There has been a remarkable increase in the level of corporate social responsibility (CSR)-related activities in Korea recently. Various strata of society, including government and nongovernment organizations, media, individual investors, as well as corporations, have promoted CSR activism in recent years. For instance, the current Geun Hye Park government pursues its CSR policy by emphasizing “Economic Democratization,” one of the buzzwords of the last presidential election.¹ The previous Myung-Bak Lee administration also tried to implement CSR policy through its “Green Growth” initiative, overseeing an increase in CSR practices in various industrial sectors in line with this administrative policy.² Korean corporations have joined the trend as well, promoting CSR through voluntary practices. Riding the political tide of “economic democratization,” chaebol owners have pledged reinvigorated CSR engagement.³ According to a survey of 139 companies conducted by the Federation of Korean Industries in 2009, “95 % (84 companies) adopted an ethics management chapter as a means of carrying out ethics management and CSR, and 92 % (81 companies) conducted ethics management education frequently. About 64 % (56 companies) collected consumers’ opinions through their Internet homepage, and 70 % (62 companies) established departments exclusively dealing with CSR.”⁴

Though the Korean public discourse on CSR remains at unprecedentedly high levels, CSR has encountered an entirely different reception in the legal field. Despite the general upsurge in CSR activism, Korean corporate law has remained resoundingly silent on CSR. It makes no explicit provision for CSR; the concept is literally undefined in the law, be it as a legal responsibility or a mere voluntary activity. As for the lack of legislation, most corporate scholars apparently adhere to a view that effectively denies normative CSR.⁵ This tendency contributes to the failure of Korean law to keep abreast of societal demand for CSR practices. Furthermore, this trend could reinforce the misconception that corporations merely comprise the assets of shareholders, thus facilitating a denial of their social responsibilities. This “legislative gap” is not merely an academic oversight; indeed, the failure to articulate the concept legally could undermine the very foundations of business competitiveness and industrial development in the country. Discussions about legal approaches to CSR thus give rise to the question of whether CSR should be made a legal obligation under Korean corporate law. There are numerous fundamental differences regarding the answer to this question in Korean corporate scholarship.

CSR first entered the Korean legal discussion in 1970, as corporate social harm began to emerge as a serious social concern. Legal scholars of the day leveled criticisms about the lack of legislation for CSR and a corresponding implementation scheme. Professor Hui-Cheol Jeong, one of the leading CSR activists, argued that corporate law should find “ways of protecting society against… corporate wrongdoings”⁶ and emphasized that “large corporations could serve society better.”⁷ Based on this understanding, he developed the notion of CSR as a concept “through which [corporations] give back to society a part of profits earned by them,”⁸ and enumerated the constituencies that corporations should serve: consumers, community, employees, investors, creditors as well as shareholders.⁹ He further proposed implementing CSR through legislative measures. Jeong admitted normative CSR at this early stage of his inquiry by rationalizing that “corporations are eligible to enjoy profits only after paying the tangible and intangible social costs resulting from corporate activities and after serving society.”¹⁰ However, at this stage his legislative blueprints majorly focused on limited regulations in terms of preventing environmental pollution caused by corporations, among various other forms of corporate social harm.¹¹ Nearly a decade later, Professor Joo-Hwan Chung expanded the notion of CSR by arguing that Korean corporate law should have a general provision for CSR, stating that “corporations should discharge their social liability” as a principle governing the entire corporate law system.¹² Professor Kyu-Suk Suh supported Chung’s argument in that corporate law should ask managers to “consider the corporation’s shareholders, creditors, employees, consumers and communities in the pursuit of their duties.”¹³ Yet, despite the work of Korean corporate scholars such as Jeong, Chung and Suh, who inaugurated the discourse on legal aspects of CSR as early as the 1970s, their successors in subsequent years have only intermittently addressed the need for CSR legislation.¹⁴

