Korean Law and CSR Implementation

There is no Korean statutory or judiciary declaration stating that the fiduciary duty of managers can extend to stakeholders beyond the corporation itself . Despite this absence of an explicit provision, one may argue that portions of the Korean Commercial Act provide cause of action for stakeholders to hold managers to an obligation of CSR.¹⁴⁸ Professor Taek-Sik Ahn contends that the duty of loyalty as expressed in Article 382-3 of the Korean Commercial Act includes an implied notion of CSR, even though there is no explicit mention of the principle.¹⁴⁹ Article 382-3 of the Act establishes the duty of loyalty in that “directors shall perform their duties in good faith for the interest of the company in accordance with Acts, subordinate statutes, and the articles of incorporation.”¹⁵⁰ Assuming the validity of this fiduciary duty of managers for stakeholders under Article 382-3, Ahn argues that managers are liable to stakeholders for a failure of CSR, under the provision for directors’ liability toward third parties in Article 401 of the Act.¹⁵¹ According to the said Article, “if a director has neglected to perform his/her duties intentionally or by gross negligence, he/she shall be jointly and severally liable for damage against a third party.”¹⁵² Ahn broadly interprets the provision as declaring that directors have a fiduciary obligation to promote CSR in regard to stakeholders and should thus be liable for damages when their business activities affect the latter party.¹⁵³ Professor Seong-Keun Choi agrees with Ahn and enhances the argument by emphasizing that numerous US states have already enacted this liability of managers vis-à-vis stakeholders in corporate law.¹⁵⁴

However, Ahn appears to have overstretched the meaning of the duty of loyalty provision. Song criticizes Ahn’s interpretation, noting that the duty of loyalty established under the Korean Commercial Act is too narrowly defined to include CSR.¹⁵⁵ As Song points out, Article 382-3 of the Act does not provide any specific or implied stipulation regarding CSR .¹⁵⁶ Indeed, as demonstrated previously, American CSR proponents have similarly attempted to stretch the scope of the fiduciary duty to stakeholders by arguing that US corporate law declares managers to be fiduciaries for the corporation and shareholders.¹⁵⁷ However, Korean corporate law clearly establishes that managers are fiduciaries only for corporations, as Chap. 5 has already demonstrated.¹⁵⁸ Viewed in a comparative light, Ahn’s argument appears weakened by relying on an overly broad interpretation that would extend the fiduciary duty of managers to stakeholders beyond the corporations .

Moreover, this argument is also undermined for the same reason that the duty of loyalty provision is insufficient to establish the fiduciary duty for stakeholders in Korea. Like Song, Choi observes that the process of establishing managerial liability vis-à-vis third parties (as well as the duty of loyalty) does not specifically consider implications for CSR.¹⁵⁹ Additionally, Choi’s argument, which accepts—as Ahn does—managerial liability vis-à-vis the stakeholder, is apparently based on a misleading interpretation of US law. This book has already shown how American constituency statutes perform a facilitating role that allows managers to make business decisions favorable to CSR.¹⁶⁰ This legislative mechanism does not aim to provide cause of action to stakeholders against managers, but rather to protect managers fulfilling their CSR obligations from the claims of shareholders.¹⁶¹

Under the Korean Commercial Act , managerial liability to third parties can comprise a cause of action only when damage to a third person was inflicted by the negligence of directors.¹⁶² If stakeholders seek to hold liable directors who disregard stakeholder interests, they must prove that their damage was the result of a negligent business decision. Indeed, it would be difficult to prove causation between stakeholder damage and managerial negligence. Managers cannot be fiduciaries for the stakeholder under Korean corporate law, and thus have no duty to consider stakeholder interests when making business decisions. Therefore, under contemporary Korean corporate law, stakeholders do not have any cause of action to claim for CSR against managers .

In the United States, one major mandatory responsibility of the corporation to its stakeholders involves CSR disclosure regulations and enforcement thereof by the SEC.¹⁶³ Indeed, the SEC can provide for CSR implementation by mandating transparency and truthfulness in corporate disclosures .¹⁶⁴

Korean law may also achieve CSR implementation via its disclosure regulations. The Korean Commercial Act includes a disclosure regulation stipulating that “directors shall prepare … a business report”¹⁶⁵ which “shall include important matters concerning the business.”¹⁶⁶ This report, the Act stipulates, should be disclosed and inspected in public.¹⁶⁷ A comprehensive CSR disclosure of the corporation would include relations with the local community, social and charitable contribution policy, information on the environment, labor policy, corporate governance, corporate ethics , etc.¹⁶⁸ If CSR-related matters in these relations become important issues in regard to the business, then they should be disclosed in the business report and inspected in public.

