Lee, Woo-gap “If a chaebol, Misaeng Mr. Oh would be sent to jail in Korea”
Breach of fiduciary duty would be the reason for not launching new business in Korea
January 15, 2015 09:50 KST
SEOUL--(Korea Newswire) January 15, 2015 -- Lee, Woo-gap, the CEO of Friend Co. Ltd. and Harvard Co. Ltd. said as below.
What would have happened if Mr. Choi from tvN‘s drama Misaeng (incomplete life), executive director played by Gyung-Young Lee, who played a bad cop for the company and Mr. Oh of Business 3 Team, played by Seong-Min Lee, who portrayed a real leader, were heads of a conglomerate(chaebol) in real life? Mr. Choi and Mr. Oh, respectively, pursued a business deal in the amount of half a billion dollars with China for his personal gain and the company and for extending a permanent job offer to Geu-Rae Jang, the main character played by Si-Wan Yim. Securing this contract with China, however, required Quansi (connection or network in Chinese), which was eventually discovered by the company’s audit committee. Mr. Choi, as a result, got demoted to a smaller unlisted subsidiary, and Mr. Oh resigned from the company.
Would the outcome have been different if they successfully secured the half billion deal with China without being discovered by the company's audit committee? In the world of drama, Quansi would have incurred excessive costs, causing the company to suffer short term losses. Despite this, Mr. Choi would have been promoted to Chief Executive Officer, and Geu-Rae Jang would have received a permanent job offer, wrapping up the drama with a happy ending.
Let's shed new light on the drama, reflecting the reality of companies in Korea. What would the outcome have been if the real head of a chaebol did what Mr. Choi or Mr. Oh did?
Surprisingly enough, the head of a chaebol in Korea could have faced criminal prosecution if he failed to secure the half billion deal due to the audit committee; the reason being that using Quansi made the company's other deals in China completely fall through and caused interim damages to the company in the amount of five hundred billion.
Even if the whole thing was wrapped up with the happy ending of securing the half billion deal, non-profit organization would have filed charges against the head of the company for causing short-term damages to the company. The head of the company would have been subject to aggravated punishment for embezzlement and violation of the Foreign Exchange Law for using an unofficial fund in relation to Quansi.
The crime of breach of fiduciary duty refers to punishment for causing damages to a company by not complying with its fiduciary duty. Most heads of major chaebols in Korea have sent to jail for this. There is an old saying that goes ‘business is like riding a tiger’; once you get off, you will be killed by the tiger. Even when facing difficult circumstances, one cannot easily give up the business. Heads of most companies run their companies by facing risks and making difficult business decisions on a daily basis.
Most employees, like Mr. Choi or Mr. Oh, if they incurred damages to their company whether intentionally or negligently, either are demoted or resign. In the worst case scenario, albeit almost never seen, such employees may have to pay damages. No one would work for the company, however, if they may face criminal punishment. Even civil servant positions would not be filled if civil servants may be subject to criminal punishment for carrying out their duties. Who in the world would start a small restaurant business if one has to take risks and may be sent to jail for purchasing basic food ingredients from his brother-in-law? How ridiculous would it be if a housewife is sent to jail for investing in a private fund for increasing her wealth without success? The problem is that all these ridiculous phenomena only happen to heads of companies.
Korea is the only nation in the world that punishes the head of a company for making wrong business decisions. Even Germany and Japan, in which breach of fiduciary duty is criminally punishable, do not punish if such breach was due to the one's business judgment. Imposing civil penalties and damages, like how it is in America, would be sufficient; Korea, however, pushes too far and imposes criminal penalties.
Most people laugh at and look down on heads of chaebol who appear in a wheelchair for the charge of breach of fiduciary duty as if they have committed a serious crime. Although even vicious criminals, such as murderers are released on parole, those who are imprisoned for breach of fiduciary duty are almost never benefited by such release. What is even more absurd is that according to the Supreme Court, among all 5,716 breach of fiduciary and embezzlement cases that were tried in year 2011, only 1,496 cases (26.2%) were sentenced to imprisonment. The rest of them will never be able to recover for emotional distress and loss of opportunities.
Mr. Choi from the drama Misaeng said, “Executives are those who strive to see the stars beyond the clouds when people can only see the ground”. According to this, heads of major companies can be considered giants who can see the stars while firmly standing on the ground. The true entrepreneur spirit can never exist in Korea if business decisions such giants make for hundreds and thousands of Geu-Rae Jangs are judged from a legal point of view and even criminally punished. Who would want to raise cows in Korea?
Introducing a corporation, Friend Ltd.
Friend Ltd. is a manufacturer that produces marine equipment and marine diesel engine parts. It is a primary supplier to Korea's leading shipbuilding and diesel engine manufacturers as Hyundai Heavy Industries, STX, Sung Dong Shipbuilding and Doosan Engine.
Specifically, Friend Ltd. produces cable tray and valve spindle.
Cable tray is the world’s best product which manufactured with know-how gained from over 30 years of experience in manufacturing related products.
Valve spindle is a part that installed on a low-speed engine and is a product only produced by 1 company in Europe, 1 in Japan and 3 Korean companies in the world.
In particular, Friend obtained all approvals from MAN Diesel & Turbo, the world’s largest marine and industrial engine manufacturer, and is the only authorized company to WARTSILA, a specialized marine engine manufacturer.
Based on the world’s best competitiveness, it is supplying not only to Korea’s large shipbuilders (Hyundai Heavy Industries, STX, Doosan Engine), but to the top 10 engine makers of China and to Mitsui of Japan.
And the all necessary process required in manufacturing valve spindle at Friend, from the delivery of raw materials to packaging and shipping, are done on the premise, therefore has an advantage to able to quickly respond to the buyer’s needs.
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