Since 1998, Korea has taken importantsteps to address the weaknesses that contributed to theeconomic crisis of 1997. The corporate governance frameworkhas been strengthened significantly. The reform agenda,however, remains unfinished and the equity markets relativeto other OECD countries remain underdeveloped. There hasbeen good progress in upgrading accounting and auditingstandards and practices, as well as strengthening underlyinginstitutions responsible for setting standards and ensuringcompliance. The Financial Supervisory Commission/FinancialSupervisory Services have been established, and the role ofthe Korean Institute of Certified Public Accountants hasbeen strengthened. Efforts should continue to furtherimprove accounting standards and improve accounting andauditing practices, and include measures to clarify andstrengthen the role and function of audit committeesconsistent with international best practices; replacestatutory auditors with audit committees for smallercompanies over time; and upgrade the skills and knowledge ofaudit committee members. While holding companies areallowed, only several of them have been established. Inorder to improve transparency and disclosures ofchaebol-affiliated operations, consider several measuresincluding measures that may change the incentives for largechaebol to establish holding companies (e.g. lower taxes).While significant improvements have been made to increaseminority shareholder rights (e.g., by lowering oreliminating threshold ownership requirements) and the easewith which shareholders exercise those rights, furtherimprovements are required, including measures to allowminority shareholders a greater voice in the selection ofdirectors and steps to improve the process for nominatingindependent directors. While derivative actions are allowed,these are costly and therefore have been limited so far toonly a few. The redress available to shareholders if theirrights are violated remains limited, and there is nocost-effective way for them to seek redress. The draft lawsubmitted to the National Assembly allowing class actionlawsuits should be enacted as soon as possible. Securitieslaws have been amended to require listed companies to haveoutside directors. However, the concept of independent(outside) directors is new and still not well rooted inKorea. Additional efforts could include measures to expandthe fiduciary duty of directors to shareholders and make itexplicit under the law, and to limit liability ofindependent directors in cases in which they have acted ingood faith.
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