Jul 25, 2011

Union is Banking on the SC First Bank Strike

Nearly 1/2 of the nearly 6000 SC First Bank workers are on strike purportedly for the introduction of a “merit-based” pay scheme. The plan was proposed and implemented by the foreign management of the bank, possibly, as a tool to lower labor costs. SC First Bank has struggled with labor costs over the past decade and because of the costs has one of the lowest returns on equity in the Korean market.

Moody’s downgraded the bank from “stable” to “negative” based, primarily, on liquidity concerns caused by a rush on the bank by customers worried about the continued viability of the bank and the potential for more branch closings. The Korean government has ordered the bank to increase its cash reserves.

Korea, according to the International Labor Foundation statistics, had over 800,000 hours in lost work hours because of strikes in 2008. This is double Australia’s and over forty times Thailand’s days lost to strikes. China and Japan have only docked a small fraction of the days Korea has lost in strikes. The only major country even to come close to the numbers of hours lost in work in Asia is the notorious India.

It seems that strikes, often, have more to do with anti-foreign sentiment and aggressive labor union management that aggravate this sentiment in order to advance personal political objectives and futures. Many noted present politicians have worked their way up from the unions to become leading political figures. A “good strike,” often, brings these union leaders into the spotlight.

Standard Chartered bought Korea First Bank in 2005 of USD 3.3 billion.
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SeanHayes@ipglegal.com

Jul 23, 2011

Working with Korean Lawyers and Law Firms

The China Law Blog has a great post on working with Korean and Chinese lawyers and law firms. The post notes, in part, concerning Korean law firms that:
1. Non-responsiveness is the norm. American lawyers generally see their role as helping clients achieve their goals and keeping their clients informed. Korean lawyers operate far more independently. They consider themselves the legal experts and can get offended when questioned. According to their perspective, a client should trust them, not ask questions, and not expect updates.

This obviously does not work well for American clients. Two excellent Korean law firms have admitted to me they “always get fired” when they work directly with American companies or with American lawyers inexperienced with Korea. If a Korean lawyer has a hearing scheduled in a case, I email him the day before to urge him to provide me with a full report by the next day, at the latest. I usually send another email reminder after the hearing concludes and if I do not have a timely report, I call.

2. Your matter is not important. Most Korean lawyers have plenty of work and any one matter from an overseas client is not likely to be of paramount importance to them. This may mean your Korean lawyer will not fight hard on a particular motion where the chances of winning are low; he or she would rather stay in the good graces of a judge or fellow lawyer than challenge the status quo. I try to get around this by hiring “outsider” lawyers if my case is going to be particularly difficult or contentious, or by attending the hearing if it is particularly important. I also always make clear, upfront, that a good result for this client will lead to more work from my firm's other clients.

3. The Korean lawyer’s role is different. Korean lawyers tend to view themselves as “above it all.” I learned this when, trying to settle a case, we offered $900,000 and the Korean company on the other side offered to pay us $700,000. I asked the Korean lawyer to go back at $850,000 and I could feel his reluctance. I say “feel” because while he was telling me he would go back at $850,000, he was also asking me questions to let me know he did not think he should go back at $850,000. Weeks then passed with no updates and vague responses to my emails. Then, out of the blue, a US-educated paralegal from the firm called me to say the $850,000 offer had never been passed on because the Korean lawyer considered it beneath him to negotiate “as though at a flea market.” I do not know if that paralegal was put up to the call by the attorney or if he called me on his own, but I have since learned to control negotiations myself. It is not just in negotiations that the Korean lawyer sees himself as above the fray. If you do not put pressure on your Korean lawyer, you can pretty much assume that numerous time extensions will delay your case for years.

4. Confidentiality? What’s that? Korean lawyers simply do not respect the attorney-client privilege the same as American lawyers do. I try to handle confidentiality problems by using the same few lawyers in Korea for all of my firm’s clients. Because I provide so much work to these attorneys, I have a personal relationship with them, which makes it less likely that they will hurt me by hurting my client. It also decreases the incentive for the Korean lawyer to hurt my client because doing so will cut off the regular stream of work my firm provides.
I would like to note that I am the team leader of my team of Korean, U.S. and Australian lawyers and we never treat clients in the manner explained by the China Law Blog above.  I believe I am the only non-Korean in Korea that is actually managing a team in Korea.  We run our practice in a manner that is similar to good western law firms.  We are particularly proud of our Korean lawyers.  Many of our lawyers departed the larger Korean firms in search of a firm that would reward their work and not simply their billable hours. 