This silence, however, was shattered in the latter part of the past decade, which witnessed an explosive growth in Korean studies on normative CSR.¹⁵ Legal scholars have attempted to define CSR in the context of corporate law and have pushed more precisely and actively for CSR implementation via legislation. Professor Deok-Jo Jang, for example, has defined CSR as a principle aimed at ensuring that “corporations consider the interests of their societal constituencies as well as their shareholders in equilibrium, while making business decisions.”¹⁶ He further declared, “CSR expects the corporations to comply with public, environmental, and societal demands and serve their workers, consumers, communities as well as shareholders.”¹⁷ Following Jang’s example, Korean CSR advocates have begun publicizing the need for CSR implementation in the areas of labor,¹⁸ environment,¹⁹ capital market,²⁰ internal control,²¹ corporate governance,²² and corporate law in general.²³ This new dialogue is now trying to determine whether “entire corporate interests should be used not only for shareholders but also for various stakeholders of the corporation: employees, consumers, suppliers, local community, and the general public.”²⁴ Proceeding from the basic tenet that “a corporation has an obligation not to harm society and also contribute to social development,”²⁵ these advocates continue to push for ways to legally implement CSR.²⁶ Unlike the early stage of Korean CSR discussions in the 1970s–1980s, scholars today seem to be approaching the issue of CSR as a fundamental matter of corporate law based on the belief that corporations are not merely the sum of assets of shareholders. Moreover, this new generation of academics believes that CSR can be legally and harmoniously implemented into Korean corporate law.²⁷ This reinvigorated CSR activism has broken the decade-long silence on the issue, and should pave the way to initiate comprehensive and exacting legal studies on CSR in Korea.

Although the emergence of CSR activism is an encouraging progress, most corporate scholars appear to be indifferent to the lack of legislation for CSR in Korea. This breed of legal scholars generally understands CSR as a nonlegal issue.²⁸ Many of them persist in their indifference to the lack of CSR-related legislation and appear hesitant to participate in any legal debate on the subject. Some CSR advocates have also dismissed the concept as merely a useful tool for interpreting corporate legal provisions,²⁹ thus rejecting the need for its legislative implementation. Furthermore, some critics have observed that Korean CSR activism has yet to conclusively define normative CSR and even whether corporations have a binding responsibility to society.³⁰ Even when CSR warrants mention in the literature, most references to the matter tend to assume that CSR cannot be a legislative norm in terms of the Korean legal system.³¹ This negative view mostly stems from three reasons: vagueness concerning the definition of CSR; methodological complications in enshrining it in legislation; and adherence to the American shareholder primacy model.³² Scholars in this camp passively resist the need for legally binding CSR; however, they do not strongly reject the concept of CSR itself. For example, Professor Joon-seon Choi points to the negative view of CSR activism in the legal arena, but nevertheless accepts the validity of the concept of CSR itself.³³ Professor Ju-Chan Son was one of the CSR activists of the 1970s who, like Jeong et al., argued that corporations owe a responsibility to society.³⁴ However, Son refuted the demand for “legislative reforms for CSR” on the grounds that the concept was too vaguely defined to be implemented by corporate law.³⁵ He argued that CSR cannot be a legal norm unless a legislative obligation guaranteed its effectiveness and a corporate breach of CSR caused demonstrable damages in civil liability.³⁶ Professor Giwon Choi has added that a general provision for CSR would have merely instructive value, without any effectiveness.³⁷ A majority of Korean legal scholars have accepted this negative view, denying the need for or potential effectiveness of CSR endorsement by means of the law. Their position seems to vacillate between a general hesitancy to implement CSR in corporate law and a passive assumption that the corporation, by its very nature, owes a degree of responsibility to society.

