[Doing biz in Korea] ‘Government’s distrust in business is biggest problem’

The Korea Herald is publishing a series on South Korea’s business environment for foreign companies and investors. This is the second installment. -- Ed. 


A lack of trust between the government and companies is among the biggest problems for companies doing business in Korea, according to the chairman of the board of governors of the American Chamber of Commerce in Korea.

“The government and companies in Korea don’t trust each other. The government thinks the company management is not transparent and companies think regulations are too vague and harsh,” said Jeffrey Jones, in an interview with The Korea Herald.

“The distrust leads to frequent audits and compliance, making foreign companies doing business difficult here,” the chairman added.

For companies to improve transparency and build trust “they need to establish a system where boards are really functioning properly,” he said.

The boards of directors at Korean conglomerates run by ownership families are generally little more than rubber-stamp bodies. According to data compiled by the Daishin Economic Research Institute, just 0.3 percent of 27,575 agenda items reviewed by the boards were rejected or delayed among the top 165 listed firms in Korea from 2011 to 2015.

“But, if you look at the public-listed companies in the US, the board makes a decision and makes recommendations to their shareholders,” Jones said. 

He said companies should have professional boards of directors, who don’t just do what the management wants, but who really look at the operation of companies in a transparent and open way.

AMCHAM plans to hold seminars for companies to strengthen transparency of board of directors and corporate governance. It has also been holding compliance and risk management seminars since 2016.

As for the government’s side, it should ease hurdles posed by the regulatory environment that are too vague and too harsh for companies to comply with, the executive said.

“There are tremendous ambiguities in the legal system, and that creates uncertainty and makes compliance difficulty,” said Jones, who has also been practicing in Korea as a lawyer for more than 35 years.

He said different interpretations on the same matter among many laws and a lack of clear knowledge by governmental officials confuse companies.

Korea’s regulatory challenges were also noted in a report released by the World Economic Forum last year. Regarding national competitiveness in terms of the burden on companies posed by governmental regulations, Korea ranked No. 105 of 138.

“Many and vague regulations increase cost of compliance, making most multinational companies doing business in Korea difficult. So what we need is fewer regulations but greater clarity.”

He also said criminalization of businesses in Korea’s regulatory system hinders entrepreneurship of companies doing business here.

“In Korea, it seems every violation of laws, even if it is administrative, is criminal. There is too much criminal liability,” he said.

For instance, in Korea, a manager failing to file a foreign exchange report, or who pays wages late, or even fails to inspect an office elevator, could be subject to criminal penalties.

The same goes for Korea’s handling of breach of duty, he noted.

“Korea is also the only country that makes breach of duty a crime. Even if a manager acts in the best interest of companies and makes a decision that results in losses, criminal liability can be imposed.”

Under criminal law in Korea, a breach of duty is defined as when a person who manages another person’s business gains wealth by violating his duty. Chiefs from the largest conglomerates, including Samsung, Hyundai, SK and CJ have been charged with breach of duty in the past.

Some other countries, including Germany, Japan, Switzerland and Austria, punish people for breach of duty, though it is not criminalized.

Jones, who is has been well reputed for his dedication and expertise in economic activities here, has been a lawyer at local law firm Kim & Chang since 1980. He served as chairman of AMCHAM from 1998 to 2002. Since 2003, he has been a member of the board of directors, and became its chairman last year. 

By Shin Ji-hye (shinjh@heraldcorp.com)