulators to come up with better incentives for listed companies in exchange for improvement in corporate governance.

“Many bills submitted to the National Assembly for improvement of corporate governance are centered on enhancing regulation in the wake of corporate scandals. But such regulation may not apply to all other listed firms who keep to the market rules,” he said.

Another panel member, Kim Byung-ryool, executive director of the Kospi market at Korea Exchange, said KRX plans to adopt a “comply-or-explain” model this year when updating its Code of Best Practices for Corporate Governance.

“The model will have 10 core principles in corporate governance that companies can voluntarily report to the KRX, about two months after they submit an annual report for regulatory disclosure,” Kim said.

Meanwhile, Vice Justice Minister Lee Chang-jae, OECD Deputy Secretary-General Rintaro Tamaki and KRX CEO An Sang-hwan delivered the welcoming remarks at the event.

Lee said even though each country has a different corporate governance arrangement, he hoped the event would serve as an opportunity to share common elements and reasonable practices among officials from around the world.
 
By Kim Yoon-mi/The Korea Herald (yoonmi@heraldcorp.com)