The China Law Blog may be found at: http://www.chinalawblog.com/   It is best and most entertaining blogs in Asia.
For additional posts on this issue see:
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SeanHayes@ipglegal.com
www.thekoreanlawblog.com

Jul 18, 2011

Inheritance/Renouncement of Estate under Korean Law

We recently handled a matter concerning a large estate of a Korean national. The estate included assets in Korea, the U.K., the U.S. and Hong Kong. The deceased, additionally, held shares in a number of closed- corporations outside of Korea.

The heirs to the estate included foreign national children and a Korean wife. The deceased died without a will. Since, the husband was a national of Korea, the matter was governed under the Korean inheritance/probate law. The nationality of the children has no bearing on the matter.

Tax and other considerations made it a best option for one of the heirs to renounce the estate, thus, transferring that portion of the estate to the remainder of the heirs in equal shares.

In order to renounce an inheritance in Korea, in most cases, the heir is required to make a “declaration of renunciation to the family court” (Korean Civil Act, art. 1041) in Korea within three months of notification of the inheritance to the heir. Act quick.

After termination of this period, the property is presumed accepted without condition.

However, the co-inheritor of a particular asset may divide the inheritance based on contract under Article 1013 of the Civil Act or gift the asset to the remaining heirs. The inability to renounce an asset may create an additional taxable event.

If you intend to renouce an inheritance, the renoucement should, in most cases, be done through the Korean family court within three months of death of the owner of the estate.
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SeanHayes@ipglegal.com

Jul 12, 2011

Limits to Foreign Adoptions in Korea is Negative for Children

I do not write a great deal about issues not relating to Korean business, but this news just rubbed me the wrong way.

We have dealt with a number of adoptions either on a pro bono or low-fee basis for childless couples. This news is not only bad news for these families, but also for the children that now will live the remainder of their childhood without the opportunity to have loving parents.

The National Assembly has recently passed a bill that will make it even harder for foreigners to adopt Korean children. At present the imposed quota makes it difficult for more than the privileged handful to adopt children.

From next July, non-Koreans will only be allowed to adopt children whom the government can’t place in foster care. Additionally, the government will be responsible for ensuring that adopted children stay with Korean families – the specifics will be decided through a presidential decree, but it seems that ethnic Korean families will be allowed to adopt and other parents may be prohibited or limited.

Supporters of the bill claim that it will protect orphans from abuse and identity issues - BS.

All of the adopted children I have met through the years have had loving families. Some I met were lawyers, law school students, and university student volunteers in Korea. Without these families they would have had limited opportunities in Korea. A few recent cases, have shown abuse by adopting parents, but these cases are rare and there is no evidence suggesting that this will not occur with Korean adopting parents. We all have heard of the numerous instances of child-abuse in Korean households.

Additionally, the cultural identity issue is simply puzzling. Sure these children are no longer “Korean,” but who cares. Is it better to be “not Korean” and have the opportunity to advance in a society? Or is it better to be subjected to the margins of society and be Korean? The liberals that advocated this bill sure seem to think that it is better to be an orphan on the fringes of society in Korea – than be part of a non-Korean family abroad.

This law may be a good idea if Koreans are willing to take care of their own. However, there is already too many children in foster care, forcing the government to create orphanages and half-way houses(although the exact number of children in orphanages are unknown due to some that are illegally operated). One must ask why adoptions should be limited when a surplus of orphaned children remains.

According to government statistics, of the 8,590 abandoned children whom needed care in 2011, 1,462 were adopted domestically and 1,013 were adopted to families abroad. The figure of adoptions abroad would have been much greater if the quota was not in place.

