1. Corporate Governance Reform in Korea
September 26, 2002
Seoul Finance Forum
Hasung Jang
Korea University

2. New Regulations to Improve Corporate Governance
Outside Director
25% / 50% of the board
Outside director candidate nomination committee
Improved Disclosure
Combined financial statement: Top 30 chaebols
Electronic disclosure system introduced
Mandatory disclosure for institutional shareholders
Audit Committee
For listed company with asset larger than 2 tr won ($1.7bil)
2/3 of the committee should be outside directors

3. New Regulations to Improve Corporate Governance
More Regulation on Related Party Transactions
Stricter regulation on capital & asset transactions
Cross debt guarantee prohibited
Limit on Foreign Equity Ownership Removed
Hostile Takeover Barriers Removed
50%+1 shareholding rule removed
M&A specialized fund allowed
Minority Shareholder Rights Strengthened

4. New Regulations to Improve Corporate Governance
Increased Liability of Controlling Shareholder
Fiduciary duty of directors
Responsibility of shadow director
Mandatory Compliance Officer
Investment Trust Co. & Mutual Fund
Integrated Supervision Agency Established
“Financial Supervisory Commission”
Integrated supervision: Bank, Securities, Insurance
Corporate Governance Guideline

5. Positive Changes in Corporate Governance
Increased awareness on corporate governance
Disclosures are more reliable
Related party transactions decreased
Investor relation is active
Shareholder activism brings practical changes
Minority shareholder’s rights are exercised
New court rulings sets the standard
Derivative lawsuit: Korea First Bank, Samsung Electronics
Court Ruling against “lack of business judgment”

6. Derivative Lawsuit Directors of Samsung Electronics
Court Ruling against Directors: $72.4 mil (97.7 bil won)
District court ruled on December 27, 2001
Illegal political contribution
Chairman KH Lee: $5.6 mil (7.5 billion won)
Related party transaction at transferring price
6 directors: $46.4 mil (62.7 billion won)
purchased at 10,000 won/share sold at 2,600 won/share
Investment “without business judgments”
8 directors: $20.4 mil (27.6 billion won)
Debt guarantee to failed company

7. Positive Changes in Corporate Governance
Emergence of good guys in corporate governance
Kookmin Bank, POSCO, KT
Emergence of active institutional investors
Only few, but a positive direction : National Pension Fund
‘Korea Corporate Governance Fund’ : IFC & Zurich-Scudder
Positive steps by controlling family
CJ Group chairman JH Lee gives up warrants of CJ Entertainment worth of 110 billion won. April 26, 2002
Hyundai Motor chairman’s son, ES Chung cancelled merger of Bontec with Hyundai Mobis. June 12, 2002

8. Persistent Problems in Corporate Governance
Old habits are hardly changing
Persistent moral hazard problems in chaebol
Mindset of controlling family is the same
“The family should be allowed to serve outside director”
Court’s ruling against directors of Samsung Electronics is the “covert anti-market revolution”
Resistance from chaebols is getting stronger
Political uncertainty
Enforcement of regulation is not effective

9. Persistent Problems in Corporate Governance
Independence of outside director in question
Capital subsidy through financial institutions
Expropriation of minority shareholders using equity related securities
Convertible Bond, Bond with Warrant
Management control descended to 3rd Generation
Entrenched ownership structure
Control via ownership by affiliated companies
Pyramidal and circuitous ownership
Control with no ownership

10. CLSA Corporate Governance Score 2002 / 2001
1 Singapore Korea
2 Hong Kong Malaysia
3 Mexico Venezuela
4 South Africa Columbia
5 India China
6 Taiwan Hungary
7 Chile Thailand
8 Peru Philippine
9 Argentina Russia
10 Brazil Poland
11 Turkey Czech Rep
23 Indonesia

11. Country O-Factor Tax-Equivalent (%) Opacity Risk Premium(Basis Points)
Opacity Index by PWC Jan.2001
Country O-Factor Tax-Equivalent (%) Opacity Risk Premium(Basis Points)
Singapore * 0* Lithuania Ecuador
USA * South Africa Kenya
Chile Japan Czech Rep
UK Colombia Romania
Hong Kong Argentina South Korea
Italy Taiwan Turkey
Mexico Brazil Indonesia ,010
Hungary Pakistan Russia ,225
Israel Venezuela China ,316
Uruguay India
Greece Poland
Peru Guatemala
Egypt Thailand

12. CG Rating: Asian Emerging Market Economist, April 5, 2001

13. Rights & Responsibilities of Shareholders
by IMD, 2001
Korea 48위

14. Insider Trading
by IMD, 2001
Korea 43위

15. Efficacy of Corporate Boards Global Competitiveness Report: World Economic Forum 75 countries surveyed Corporate boards are (1=controlled by management, 7=powerful and represent outside shareholders)
1 Finland Singapore 4.8
2 United States Taiwan 4.8
3 Sweden Hong Kong 3.9
4 Norway Thailand 3.9
5 Australia Philippines 3.8
6 United Kingdom Malaysia 3.7
7 New Zealand India 3.5
8 Switzerland Korea 3.5
9 Germany Indonesia 3.3
10 Denmark China 3.3
71 Japan 2.9