However, it is difficult to find an argument in Korean legal scholarship that actively accepts this obligatory disclosure of CSR. Notwithstanding this qualification, Soo-Hyun Ahn merely emphasizes the importance of a mandatory regulation for CSR disclosure in terms of the risk that the corporation can optionally disclose nonfinancial information , and only when it is favorable to the corporation.¹⁶⁹ Furthermore, Professor Dong-Seob Ahn argues that a mandatory CSR disclosure regulation would provide societally relevant information to stakeholders to be used to promote the improved CSR in Korea.¹⁷⁰

It is not presently clear whether corporations will be required to disclose such information under Korean law due to the vagueness of the disclosure provision of the Korean Commercial Act . Presently, Korean corporations only voluntarily disclose their CSR information.¹⁷¹ Nevertheless, legally recognizing CSR as a matter crucial to the success of business will likely prove a turning point in efforts to mandate CSR compliance .

The two examples above, i.e., stakeholders can claim for CSR against managers and corporations should disclose CSR information, are the most progressive regulations that corporate scholars have argued for in Korea. However, these actions on their own would not provide sufficient regulatory protection for all constituencies. Strictly speaking, neither the fiduciary duty of managers nor disclosure regulation was expressly designed for purposes (or at least considerations) of CSR. In this regard, the 2012 amendment of the Small and Medium Enterprises Promotion Act appears as an especially progressive legislative move aimed at inducing CSR implementation in small- and medium-size corporations.

Through this Act, the terminology of CSR officially became a part of the Korean law, as the Act was revised to add some provisions regarding socially responsible management of a corporation.¹⁷² Article 2 of the Act defines CSR as a responsibility under which corporate decision making and activities transparently and ethically comply with the corporation’s influence on society and the surrounding environment.¹⁷³ The Act further states that small and medium enterprises shall make an effort to consider their social responsibility toward employees, suppliers, consumers, and the community in their management, and state and local government may support these CSR activities.¹⁷⁴ This is a remarkable and promising legislative development in itself. Even so, the Act does not establish comprehensive corporate jurisprudence on CSR nor does it aim to confirm the social nature of corporation, especially those large-scale public firms which wield comparatively more influence in society. While it aims to encourage corporations to consider their social responsibility, it is applicable to only small- and medium-size corporations; conversely, it also represents an opportunity to obtain support from the government rather than comprising a fundamental principle governing the managerial decision-making process. Similar to this Act, various Korean regulatory statutes requiring or encouraging certain “results,” “actions/process” and “structures” of corporate activities in order to protect economic, social, and environmental stakeholder considerations have already implemented a limited form of CSR. However, the field of corporate law itself has remained unresponsive to such regulatory advancement in Korea. The following section will demonstrate how Korean corporate law should seek to further this regulatory evolution of CSR and will consequently suggest a desirable legal scheme for CSR implementation.

Chapter 4 showed how US corporate law has implemented CSR mostly by enhancing the managerial power to make business decisions favorable to constituencies’ wealth.¹⁷⁸ Dodd, one of the progenitors of CSR, contended that corporate law should enhance managerial power in relation to shareholders for the purpose of advancing CSR.¹⁷⁹ In the meantime, the scope of CSR in US corporate law has expanded since the 1950s to include charitable contributions, the business judgment rule, and constituency statutes, all aimed at facilitating responsibility toward society by ensuring the legitimate freedom of business decisions .¹⁸⁰ Admittedly, some US regulations designed to protect constituencies against corporate malpractice in the corporate governance and securities fraud sectors may restrict certain business behaviors.¹⁸¹ However, these laws traditionally have not been predominant in the corporate law, and their enforceability is questionable in the United States as well.¹⁸² While US law has evolved to provide various legislative regulatory devices for CSR, as shown in Greenfield’s aforementioned chart of regulatory efforts,¹⁸³ corporate law has primarily sought to facilitate CSR implementation by empowering managers with the right to serve society. For over 80 years, the very foundation for CSR in American corporate law has established CSR as constituting that very right .

As for the lack of such a foundation for CSR