Corporate Governance YD Ahn, PhD July 2009

Stakeholders of a Corporation Type of Firms: Korean Commercial Code Merchant(상인), Partnership(합명), Mixed Ownership(합자), LLC(유한회사) , Corporation(주식회사) Stakeholders of a Corporation Principal : Shareholders Economic: Employees, customers, suppliers, lenders, Social: Community, NGOs, unions Public: State, government, supranational institutes Others: Management, “the owner” (in Korea) competitors 2019-04-10

Corporate Purpose Raison D’être: whose interest to put first? Shareholder capitalism: Anglo-Saxon, legal approach ← Property right, residual rights Stakeholder capitalism: Continental Europe, practical ← Implicit license to conduct business → Closer to CSR Management Goals Shareholder C.: Profit maximization Stakeholder C.: Harmonization of interests → CSR Base Line Profitability is a must: “CSR is only as sustainable as the company.” Profit benefits all stakeholders. 2019-04-10

Control vs. Governance Control Structure of a Corporation (기업지배구조) General meeting → board of directors → management Auditor or audit committee Corporate Governance (회사기율) Systems and mechanisms, official or practical, to secure managerial behavior conducive to achievement of the corporate purpose In general, management thought to be agent of shareholders as principal → The Agency Problem Meaning: Prerequisite for societal transparency and a vibrant capital market → Part of IMF conditionality in 1997 Korea 2019-04-10

Corporate Governance ① Types of Corporate Governance <Fig 1> Internal: General meeting, board of directors, auditor Regulatory: Laws, guidelines, enforcement authorities Social: Community, NGOs, popular press Capital market: Securities markets, market for corporate control, institutional investors Other: Employees, customers, suppliers, lenders, unions… Market for Corporate Control: M&A (기업 지배권 시장) The best protection: purposive management → appreciation of the stock price 2019-04-10

Corporate Governance ② Functions of Board of Directors Appointment of CEO Decision on strategic direction Overseeing Corporate Social Responsibility Board Structure Chairperson (CEO or separate), executive directors, outside directors (or independent directors) Committees: Executive, audit, nomination, compensation…. Standard: 10 members with 2/3 from outside Cross-nation differences: US, UK, Germany, Korea … 2019-04-10

<Fig 1> Comprehensive view of Corporate Governance Shareholders General Meeting Capital Market Securities Market M. for Corporate Control Institutional Investors Board of Directors Auditor or Audit Committee Social Community NGOs Popular Press Regulatory Laws and Guidelines Authorities CEO Executives Economic Stakeholders Customers Suppliers Lenders Employees Union * Solid lines: More or less official. Dotted lines: Practical 2019-04-10

상품설명서 in Lieu of Thank-You Tesco's Tiramisu dessert (printed on bottom): “Do not turn upside down.” (well...duh, a bit late, huh!) 테스코스 디저트 (밑바닥에 적혀 있음):“거꾸로 뒤집지 마시오.” (이런, 벌써 늦었군, 허!) Nytol Sleep Aid: “Warning--May cause drowsiness.” (and... I'm taking this because???....) 나이톨 수면제: “주의사항--졸음을 유발할 수 있음” (내가 왜 이 약을 먹는 건데?) <펀 글> 2019-04-10