The total number of foreign adopted children from Korea was 1,888 in 2006, but has dropped, since 2006 to around 1000, because of the quota. The government’s cap on foreign adoptions was, facially, to encourage domestic parents to adopt. However, slight increases in domestic adoptions have not come close to setting-off the loss of foreign adoptions.

Among those that have the greatest need are orphans with special needs. In 2009, foreign parents adopted 97% of these children, because of little interest domestically. Without foreigners whom are willing to support them, disabled children stand to be relegated to government-run group homes and mental health facilities. These homes are dismal at best.

The bill seems noting more that the normal anti-foreign sentiment of a radical liberal element in Korean society and care by the less liberal in Korea’s image abroad or the needs of these children.

Have a heart.
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SeanHayes@ipglegal.com

Korean "Immigration Office" to be Established?

Korean newspapers have announced that the Korean government is beginning to explore the establishment of an “Immigration Office.” The Ministry of Strategy and Finance seems particularly keen to the proposal.

The power to grant a visa in Korea is given to the Immigration Bureau with some authority given to Korean embassies abroad for matters of granting permission to enter the nation.

The Immigration Service is under the auspices of the Ministry of Justice and embassies are under the Ministry of Foreign Affairs and Trade. Multiple government agencies are also authorized to formulate policy regarding immigration issues.

The envisioned Immigration Office would seemingly take authority over all immigration issues from these multiple governmental offices.

The Ministry of Strategy and Finance has recently expressed worries that decreases in the number of the most productive in society(mostly due to aging) is eroding the economy’s growth potential. Clearly, an increase in skilled foreign labor could ease this burden.

The Korean government has reported that it expects the foreign population to double to 5% by 2020. With this increase, the Finance Ministry hopes that it can strategically bring in as many highly skilled immigrants among these as possible and seems unwilling to entrust this task solely to the Immigration Service, strangled by an entrenched bureaucracy.

I suspect that if the Ministry of Justice considers the issue, it will realize that immigration matters are better handled, like in the U.S., by a specialized body and not overseen by prosecutors with vastly different experiences and talents. The use of prosecutors for this function is a waste of the resources of the prosecution and risks criticism from other agencies and the population, thus, eroding its ability to perform its main function.

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SeanHayes@ipglegal.com

Jul 10, 2011

Squeezing-out Minority Shareholders under Korean Corporate Law

The amended Commercial Code of Korea provides for “squeeze-out” rights for shareholders holding 95% or more of the shares of a company. The law will be promulgated from April of 2012.

The law also provides for a right of minority shareholders to demand a “sell-out.” It seems possible, under the very vague wording of the amended clauses, for a sell-out to take place at the same time as a squeeze-out with the potential of conflicting appraisals and procedures. We wish the amended clauses would have been more specific, since so many holes are evident that litigation is bound to occur and the outcome of cases will be near impossible for legal counsel to predict.

For a squeeze-out the majority shareholder must establish that: 
  • The squeeze-out is “necessary” to accomplish the company’s specific "business purpose." The wording is so vague that it renders the clause meaningless without guidance from a court. We expect litigation on the meaning of this clause based on any squeeze-out where a minority shareholder disagrees with the share valuation methods. Is cost an acceptable reason? Does the majority shareholder need to establish that the minority is unable to accept the management business judgments and thus litigation is costing the company time and resources?;
  • The squeeze-out is approved by a shareholder’s meeting prior to the squeeze-out. The clause contains more details of the procedural requirements that shouldn't be difficult for a careful company secretary to meet. A careful majority shareholder should be able to satisfy the requirements with minimal litigation risk; 
  • The minority shareholders’ receives a appraisal from a certified appraiser. The appraisal will likely lead, if a settlement is not reached, to a court appointed appraiser and a lengthy appraisal process. We would love to have at least a guideline for an acceptable appraisal method;  
  • Prior to the shareholder meeting to vote on the squeeze-out, the appraisal must be sent to the shareholders with an explanation of the purpose of the squeeze-out by the majority shareholder. The clause is intended to provide the minority shareholder the opportunity to analyze the appraisal and majority's purpose prior to the shareholder meeting.
We suspect litigation on these amended provisions, thus, suggest for any majority shareholder intending to utilize the provision to consider the likely litigation situations.