16. Financial Regulation and Supervision Regulations and supervision of financial institutions are (1=inadequate for financial stability, 7=among the world's most stringent)
1 Germany Malaysia 4.8
2 Australia India 4.7
3 Switzerland Taiwan 4.6
4 United States Japan 4.4
5 United Kingdom Philippines 4.3
6 Netherlands Thailand 4.1
7 Canada China 3.7
8 Singapore Korea 3.7
9 Denmark Indonesia 3.1
10 Hong Kong 6.2

17. Price to Earning Ratio Asian Emerging Markets, UBS May 2002

18. Price to Book Ratio Asian Emerging Markets, UBS May 2002

19. ROE Asian Emerging Markets, UBS May 2002

20. CG Score vs PER Asian Emerging Markets
Taiwan
Singapore
Hong Kong
Malaysia
Philippine
China
Korea
India
Indonesia
Thailand

21. CG and Valuation Emerging market countries CLSA CG Score & PER

22. Semiconductors: Valuation September 20, 2002 UBS Warbrug
Market Cap PER EV/Sales EV/EBITDA
$m 02E 02E 02E
Samsung Electronics 41,
TSMC ,
Rohm ,
UMC ,
Toshiba ,
Micron ,
Infenion ,

23. Consumer Elctronics: Valuation September 20, 2002 UBS Warburg
Market Cap PER EV/Sales EV/EBITDA
$m 02E 02E 02E
SONY 40,
Matsushida 24,
Sanyo 6,
LG Electronics 5,
Pioneer 3,
Humax

24. Country Rating & PER Asian Emerging Markets, May 2002
PER S&P Moody's
UBS Warburg Foreign Currency Country Ceiling
Philippines BB+ Ba1
Thailand BBB- Baa3
Indonesia SD B3
Malaysia BBB Baa2
China BBB A3
Hong Kong A+ A3
Singapore AAA Aa1
Korea BBB+ A3
Taiwan AA Aa3
India BB Ba2

25. S&P Country Rating vs PER May 2002
Taiwan
Singapore
Philippine
Malaysia
Hong Kong
China
Thailand
India
Korea
Indonesia

26. Moody’s Country Rating vs PER May 2002
Taiwan
Singapore
Philippine
Hong Kong
Malaysia
China
Thailand
India
Korea
Indonesia

27. Samsung SDI Share Prices January – August 2001

28. Samsung SDI Disclosure March 26, 2001 5:28pm
Purchase of shares from controlling shareholders
1. Name: JY Lee
Relationship: Family of controlling shareholder
2. Purchase of shares
E-Samsung International common shares 900,000
Amount: 3,648 million won
Price per share: 4,054won
3. Purpose of purchase: Investment

29. Loss of Share Value Samsung SDI
SDI KOSPI SDI Loss Market
Market Cap (billion won) Adj-Loss
, % 81.5%
, % 80.5%
, % 86.7%
, % 92.8%
, % 95.4%
, % %

30. Family Control Without Ownership Average for Top 10 Chaebols

31. Source of Controlling Power Top 10 Chaebols: Public and Private Companies
Controlling Affiliated Shares under
Shareholder Companies Family Control
& Family
% % %
% % %
% % %
% % %
% % %

32. Control with No Ownership Top 10 Chaebols As of April 2001
Group Number of Companies with Companies without
Companies Family Shares Family Shares
Samsung % %
Hyundai % %
LG % %
SK % %
Hyundai Motor % %
Hanjin % %
Lotte % %
Kumho % %
Hanwha % %
Doosan % %
Total % %

33. Pyramidal Equity Ownership
SK Group
Sk C&C SK
Marine
SKC SK SK
Construction
SK Global SK
Sec. SK
Chemical SK
Telecom SK
Gas SK
Enron

34. Pyramidal Equity Ownership Samsung Group
Electronics
Samsung
Corp
Samsung
Life Ins
Cheil
Comm.
Samsung
Mech. Elec
Samsung
SDI
Samsung
Foundations
S-one
Samsung
Card
Samsung
Heavy Ind.
Samsung
Security
Samsung
Everland
Hotel
Shilla
Samsung
Prec.Chem
Samsung
F&M Ins
Samsung
Techwin
Cheil
Textile
Samsung
Engineering
Samsung
Capital

35. What Will Expedite Changes?
Corporation
Voluntary adaptation of global standard
Market
Pro-active role of institutional investors
Government
More direct regulations on corporate governance
Enforcement of regulations
Strengthening minority shareholder’s right

36. What Will Expedite Changes?
Legal System
Fair and effective court system
Fair and independent prosecution
Security class action suit
Civil Society
Minority shareholder activist watch dog
Leadership with Global Vision