Daewoo Case

A case study of Daewoo within the context of comparative corporate governance also sheds light on the efficacy of formal law, the importance of enforcement and the potential for convergence among governance systems. It will show how corporate governance mechanisms have been activated not only through statutory reforms but also through alternative ways for establishing legal compliance. Most notably, Korea has developed a unique means of enforcement discipline outside traditional remedies based upon corporate or securities law. Finally, this study shows how a transplant country from a mixed civil law tradition has converged toward a more shareholder-oriented corporate governance model from a state-oriented model.

How much corporate governance problems relative to ill-advised business decisions and external factors played a role in the collapse of companies such as Daewoo remains a difficult question. Applying "modern" concepts of corporate governance might be inappropriate given Korea's level of economic development at the time. The term "corporate governance," for example, did not exist in the Korean business vernacular. Some insist Daewoo was a victim of external shocks or a scapegoat of political intrigue. They cite how Daewoo affiliates have rebounded to profitability. With benefit of hindsight, forensic studies can exaggerate faults and causes that might appear self-explanatory. These challenges will be addressed.

This article begins with a comprehensive review of the history of Daewoo, particularly relative to other chaebol conglomerates. Second, the article will provide a survey of the internal corporate governance of Daewoo, particularly through its board of directors, officers, shareholders and banks. Third, the external corporate governance landscape will be described through the failure of reputational intermediaries, gatekeepers and public institutions. This article will argue that while primary responsibility lies with Daewoo's own internal problems and Korea's underdeveloped corporate governance framework, other market players, particularly leading international ones, cannot escape derivative responsibility. Corporate governance policy in emerging markets must be reformulated to reach a more balanced and comprehensive perspective.