U.S. Style Corporate Governance in Korea's Largest Companies

Abstract

U.S. STYLE CORPORATE GOVERNANCE IN KOREA'S LARGEST COMPANIES Craig Ehrlich Dae-Seob Kang* With roots in the early part of the 2 0 t h century,' corporate governance attracted a fresh look in the U.S. in the late 1980's and early 1990's. Maybe this is because the mid-1960s and early 1970s are perceived as a time of gross corporate waste and mis- management, '2 and the 1980s a decade of crime and greed, in- sider trading and takeover battles. 3 Many blue chips delivered unsatisfactory returns to their shareholders and seemed unable to compete effectively in the global marketplace, but executives of the blue chips paid themselves richly. People wondered about the boards of directors; whether anyone was monitoring the se- nior managers of the large publicly owned corporations and whether those managers were accountable to anyone. The cor- porate governance movement experienced a renaissance that progressed along three parallel tracks. First, lawyers wrote about the proper role of an active, independent board of directors with audit, nominating and compensation committees. Second, hos- tile takeovers were understood as a way of dislodging or energiz- ing inept or entrenched management and of realizing share- holder value. Particularly in the context of M & A transactions, the courts told boards how they ought to behave if their decisions were to merit judicial deference and this helped to shape the role of the board. Third, instead of automatically availing themselves * Craig Ehrlich is an assistant professor at Babson College, Wellesley, Massa- chusetts. He practiced law in Seoul, Korea from 1987 to 1995. Dae-Seob Kang is a professor of law at Changwon National University in Korea. They respectfully dedi- cate this article to scholars who share their interest in Korean affairs. 1. Nearly every article cites the seminal discussion by Berle and Means of the divergence of interests of owners and managers. E.g., D. Gordon Smith, Corporate Governance and Managerial Incompetence: Lessons from KMart, 74 N.C.L.REv. 1037, 1057 (April 1996). 2. Michael C. Jensen, Eclipse of the Public Corporation, HARv. Bus. REv. Sept.-Oct. 1989, at 61. 3. See William Taylor, Crime? Greed? Big Ideas? What Were the '80s About?, HARV. Bus. REv. Jan.-Feb. 1992, at 32.