Economic Democratization in Korea and Governance from a Canadian Versus a U.S. Corporate Law Perspective
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In Korea series of major political and economic crises reinforce the common perception that public and private sector interests are intertwined at the highest levels of decision-making power. A main thread of governance reform discourse centers around the idealism of “economic democratization” based on what may be an unfortunate parody of the model dominating U.S. corporate law. Economic democratization should not be limited to adjusting shareholder rights and powers, and the two major theories of corporate law in the United States, the prevalent principal-agent model, supporting shareholder primacy, and the alternative team production model, proposing to empower directors to balance the interests of all residual constituents, do not adequately describe the situation in Korea. This paper proposes instead that greater scholarship be directed to Canadian corporate law, such as the theories that support the holding of BCE Inc. v. 1976 Debentureholders, a 2008 opinion of the Supreme Court of Canada [BCE]. The decision in BCE helps to support the argument that, as with concentrated shareholders in Canada, the heads of Korea’s chaebols may help to reduce agency costs by discouraging directors or managers from expropriating wealth from shareholders. Under Korean law, a director has a duty of care of a good manager, which may be “functionally equivalent” to the fiduciary duty of directors, as confirmed by the BCE Court, to promote the firm’s economic interests, by acting equitably and fairly, in the best interests of the corporation viewed as a good corporate citizen. Minimizing conflicts of interests between controlling and other shareholders in Korean firms may require further development and enforcement of the directors’legal duty of care. However, the democratization of the Korean economy, enshrined in art.1 19-(2) of the Constitution of the Republic of South Korea, must be balanced against the constitutional provisions supporting the market economy, including art.119-(1) of the Constitution, requiring attention to the argument of scholars that art.119-(2) is subordinate to art.119-(1) of the Constitution.
Abstract
In Korea series of major political and economic crises reinforce the common perception that public and private sector interests are intertwined at the highest levels of decision-making power. A main thread of governance reform discourse centers around the idealism of “economic democratization” based on what may be an unfortunate parody of the model dominating U.S. corporate law. Economic democratization should not be limited to adjusting shareholder rights and powers, and the two major theories of corporate law in the United States, the prevalent principal-agent model, supporting shareholder primacy, and the alternative team production model, proposing to empower directors to balance the interests of all residual constituents, do not adequately describe the situation in Korea. This paper proposes instead that greater scholarship be directed to Canadian corporate law, such as the theories that support the holding of BCE Inc. v. 1976 Debentureholders, a 2008 opinion of the Supreme Court of Canada [BCE]. The decision in BCE helps to support the argument that, as with concentrated shareholders in Canada, the heads of Korea’s chaebols may help to reduce agency costs by discouraging directors or managers from expropriating wealth from shareholders. Under Korean law, a director has a duty of care of a good manager, which may be “functionally equivalent” to the fiduciary duty of directors, as confirmed by the BCE Court, to promote the firm’s economic interests, by acting equitably and fairly, in the best interests of the corporation viewed as a good corporate citizen. Minimizing conflicts of interests between controlling and other shareholders in Korean firms may require further development and enforcement of the directors’legal duty of care. However, the democratization of the Korean economy, enshrined in art.1 19-(2) of the Constitution of the Republic of South Korea, must be balanced against the constitutional provisions supporting the market economy, including art.119-(1) of the Constitution, requiring attention to the argument of scholars that art.119-(2) is subordinate to art.119-(1) of the Constitution.
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