Although mainstream scholarship seems to have passive views about normative CSR, aggressive counterclaims have arisen in other quarters. This vein of thought primarily transposes the views of shareholder primacy advocates from the American CSR debate.³⁸ Professor Taero Lee, for example, has argued since the 1970s that Korean corporate law does not call for normative CSR.³⁹ Foregoing mere indifference toward normative CSR, Lee draws a direct correlation with the American shareholder primacy norm, stating that “Korean corporate law is consistent with shareholder primacy, which requires corporate directors to represent only shareholders’ profits.”⁴⁰ He contends that the shareholder is the only stakeholder of the corporation because “consumers, suppliers or the public do not share their fate with the corporation.”⁴¹ Following this example, Professor Chul-song Lee also views shareholders as owners of the corporation.⁴² He emphasizes the profit-making nature of the corporation,⁴³ and warns that normative CSR “might misinterpret the structure of the corporation as being public in nature,” thus clashing with the ultimate nature of the corporation.⁴⁴ Like that of Taero Lee, this approach also appears to be inspired by the traditional American shareholder primacy view. Chul-song Lee refers to Friedman’s statement that the “one and only social responsibility of business… [is] to increase its profits.”⁴⁵ This statement, in fact, laid the foundation for shareholder primacy dominance in the United States.⁴⁶ Besides the theoretical matter, Lee also argues that the nature and subject of normative CSR cannot be concretely specified in the technical context of statutes.⁴⁷ He firmly denies that CSR is a legal concept, deeming it a conciliatory gesture made by the corporation to woo the public.⁴⁸

For decades, shareholder primacy was the indisputable norm in American corporate law. However, the dominance of the concept has eroded over time, and it can no longer be considered the standard. With this in mind, the Korean corporate model should not recklessly transpose the notion of American shareholder primacy—an idea that is itself in the midst of a major reinterpretation in American jurisprudence.⁴⁹ Section 5.3 below examines whether Korean corporate law establishes the nature of the corporation in accordance with shareholder primacy, as defined in the American debate on CSR. By doing so, it seeks to determine whether it is possible for normative CSR to be appropriately applied in Korean corporate law.

Irrespective of the conclusions of this discourse, Korean corporate scholars should actively initiate legal debates on CSR that seek to clearly define the nature of corporations. Should substantial debate on this matter fail to materialize? It could result in (a) the acceptance of CSR activism through stakeholder engagement or (b) the negation of CSR by shareholder primacy, either of which results could potentially upend the foundations of Korean corporate governance and society.

This section has reviewed the dominant perception that CSR merely constitutes an ethical or philanthropic engagement of the corporation and not a legal norm in Korea.⁵⁰ This general perception has led many scholars and businesspeople in Korea to resist the idea of implementing normative CSR, either by way of legislation or as a governing principle of corporate law.⁵¹ These negative views on CSR rely on two main arguments. The more aggressive of these repudiates CSR based on the American shareholder primacy theory,⁵² a stance this book will rebut further on. The other argument claims that CSR is too vaguely defined to be a norm or is too difficult to be legally implemented.⁵³ Section 5.4 addresses this contention by arguing that the social nature of corporations is so significant an issue that the technical difficulties of its legislation are hardly sufficient reason to ignore CSR in Korea.

Nevertheless, this book does not contend that Korean corporate law should import the American stakeholder theory. Indeed, the following section demonstrates the obstacles to transplanting the American stakeholder theory into the Korean legal system.

The Korean Commercial Act unambiguously states that corporations have a profit-making nature, defining a “company” as “a legal person incorporated for the purpose of engaging in commercial activities and any other profit-making activities.”⁸⁸ The primary argument of shareholder primacy advocates is that corporations are profit-making entities, which is also the dominant view in Korean corporate law.⁸⁹ A “profit-making” nature, however, does not and of itself articulate shareholder primacy and, more significantly, does not prohibit normative CSR pursuant to Korean corporate law.⁹⁰

One leading shareholder primacy scholar, Chul-Song Lee, has stated that the “profit-making” nature of corporations is a fundamental maxim in Korean corporate law, declaring that this principle should be the standard for determining managerial liability.⁹¹ However, one consideration prevents the profit-making nature of corporations from automatically becoming the accepted exclusive norm in Korean jurisprudence: the law cannot prohibit corporations’ non-profit-making activities.⁹² There is no controversy over the assumption that corporations are able to “incidentally engage in non-profit making activities,” even if their articles of incorporation provide for the purpose of profit-making.⁹³ In this regard, corporations can legitimately engage in a variety of non-profit actions, such as making charitable donations.⁹⁴ Although Korean law does not provide any provision for corporate charitable contributions, most scholars agree that corporations may make such contributions to society.⁹⁵ As long as corporations are able to thus contribute to society, their “profit-making” nature cannot be considered an absolute norm governing their every action.

