Recent Improvements of Corporate Governance in Korea -Based on the 2011 Revision of Korean Commercial Code-

Abstract

Corporate governance has become an important topic in transition economies in last twenty years. In modern corporations, the board of directors has the ultimately crucial responsibility as an agent for shareholders. This article explores how the structure of ongoing corporate governance system has been made after the 2011 revision of KCC. Realizing the importance of corporate governance structure in modern corporations, this article scrutinizes the opposing theoretical views on corporate governance in section II. Section III analyzes recent regulatory improvements in corporate governance of Korean corporations and suggests further governance reform agenda at final section. The core of this article is analysis of the governance related provisions included in KCC. Among others, I focus the issues on the duty and accountability of corporate director and internal control system. Under the KCC, §397-2 was newly added to KCC and §398 was revised toward strengthening the approval requirement in 2011. The revision has sought to increase the accountability of corporate directors by making explicit standards applicable to directors’breach of duty of loyalty case. Also it has sought to decrease, and improve the fairness of intra-group transactions. Considering the central role of the board of directors in the decision-making of the corporation, KCC has enhanced the role of independent directors in policing management actions, especially when those actions involve a potential conflict of interest. Furthermore, in order to strengthen the internal control system in Korean corporations, KCC introduced internal control mechanism in listed corporations determined by Presidential Decree in 2011 revised version. In addition, a proposal for the separation appointment of the audit committee’s members has been suggested in 2017, but it failed to be enacted. In considering further corporate governance improvement in Korea, it is important to firstly recognize that Korean corporations differ from most of its competitors in the aspects of high degree of concentration in the economy, the strength of control by corporate owner and their family members, and high level of intra-transactions.