Board structures and directors’ duties in 40 …

1 Corporate GovernanceBoard structures and directors duties in 40 jurisdictions worldwideContributing editors: Holly Gregory and Ira Millstein2008 Published by Getting the Deal Through in association with:Alfaro AbogadosAl Tamimi & Company lvarez Hinzpeter Jana AbogadosAnderson Mori & TomotsuneAra jo e Policastro AdvogadosBadri and Salim El Meouchi Law Firm Basham Ringe y Correa SCBeiten BurkhardtBogdanovic Law OfficeBonn Schmitt SteichenCastr n & Snellman Attorneys LtdCerrahoglu Law FirmCHSH Cerha Hempel Spiegelfeld HlawatiConsortium Centro America Abogados Davies Ward Phillips & Vineberg LLP Davis Polk & WardwellHenrique Abecasis Andresen Guimar es Pedro Guerra & lvaro Roquette Morais Herzog Fox & NeemanHoet Pel ez Castillo & DuqueJ di N meth Attorneys at

2 LawKim & ChangKochhar & CoLaw Offices JuricLepik & Luha r LAWINM acchi di Cellere GangemiMah-Kamariyah & Philip KohMinter Ellison LawyersSalansSchellenberg WittmerSimmons & SimmonsSlaughter and MayVivien & JuvignyWebber Wentzel BowensWeil Gotshal & Manges LLPW illkie Farr & Gallagher LLP-Kim & Chang Korea 144 Getting the Deal Through corporate governance 2008 KoreaGene-Oh Kim and Tae-Hyun ChungKim & ChangSources of corporate governance rules and practices1 What are the primary sources of law, regulation and practice relating to corporate governance? The primary law relating to corporate governance is the Korean Commercial Code (KCC), which provides for the law regarding companies in general (ie, for both listed and unlisted companies, and for all corporate forms).

3 In the case of listed companies, the Securities and Exchange Law (SEL) provides for further regula-tions that prevail over or supplement the KCC provisions. For the companies in the regulated industries (eg, financial institutions, telecommunications companies and broadcasting companies), the laws and their subordinate regulations regulating those industries often provide for additional corporate governance rules. Also, for the companies belonging to large conglomerates, which are designated by the Korea Fair Trade Commission, the Monopoly Regulation and Fair Trade Law (the primary antitrust law in Korea) provides for a requirement of Board approval for affiliate transactions satisfying the prescribed otherwise specified, the answers below relate to the general law regarding listed and unlisted joint stock companies in industries other than the regulated industry.

4 For reasons of space, the Korean law regarding companies having corporate forms other than joint stock companies is not discussed What are the primary government agencies or other entities responsible for making such rules and enforcing them? Are there any well-known shareholder activist groups whose views are often considered?Under the Korean Constitution, the National Assembly, Korea s legislature, has the exclusive authority to enact statutes such as the KCC and SEL, while various government bodies in the execu-tive branch are responsible for enforcing the statutes, and the final authority for enforcing the laws and regulations is with the court.

5 The National Assembly may delegate the authority to promul-gate subordinate regulations, known as enforcement decrees and enforcement regulations , which set forth more details to the statutory provisions, to the government body in charge of enforcing a particular statute. Thus, the government bodies, such as ministries and agencies, are responsibile for enforcing the stat-utes (including the subordinate regulations) and promulgating the subordinate regulations. The higher-level government bodies may also delegate to the lower-level bodies the authority to prom-ulgate further regulations.

6 For example, the National Assembly enacted the SEL and enacts amendments to the SEL; the Ministry of Finance and Economy, the ministry responsible for enforcing the SEL, promulgates the Enforcement Decree of the SEL and the Enforcement Regulations of the SEL; the Financial Supervisory Commission, the securities regulatory authority, and the Korea Exchange, the stock exchange, promulgate further regulations, such as disclosure and listing shareholder activist groups have emerged in the last decade or so, especially following the Asian financial crisis of 1997-98, when many large Korean companies failed, and many companies and their controlling shareholders were found guilty of accounting fraud.

7 The most famous shareholder activist group in Korea today could be People s Solidarity for Participa-tory Democracy (cham-yeo-yeon-dae). The shareholder activist groups may ask their lawmakers to enact a new law or amend-ments to the existing law, reflecting their viewpoints, or bring a lawsuit against specific companies and individuals for violation of the rights and equitable treatment of shareholders3 What powers do shareholders have to appoint or remove directors or require the Board to pursue a particular course of action?Under the KCC, the appointment or removal of directors must be approved by a resolution of the shareholders.

8 Unless the relevant resolution requirements are strengthened in the company s arti-cles of incorporation, (i) the appointment of a director requires an affirmative vote of the majority of the voting shares represented at the general meeting of shareholders, which must also represent at least one-quarter of the total issued and outstanding voting shares, and (ii) the removal of a director requires an affirmative vote of at least two-thirds of the voting shares represented at the general meeting, which must also represent at least one-third of the total issued and outstanding voting shares (special resolu-tion).

9 The general meeting of shareholders is ultimately a com-pany s highest policy-making organ. However, its powers are limited to those matters specifically provided for in the KCC or the articles of incorporation of the company. In this regard, the KCC or the SEL does not expressly provide for the powers for shareholders to require the Board to pursue a particular course of action. Under the KCC and the SEL, however, where a direc-tor takes a certain action that violates the relevant laws or the company s articles of incorporation and may cause irreparable damages to the company, shareholders holding in the aggregate at least 1 per cent (in the case of unlisted companies) or per cent (in the case of listed companies.)

10 But per cent in the case of listed companies with 100 billion Korean won or more of paid-in capital (the large listed companies)) of the total issued and outstanding voting shares have the right to demand that the director not take such actions or discontinue & Chang Korea 145 Getting the Deal Through corporate governance 20084 What decisions must be reserved to the shareholders?Under the KCC, the following matters require a resolution of the general meeting of shareholders by an ordinary resolution: appointment of an inspector to inspect the business or the status of the property of the company, or any documents prepared by directors, statutory auditors or liquidators; election of a director or a statutory auditor; election or removal of a liquidator; determination of the remuneration of directors, statutory auditors or liquidators; approval of the annual financial statements; declaration of dividends and stock dividends.