Lee also argues that corporations and their shareholders have the same interests;⁹⁶ and emphasizes that the former, by their very nature, exist purely for making profits for the latter.⁹⁷ However, the “profit-making” nature of corporations under Korean corporate law implies that these interests actually diverge and that shareholders do not have the absolute power to steer the external activities of corporations so as to focus only on profit. Engaging in “profit-making activities” requires corporations not only to earn profits by business activities but also to distribute profits to the corporate members, that is, shareholders.⁹⁸ One facet of such a “profit-making” nature is the fact that corporations externally perform business activities to make profit in society.⁹⁹ Their nature also calls for corporations to internally distribute to shareholders the profits reaped from external business activities.¹⁰⁰ However, this activity does not delimit specific ways to distribute corporate profits.¹⁰¹ Shareholders are not entitled to directly claim specific distribution schemes of profits.¹⁰² In this respect, corporations distinguish themselves from organizations such as cooperative associations and mutual insurance companies, whose profits from external activities directly belong to their members.¹⁰³ With this in mind, Lee formulates his main argument that the interest of the corporations and their shareholders are one and the same. The “profit-making” nature of the former implies that shareholders’ internal rights to corporate profits cannot directly control the external activities of corporations. In other words, this characteristic does not inherently compel corporations to maximize shareholders’ profits.

The most convenient argument rejecting normative CSR is that corporations are purely profit-making organizations, as stated by the shareholder primacy model. At first glance, the nature of corporations as comprising a profit-making entity appears to be in conflict with the basic premise of CSR. However, it would be misleading to argue that, since Korean jurisprudence upholds the supposed supremacy of shareholders’ wealth, corporations need not consider the wealth of other stakeholders. Even though Korean corporate law establishes the nature of the corporation as a profit-making organization, this does not inherently mean that the corporation is purely a profit-making entity serving only to maximize the wealth of shareholders; in no way does this justify a corporation’s shirking of any CSR obligation.

As discussed in Chap. 3, shareholder primacy advocates in the United States argue that the corporation is a property or an aggregate of shareholders,¹⁰⁴ and that shareholders are thus ultimately the same collective entity as a corporation itself.¹⁰⁵ Accordingly, these scholars perceive the corporation as being dependent on shareholders and lacking legal personhood.¹⁰⁶

Stakeholder advocates rebut this argument by noting that corporations exist as independent legal entities separate from shareholders.¹⁰⁷ The real entity theory, which declares the real existence of corporate personhood, has become increasingly popular in the United States.¹⁰⁸ Even though there has been some controversy about the legal personhood of corporations, as demonstrated in Chap. 3, the real entity theory has come to dominate the contemporary US legal discourse.¹⁰⁹ The shareholder primacy norm is not consistent with interpreting the nature of the corporation as a legal person because the norm can be sustained only upon the assumption that the corporation is a property or an aggregate of shareholders. Thus, the dominance of the real legal entity theory provides strong support to stakeholder advocates.

Like their American counterparts, Korean shareholder primacy advocates mainly argue the equivalence of the profits of shareholders and corporations.¹¹⁰ However, this approach does not compromise the nature of the corporation as a “legal person” in Korea. Indeed, Korean corporate law straightforwardly asserts that a corporation exists as a real entity holding legal personhood. The Korean Commercial Act clearly defines “a company” as a “legal person.”¹¹¹ Article 169 of the Korean Commercial Act intentionally characterizes a corporation as a “legal person” in order to enable the company to perform business activities as an entity, separate from its shareholders.¹¹² According to this provision, Korean corporations independently enjoy their own rights and responsibilities in society.¹¹³

Derivative suits brought by shareholders under Article 403 of the Korean Commercial Act also support the existence of a corporation as a real entity with personhood in that these lawsuits are submitted on behalf of the corporations themselves, and not the shareholders.¹¹⁴ This suggests that the profits of individual shareholders cannot be equal to those of the corporation; indeed, it points to a potential conflict between the two notions.¹¹⁵

Citing these provisions, Korean scholars have upheld that a corporation exists as a legal entity with real personhood.¹¹⁶ Unlike in the US debate, there seems to be no controversy about the legal personhood of corporations in Korea. One leading corporate scholar, Professor Chan-Hyung Chung, even emphasizes that “legal personhood” constitutes the most important characteristic of a corporation’s nature.¹¹⁷

