Corporate Governance to be Evaluated in Korea

"Our company is graded AAA in corporate governance by Standard and Poor`s (S&P), which ranks us second to none. We therefore expects a corresponding discount in CB issuance rates."

This hypothetical dialogue is not a distant notion. A company`s transparency will become an important deciding factor for investment in the near future. S&P has established a corporate governance assessment model to grade a company`s transparency level, and Hong Kong`s Asian Corporate Governance Association (ACGA) launched services to evaluate corporate governance starting on June 16.

Transparency is another credit rating?

Calvin Wong, Managing Director of S&P, announced at a professional training session on June 17 that the credit rating agency has already conducted corporate governance evaluations for 40 enterprises.

Categories for evaluation included four as follows: transparency in corporate ownership and legitimacy in influence exertion, investor prerogative and status, adaptability in transparency and disclosure of financial status, and structure and decision-making procedures by the company`s board of directors.

One Korean company is known to have run the gauntlet and S&P has been building up data on transparency and disclosure practices of the world`s top 1,600 firms including those in the S&P 500.

Good corporate governance can be a draw to investors.

"Investors are willing to pay premium on shares of companies with good corporate governance", said Wong and explained that "Board of directors` ways of running a company has become as important determinant factor for investors as financial performances."

The market appreciates a company with faithful and ethical management the most. He explained that "there is evidence that good corporate governance leads to impressive financial performance." Wong emphasized that corporate governance, unlike a company`s credit rating, can be upgraded by a company`s determined efforts.

Wong also pointed out that an opaque ownership structure was the largest problem for Korea`s conglomerates. He also explained that another disheartening factor for Korean companies was the labor union`s exorbitant demands, which incurred losses in shareholders` interests.

Quick service of credit rating is also available.

Jamie Allen, Secretary General of ACGA, in an e-mail interview with the Dong-A Ilbo, said that "quick service, which takes no longer than ten days, was started for a company`s credit rating process, based on five categories, such as accounting, structure of the board of directors, internal training and workshop programs, as well as shareholder rights."

The ACGA bases its evaluation on both open information, as opposed to S&P`s, which mostly depends on secret data analysis and interviews with a company`s CEO and other workers.

"Corporate governance is continuously evolving," said Allen. "Previously ignored factors will be added by considering various factors when their importance is recognized around the world."

Yong-Ki Kim Jong sik Kong ykim@donga.com kong@donga.com