A Survey on Recent Studies on Corporate Governance

This paper surveys the evolution of corporate governance issues influencing Korean public companies. The study first reviews literature presenting conventional explanations of why business groups prevails in certain countries, while in other countries, most of the companies exist as stand-alones with diversified ownership. The literature points out that benefits that controlling shareholders enjoy motivate the individuals to form the business groups. Individuals controlling entire business groups with limited stock ownership have incentives to pursue private benefits at the cost of minority shareholders. Such possibility necessitates an institution against corporate decisions hampering the rights of minority shareholders. Board of directors, especially outside directors, are supposed to monitor corporate insiders, in case that the insiders make decisions not beneficial to general shareholders. Such institutional requirement sometimes does not serve its original purpose as intended, when the insiders name outside directors who represent the best interest of the incumbent managers (or controlling individuals) not that of general shareholders. This caveat triggers the need of alternative channels by which minority shareholders directly participate in corporate decision making process. Recent rise of institutional investors, such as pension funds, private equities, and hedge funds, provides a new opportunity where the investment vehicles are directly vocal for or against corporate decisions. Such monitoring mechanism becomes more enforceable, as the monitoring is conducted not by agents (corporate directors) but directly by stockholders (institutional investors) holding significant portion of corporate. As a conclusion, we propose that the protection of minority shareholders becomes more effective when they find ways to directly participate in corporate decision process, compared to a situation where the shareholders designate an agent, such as outside directors, to make her protect their rights.