[EDITORIALS]Caution as customs change

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[EDITORIALS]Caution as customs change

The Suwon District Court's ruling against current and past directors of Samsung Electronics should be the starting point for looking back on the Korean way of doing business that prevailed over the past half-century to see how it needs to be improved. The owners, executives and shareholders of big businesses should reflect on ways to improve transparency based on market principles and raise the efficiency and integrity of their businesses.

The case is not yet over; both plaintiffs and defendants have said they will appeal the decision. But one thing is clear: The decision is a clear warning against the status quo in doing business. In other developed countries, the responsibility of company directors is as expansive as their mandates. Ours is a system of boards of directors that is justly criticized for being a voting machine for majority owners. So if anything, the Samsung case highlights the intended function of the board of directors as laid out in business principles - the body must work for the benefit of the company and therefore the shareholders.

In practice, the contentions in the Samsung case are not very clear-cut. The defendants said a decision to acquire the troubled Leechun Electric Co. in early 1997 was based on legitimate business considerations - entering a new market segment. They argued that the acquisition backfired unexpectedly when a national financial crisis hit later in the year. The shares involved in some murky transactions between Samsung and a subsidiary are unlisted, making fair assessment of their value debatable. The judgment for 90 billion won ($68 million) in damages ordered against the Samsung directors is an impractical sum for individual directors to handle, so the court may have been overly theoretical - or theatrical - in its decision.

The business community expressed concern about the fallout from the case. Business leaders say the responsibilities of a corporation are being suddenly enlarged in scope without a due understanding by the court of the uncertainties involved in managing a business. The case could discourage quick strategic decisions and encourage defensive strategies, critics continue.

Of course businesses should not be allowed to get away with just about anything under the guise of "management decisions." But the judiciary has also cleared former top government officials of any liability for letting the economy spiral into a financial crisis, and the legal basis in those decisions was that policy actions are beyond legal judgment. So we question whether it is entirely equitable to hold somebody liable for private business decisions while no one can be apparently held personally liable for decisions about the business of the nation.

The period following the financial crisis four years ago has brought waves of changes to the way business is done in Korea. It took us a long time to realize that the reckless and loose ways of business management and the shortcomings of corporate governance by the jaebeol brought about an economic crisis. We have found out what harm they had done to us only when we managed to escape the crisis. The harmful business management practices had long been customary here, inherent in the indigenous jaebeol system. We must ponder whether it is right to judge the past by today's yardstick without regard to the process that led up to the results.

Soon, the filing of class action financial suits against listed companies with 100 billion won or more in capital will be easier, and such cases may proliferate. It is urgent, of course, to bring our business customs closer to the best international standards. Future judgments must reflect our efforts to eradicate remains of bad practices and move forward.
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