Chairman Montagnon of the International Corporate Governance Network,
Secretary-General Angel Gurria of the OECD,
Chairman Lee Jeong-hwan of the Korea Exchange,
Members of the ICGN,
Distinguished participants,
Ladies and gentlemen,

I would first like to thank Chairman Montagnon and members of the ICGN for their kind invitation to speak to you on this special occasion of the ICGN 2008 Annual Conference.

On behalf of the government of the Republic of Korea, I extend my warmest welcome to the members of the ICGN and distinguished guests from all over the world.

I am particularly pleased to speak on this important issue of corporate governance for some reasons.

As a professor of economics at Seoul National University before entering politics in 1988 and a cabinet minister in charge of economic, financial and trade policy for some years, governance has long been a subject of my academic as well as practical interest. Governance is a set of processes, customs, policies, laws, and regulations that govern an institution on how it is directed, administered and controlled.

I think there are various types of governance; international, public and private or corporate. When I served as President of the 56th Session of the United Nations General Assembly during 2001-2002, I spent a lot of my time to enhance the international governance at the UN. We, of course, are very pleased and proud to know that international governance is now being well taken care of and advanced by Secretary-General of the United Nations, Mr. Ban Ki-moon.

As you may know, Korea was admitted to the OECD in December 1996. One of the major problems that I, then Deputy Prime Minister and Minister of Finance, had to deal with was the opening of Korea’s capital market. As the chief principal minister in charge of negotiations with the OECD, I then thought, one other major advantage of Korea’s accession to the OECD was to improve Korea’s public governance through the rigorous peer review process.

Unlike many other developing countries, Korean economy has depended on a few numbers of large conglomerates during the period of rapid growth and even now. One might argue that the influences of large conglomerates on the Korean economy and its society are, particularly, huge.

Therefore, corporate governance is not only a direct concern of those who are closely involved in corporations and business community, but also a crucial matter which affects daily lives of many Korean citizens.

Acknowledging the gravity of this matter, I am very glad that Seoul is hosting this important event.


Trend of discussions on corporate governance

Ladies and gentlemen,

Let me now discuss some aspects of corporate governance. Academically, the corporate governance literatures seem to have developed in two different perspectives.


First, good corporate governance deters the owners of firms from making unilateral management decision which are not in the best interest of the company and all the shareholders. As a result, it helps to enhance company’s profitability and overall stock prices and ultimately maximize shareholders’ value.

Second, good corporate governance improves business performances and in so doing, contributes to the national economic growth.

These two threads of discussions on corporate governance are basically similar in nature, as both of them stress the effects of corporate finance on improving micro-efficiency.


Discussions on and improvement of corporate governance in Korea

But, the Korean case seems to be somewhat different because the issue of corporate governance has become important after the financial crisis in 1997 due to its macro-implications rather than its impact on micro-efficiency.

During the financial crisis, inappropriate corporate governance was pointed out as the main culprit for the serial bankruptcy of large conglomerates and related businesses.

Excessively high debt ratio, mutual guarantee, and inappropriate financial support between subsidiaries were cited as evidences of mal-corporate governance.

As a result, the issue of corporate governance in Korea was initially brought up to ensure macro-stability rather than micro-efficiency. In other words, it was emphasized as a tool to prevent the insolvency of an individual company from leading to a systematic crisis of the entire economy.
Only after the systematic risk of the Korean economy has been stabilized, then the focus has been changed to enhancing transparency and improving micro-efficiency.

Thanks to great improvement in corporate governance, the Korean economy became more resilient and transparent. For example, Korea Composite Stock Price Index surpassed the 2000 points mark and the stock market’s capitalization exceeded 1trillion dollars for the first time in 2007.

This is a good evidence that Korea Discount that had existed for a long time in the Korean stock market has disappeared with the improvement of corporate governance.

Even today the Korean stock market shows good resilience unlike the other leading stock markets against the backdrop of sky-rocketing oil prices and recent sub-prime mortgage turmoil in the international financial markets.

This is a remarkable progress if we retrospect on the fact that the Korean stock market has been one of the most volatile stock markets in the world in the last decade.

International organizations like the OECD have also made positive assessments that Korea is close to the level of advanced nations in terms of corporate governance-related rules.


Issues for additional discussions concerning corporate governance

While fully aware of the contribution of improved corporate governance, I would like to raise several questions that I hope many experts would further discuss together.
One question that I have in my mind is that, since “the scope of corporate governance improvement” is so broad, it is hard to single out what factors drive positive performance.

For example, the economic recovery of Korea and better performances of the Korean companies after crisis might be attributed to the change from an owner-centered system to the separation of the roles of owners and CEOs. On the other hand, the same phenomenon might be a consequence of more transparent accounting system, reduction of debt ratio, and a ban of mutual guarantee.

If the positive outcome of the corporate governance improvement mainly stemmed from the improvement of transparency rather than the choice of ownership structure, the policy direction should focus more on strengthening disclosure and dissemination of financial information rather than advocating a certain form of ownership structure of the business sector. This is critically important in the case of Korea where the large conglomerates still function to their fullest.

Another issue that I wish to raise is about the dynamic impact of corporate governance on real economic sector.

Although it is clear that good corporate governance increases corporate value in the long run, there might exist a trade-off relationship between the improvement of corporate governance and the real economy.

For example, Korean government has encouraged M&A activities and upgraded related laws to improve corporate governance and management efficiency. However, due to the increased M&A threats, many large conglomerates became very keen on defending their control rights and consequently ended up using their internal funds to repurchase their own stocks rather than using them for new investment.

This clearly shows the trade-off that corporate governance improvement might cause short-run negative impact such as the decrease in investment. Therefore, I think we need more concrete analysis and evidence as to the dynamics of corporate governance improvement on the real sector.


Closing

Ladies and gentlemen,

Establishing a transparent financial system and adopting global standards are critical for corporations and nations to thrive in ever-growing global competition. I believe the time is more than ripe to reach out for global standards in the area of corporate governance.

Korea cannot be an exception. Korea’s new administration is firmly committed to drastic deregulation in financial system and enhancement of capital market transparency, pursuing the vision of “Vibrant Market Economy” as one of its key national agendas. The new government will reinforce its supervision of internal corporate control, accounting and disclosure standard to further upgrade corporate governance transparency in the Korean economy.

By applying this approach, I am confident that in the near future, global investors will find Korea an even more attractive investment destination.

I am confident that today’s event will provide an excellent platform for all of you to exchange your views and ideas on where we are and what we can do for the improvement of global corporate governance.

I hope that this conference will make a milestone for the improvement of global corporate governance by collecting and sharing your expertise and wisdom.

I wish you all the best and enjoyable stay in Seoul discovering economic, financial and cultural dynamism of Korea. Unfortunately, the rain began to start yesterday and won’t stop until you leave Seoul. But I sincerely hope that you will enjoy your stay in Seoul and return home with a fond memory of Korea.

Thank you.