Kim Geo-sung Chairman of Transparency International-Korea

By Kim Geo-sung
Chairman of Transparency International-Korea

Transparency International-Korea, the Korean chapter of the global leading anti-corruption NGO, has paid close attention to corporate governance since its foundation in 1999.

TI-Korea conducted a survey on the codes of conduct (ethics) of the top 30 corporations in 2000 and found that 8 of them had such codes. The next year, the number of companies having the code of conducts increased to 14.

In 2002, TI-Korea broadened the research scope to 300 major companies and 113 companies participated _ 79, or 69 percent, of them answered that they have the codes of conduct.

If we assume those who did not participate would not have such codes, however, the percentage of ``haves'' only came to 26.3 percent.

Although judging corporations based merely on their retaining of the codes of conduct may not be appropriate, it was useful enough to stress the importance of strengthening the corporate code of ethics plus the related education, and creating organizations in charge for ethical management and compliance.

Transparency International itself has also emphasized the significance of the private sector in the struggle against corruption and put strenuous efforts to faithfully deliver the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

TI developed a tool to measure corruption in giving side and released its initial Bribe Payers Index (BPI) in 1999. According to the BPI, Korean corporations received a score of 3.4 out of 10 possible points, ranking 18th out of 19 export-promoting countries. Korean corporations received a score of 3.9 in 2002, again ranking 18th out of 20 nations according to the second BPI.

Such results are due to a systematic deficiency in corporate governance as Korean corporations satisfying the national agenda for economic growth and exports of the day engaged in all sorts of deeply-rooted fraud including window dressing settlements, while maintaining a close adhesion with the ``authorities'' in the administrative, legislative and judiciary branches as well as the media and other major sectors of society.

Especially, the leaders of various Korean chaebol have been harshly criticized for their involvement with all kinds of corruption such as the reporting of an improper capital structure, window dressing settlements and illegal gift and inheritance of wealth as well as not fulfilling their social responsibilities as major corporations.

Such matters have become the fundamental attributions in building the so-called ``anti-enterprise sentiment'' of the public. In this regards, the anti-enterprise sentiment is not a general disbelief or hatred against the legitimate corporate activities, but rather is an expressive measure to disapproving of corruption and poor corporate governance.

This poor corporate governance itself has also become a major set-back in evaluating the true value of Korean corporations that even an official term, the ``Korea Discount,'' has been introduced, meaning an overall devaluation of Korean corporations.

The Korean currency crisis resulted in no more protection for corporations' violation of human rights, labor standards, environment, anti-corruption, and other related fields. In addition, a change of regime further broke down the corporations' collusion with the authority and advanced the concept of democracy in the society taken as a whole.

Specially, the revealing of illegal political funding during the 2002 presidential election campaign made it difficult for Korean corporations to continue their collusion with politics.

As a result, Korean corporations began to execute actual governance reform as promised to the International Monetary Fund during the currency crisis.

Such reform has certainly begun with dedication and commitment of the political, private and foreign-related sectors, but the most significant drive should come from citizens' pressure and demand for better corporate governance and their criticism over the lack of accountability in political, public and private sectors in the past.

In realization of the extreme underestimation of the Korean corporations' values due to their fragile structure of governance, some investors have even created the ``governance fund'' during the major reform period where they buy in a lot of shares of such corporations prior to the governance reform and gain large amounts of profits by having the fair value judgment after achieving the corporate governance reform of those firms.

Considering this lack of trust for corporations and business leaders in today's society, corporate governance reform therefore becomes essential to the bottom line of overcoming the ``Korea Discount'' and achieving the basis for fair economic judgment both from home and abroad.

It is important to remember that an expansion in social contributions cannot be substituted for ethical management. For that reason, Korean corporations should take continuous governance reform and social contributions as their first priority. Fortunately, the number of Korean corporations striving for better governance increased significantly over the past few years and various associations such as the Federation of Korean Industries and the Korea Chamber of Commerce and Industry established and strengthened the organizations charged with ethical management.

Above all, the Korean Pact on Anti-Corruption and Transparency (K-PACT) on March 9, 2005 was a means to advocate for corporate governance reform at home and abroad.

The representatives of five economic organizations and the leaders of four major conglomerates admitted that the problems of the past in regards to collusion between the private and political sectors, non-transparent business management and accounting swindles had blurred corporate trust and hurt the market system in general.

They further agreed to work with the public, political sectors and civil society for increasing transparency efforts in business management, accounting systems and governance reforms to pursue a clean and transparent future.

Although there are some regrets that Korean society still encounters limits for continual growth due to the problems of the past and the habitual misdemeanor of a few chaebol leaders, the efforts for positive change have already begun.

According to the 2006 TI BPI, Korean companies scored 5.83, a two-point increase from that of 2002's, and ranked 21st out of 30 export-promoting nations.

The number of participants in the UN Global Compact amounts to almost 50, a huge increase from none at the time of the 2005 K-PACT where the promise of following the ten principles of the UN Global Compact including respect for human rights, labor standards and anti-corruption was made by the private sector.

The December presidential election will be the touchstone for the sustainability of Korean corporate governance reform.

The leaders of the five political parties pledged a transparent election campaign fund at the K-PACT convention on March 9, 2007.

During the event, the representatives from the public, private and civic sectors also promised to share responsibility for such a matter. A ``pact'' becomes meaningful only if the ``act'' part is guaranteed.

Now is the time for Korean corporations to prove the sustainability of their governance reform.