Corporate Governance Country Assessment : Republic of Korea
Since 1998, Korea has taken important steps to address the weaknesses that contributed to the economic crisis of 1997. The corporate governance framework has been strengthened significantly. The reform agenda, however, remains unfinished and the eq...
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| Format: | Corporate Governance Assessment (ROSC) |
| Language: | English en_US |
| Published: |
Washington, DC
2013
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| Online Access: | http://documents.worldbank.org/curated/en/2003/09/6569761/republic-korea-report-observance-standards-codes-rosc-corporate-governance-country-assessment http://hdl.handle.net/10986/14507 |
| Summary: | Since 1998, Korea has taken important
steps to address the weaknesses that contributed to the
economic crisis of 1997. The corporate governance framework
has been strengthened significantly. The reform agenda,
however, remains unfinished and the equity markets relative
to other OECD countries remain underdeveloped. There has
been good progress in upgrading accounting and auditing
standards and practices, as well as strengthening underlying
institutions responsible for setting standards and ensuring
compliance. The Financial Supervisory Commission/Financial
Supervisory Services have been established, and the role of
the Korean Institute of Certified Public Accountants has
been strengthened. Efforts should continue to further
improve accounting standards and improve accounting and
auditing practices, and include measures to clarify and
strengthen the role and function of audit committees
consistent with international best practices; replace
statutory auditors with audit committees for smaller
companies over time; and upgrade the skills and knowledge of
audit committee members. While holding companies are
allowed, only several of them have been established. In
order to improve transparency and disclosures of
chaebol-affiliated operations, consider several measures
including measures that may change the incentives for large
chaebol to establish holding companies (e.g. lower taxes).
While significant improvements have been made to increase
minority shareholder rights (e.g., by lowering or
eliminating threshold ownership requirements) and the ease
with which shareholders exercise those rights, further
improvements are required, including measures to allow
minority shareholders a greater voice in the selection of
directors and steps to improve the process for nominating
independent directors. While derivative actions are allowed,
these are costly and therefore have been limited so far to
only a few. The redress available to shareholders if their
rights are violated remains limited, and there is no
cost-effective way for them to seek redress. The draft law
submitted to the National Assembly allowing class action
lawsuits should be enacted as soon as possible. Securities
laws have been amended to require listed companies to have
outside directors. However, the concept of independent
(outside) directors is new and still not well rooted in
Korea. Additional efforts could include measures to expand
the fiduciary duty of directors to shareholders and make it
explicit under the law, and to limit liability of
independent directors in cases in which they have acted in
good faith. |
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