Shareholder primacy advocate Chul-Song Lee also accepts the “legal personhood” of a corporation.¹¹⁸ Nevertheless, he hews to the shareholder primacy model by arguing that the legal personhood of corporations is merely an artificial method to establish corporations’ duties and rights and is used only for the convenience of business transactions in society.¹¹⁹ However, such convenience in regulating business transactions is not the sole motive of the “legal personhood” of a corporation. Another basic characteristic of the concept is grounded in the concept of limited shareholder liability in Korean corporate law. The Korean Commercial Act provides that “the liability of a shareholder shall be limited to the subscription price which he has paid for his shares.”¹²⁰ According to this provision, shareholders are responsible only for their share values. In this respect, shareholders cannot claim all profits of a corporation while having limited liability.

Based on corporate law and the theoretical foundations of a corporation’s “legal personhood,” the Korean Supreme Court established in 1978 that the corporation is a “real person.”¹²¹ In 1983, the Court also held that the losses of a corporation are not equal to the losses of its shareholders.¹²² And in 2006, the Court unequivocally confirmed that a corporation and its shareholders are separate persons, and thus cannot be the same entity.¹²³ Thus, according to express provisions of law and jurisprudence, it is clear that corporations and shareholders are not one and the same; instead, the former are independent “legal persons.” On these grounds, shareholder primacy cannot stand under Korean corporate law.

The US shareholder primacy theory bases itself on the argument that a corporation is an aggregate of its shareholders and that it lacks legal personhood.¹²⁴ In contrast, Korean jurisprudence vigorously upholds that the corporation exists as a real entity with legal personhood. Thus, the American shareholder primacy cannot be transplanted into the context of Korean corporate legislation.

There is no current legal provision in Korea referring to corporations as “associations.” Although the Korean Commercial Act originally had a provision defining a company—including a corporation—as an association,¹²⁵ in 2011, the Act was amended to omit the requirement of an “association.”¹²⁶ What are the implications of this argument for the normative CSR in Korea?

Generally, Korean jurisprudence defines an “association” as an organized body of people who have a common purpose.¹²⁷ Accordingly, scholars who identify corporations as “associations” emphasize the fact that a corporation is an aggregation of its shareholders,¹²⁸ thus providing an argument for shareholder primacy advocates, who maintain the same corporation–shareholder analogy.

However, while people incorporate a corporation, they also need capital for profit-making purposes.¹²⁹ Before the aforementioned amendment of the Korean Commercial Act, most Korean scholars had agreed that an “association” under the original provisions of the Act meant not “a mere aggregation of people,” but “a broader concept as an institution combining human and capital.”¹³⁰ Each shareholder engages in the corporation by contributing capital, without which corporations cannot exist. Thus, the corporation is not purely a group of people, but rather a complex institution that combines both human and capital resources. As Korean law no longer contains any provision defining corporations as associations, any debate about the nature of corporation as such would be of no practical value.

One extreme view espoused by some scholars is that the modern corporation has become a sort of foundation or accumulation of assets.¹³¹ They argue that shareholders have been gradually ceding their position as members of an association due to numerous factors: separation of ownership from management, one-man corporations, nonvoting shares, reduced power of general shareholders’ meetings, etc.¹³² Consequently, some scholars contend that a corporation is no longer an association but an incorporated foundation designed for the profit-making.¹³³

In this respect, the transposing of some facets of the US model would appear to be misplaced in the Korean corporate legal system. In recent years, the Korean Supreme Court appeared to favor shareholder primacy, stating in the Everland case that a corporation is merely a set of shareholders’ assets.¹³⁴ The Court affirmed the legality of the CB deal in that case (a transaction that inflicted a loss of 89 million dollars on Everland), simply because of the existence of shareholders’ agreements.¹³⁵ This decision, however, does not conform to generally established standards in Korean jurisprudence. Indeed, a corporation should not be regarded as a mere set of shareholders’ assets. The corporation cannot exist without shareholders.¹³⁶