Improving corporate governance in Korea

Abstract

The Korean financial crisis owes largely to a corporate governance failure for large business groups (chaebols), where their inefficient resource allocation could not be checked. Effective internal mechanisms for supervision or monitoring of management were virtually absent. This paper concerns basically with the question of what the priorities for corporate governance are and how to improve corporate governance in Korea. After briefly discussing characteristics of business groups such as their ownership and management, the paper reviews the past characteristics of corporate governance, spontaneously derived from the business group. In order to devise ways to improve the current chaebol system, the strengths and weakness of chaebols are evaluated. Finally, after discussing the core of corporate governance reform, I recommend a strategy for chaebol reform. The central argument is that, in view of the weak external capital market, underdeveloped industrial development and unstable political situation, it would be better to resuscitate chaebols through improving governance structure, while addressing its weakness by radically strengthening internal discipline mechanism, rather than to break them up.