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Written by Jeremy Platts on Tuesday April 17, 2012
An interesting new law has just come into place in Korea which mandates that most large listed companies will have to have a compliance officer.
Licensed lawyers and experienced legal academics are eligible to apply for such posts but so too are those with either a master’s degree or higher in law with at least five years of experience in audit or compliance department of a listed company or an undergraduate degree in law and ten years of experience with a listed company. Their role would be to oversee the companies’ compliance obligations and to work proactively to head off potential legal issues before they escalate.
There seems to have been mixed reactions since the National Assembly of Korea amended the law last summer with various pressure groups expressing either support or opposition to the new requirement.
Supporters see this as a much needed move as further development in the trend of improving transparency and compliance in the wake of certain dubious practice in recent years in Korea and point to recent findings of the Financial Standards Foundation, a not-for-profit foundation established in 2001 for the creation and maintenance of a global and economic financial system.
The FSF compiles a country index which assesses financial transparency and governance against 12 key standards in which Korea was ranked 65th out of 93 registered countries, behind other places such as El Salvador, Tunisia, Japan and Russia. By contrast, Australia which is ranked fourth, is patting itself on the back as listed companies and the securities exchange are having few problems sourcing foreign funds and investors for large projects, thanks largely to the financial transparency and good corporate governance systems they have in place.
China is another country that has bought into efforts to improve compliance and corporate governance and a 2007 “China Corporate Governance Survey” conducted by the Chartered Financial Analysts Institute Center for Financial Market Integrity noted that many Chinese managers could see the economic and financial benefits of a well-defined system of corporate governance.
So, if “everybody else” is seeing the light, why so much resistance in Korea? Some opponents cynically suggest that it is just a ploy by the government to assist the thousands of fresh Korean lawyers who graduate each year to find employment.
Other opponents argue that large companies already have a team of in-house lawyers to deal with legal and compliance issues and therefore see no need for a specific compliance officer role. This of course raises the issue of whether in-house lawyers are best suited to play the role of compliance officer.
At the risk of offending any lawyers who may be reading, my experience suggests they do not make the best compliance officers, preferring to advice on issues referred to them rather than taking on the proactive role of interacting with the business lines to review and enforce compliance procedures.
Change resistance is indicative of protecting the status quo which in itself probably raises further questions as to the reasons. At least by legislating the need for change, entrenched companies will have little choice but to comply.
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