[VIEWPOINT]Past misdeeds, future transparencyThe minister of justice, Kim Sung-ho, announced on Monday that his agency will not prosecute businesses that have kept fraudulent accounts but will have that practice fixed by March of next year. The announcement must have been a big relief to those businesses.
The habitual practice of keeping fraudulent accounts has been a hot potato in the business community, starting even before the introduction of class-action lawsuits. It is not only difficult to clear fraudulent accounts accumulated in past decades overnight, but also necessary to make confessions about past misdeeds and be ready to be prosecuted for those crimes.
Due to worries over problems in the business community, the class action lawsuit act stipulates, from the time of its enactment, that only businesses with assets worth more than 2 trillion won ($2.1 billion), which are less likely to keep fraudulent accounts, shall be subjected to the lawsuit. Moreover, the application of the law on big businesses was suspended for two years three months after it had been enacted . From the next year on, however, companies listed on the stock exchange and Kosdaq market, even if their assets are less than 2 trillion won, will also be subject to a class-action lawsuit. Therefore, the old practice of falsifying account rcord has become an even hotter potato now.
Although it is a temporary measure, the justice minister’s declaration that the government will untie the knot first must have given a ray of hope to some businesses that they can be reborn as clean companies.
Korea’s stock market has expanded rapidly since our economy overcame the foreign exchange crisis of 1997-98. However, there are still a lot of loopholes. And one typical example is the old practice of fraudulent book keeping. Window dressing is a fraud in which stock investors buy shares at a higher price than the real value of the stock by giving wrong information about the company’s financial status. Therefore, the growth of the stock market is nothing but an illusion as long as fraudulent accounting is rampant among listed companies. It cannot be denied that window dressing will undermine the growth of the stock market and the development of the national economy, in the same way that cancer hurts our health. However, we cannot blame just the business community. That is because the dark shadows of our previous rapid economic growth, such as collusion between the government and businesses, government-controlled finances and the practice of managing businesses with bank loans have been lurking behind the fraudulent bookkeeping. Considering our economic reality, in which the potential for growth is gradually dying down, the Justice Ministry’s measure is desirable. It is also encouraging that the ministry’s atmosphere concerning the revision of the commercial law it has been preparing since last year is differentfrom that of the past.
The draft revision of the law published in the official gazette has raised a lot of controversy because it emphasized the responsibility of business more than the economic reality. Especially, the introduction of such systems as the dual representation lawsuit, the banning of owners’ private use of corporate benefits and the appointment of outside executive directors goes against not only our economic reality, but also global standards. Unlike his predecessor Chun Jung-bae, Mr. Kim listens to the voice of business community and tries to reach agreements by convening a coordination committee, in which civic groups also participated.
According to the annual report of the International Institute of Management Development in Switzerland, Korea’s competitiveness ― which was 26th place in the world in 2002 ― has fallen to 47th place in 2006. It has also reported that the economic gap between Korea and Japan is getting even wider. There are no jobs for young people. So, they waste their youth competing with hundreds of others and struggling to pass government exams for civil servant posts. The situation is really hopeless. It is said that Mr. Kim told the participants at a meeting that “the morale of our business community should be enhanced.” I interpret his words as an expression of his understanding of our economic reality. Taking this occasion, I expect to see our business community show an effort to grow up to be global businesses by reflecting on their past misdeeds and introducing transparent management skills. At the same time, I expect the government authorities to make an effort to establish and implement policies that guarantee management efficiency, instead of emphasizing the social responsibility of businesses.
The development of the national economy does not depend only on the business community. The share of the people, as well as the government, is also big. It is a time when the three parties desperately need to recognize their respective responsibilities and exert efforts to overcome difficulties together.
*The writer is a professor of law at Soongsil University.
by Chun Sam-hyun