In Korea, whenever a provision in corporate law is amended – litigation shortly follows. It is advisable if you are part of a company management that shuns litigation to not be the first to utilize the new squeeze-out provision in the Korean Commercial Code and be aware that a dissatisfied minority has the option of a sell-out.

Additionally, risk may be avoided through the utilizing of a “cash-out” merger instead of a “squeeze-out.”  I may deal with this in another blog post if anyone is interested.

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SeanHayes@ipglegal.com

Jul 5, 2011

Ebay Gmarket Merger Approved by Korean Fair Trade Commission

The Korean Fair Trade Commission (FTC) has approved the merger of  Ebay Auction with Gmarket. The companies combined, based on last years numbers, will control more than 72% of the domestic online shopping market.

The remainder of the market is split, primarily by 11 Street  (SK Telecom unit) and Interpark.

Ebay purchased Gmarket in 2009 for nearly USD 1.3 billion and was planning this merger, since the purchase.

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SeanHayes@ipglegal.com

Jul 4, 2011

Korean Independent Contractor Risks under LSA

The Korean Court System has been less reluctant, in recent years, to deem an independent contractor an “employee” under the Labor Standards Act (LSA). This fact remains true even when an employer establishes that the independent contractor is aware that he/she was contracted as an independent contractor, thus, not a regular employee of the company.

Upon the establishment of the status as “employee,” the individual is entitled to all of the benefits of an employee including, inter alia, severance and employment security, thus, increasing the compliance, tax, payroll and other risks to the company.

Obligations to Employees under the LSA
The obligations to employees under the LSA are extensive and beyond the scope of this short article. The more significant and obvious are the legal requirement to provide severance benefits and employment security.

With regard to severance benefits, a company must pay, in most cases, one month’s severance to an employee for each year of service to the company upon the retirement or dismissal of the employee.

For dismissal of an employee, the employer has the burden to establish “cause directly attributable to the employee” or “urgent managerial necessity.” These standards are easier for an employer to establish than in the not so distant past, but still are standards that employers must establish through substantial evidence and, often, a not so simply nor pain free court procedure.

The Risks at Work
This LSA risk often arises when a company retains an independent contractor to perform essential functions for the company. These functions often include delivery, repair, special engineering services and sales services. The risks increase when the independent contractor’s main source of income is from this one company, the independent contractor is “dependent” on the company and the company imposes substantial control over the independent contractor.

The risk, often, becomes realized when, suddenly, the independent contractor’s contract with the company is terminated for malfeasance or neglect, when the independent contract is considering retiring or when contentious labour negotiations occur between the company and the union and the union directly solicits the assistance of the independent contractor in the negotiations.

We have seen, in recent years that the more elderly of independent contractors, since they are increasingly cash strapped, are more willing to assert that they have a right to severance. We have also seen a few aggressive labor agents (quasi-lawyers with the right to take cases to the Labor Commission) file to the Labor Commission and aggressively promote the law and their services to independent contractors and others through blogs.

Limiting the Independent Contractors Risks
Understanding these factors by the Korean Supreme Court in determining if one is an “employee” under the Korean Labor Standards Act and related acts is essential for limiting the risk.

A careful drafting and structuring of these relationships with independent contractors will minimize the compliance, tax, payroll and other risks to the company.

Please note that courts do not weigh these factors equally and not all factors are required to be met for an independent contractor to be deemed an employee under the LSA. An answer in the affirmative to anyone one of the factors increases the risk to the employer, but does not preclude the worker to be classified as an independent contractor by a court.  
  • Does the company have decision power over the content of work of the individual?
  • Are company work rules applied to the individual?
  • Does the company have considerable control over the work processes of the individual?
  • Does the company set the time and date and other specifics of work?
  • Does the company own the work assets?
  • Can individual use a third party to replace the work of the individual?
  • Does individual have business risks associated with work with company?
  • Are earning based on work and, thus, not success?
  • Does individual near exclusively depend on payment from the company?
  • Is the work with the company continuous and, thus, not temporary?
  • Is the individual an employee under the Korean Social Security System?
The courts may also consider the relevant social and economic situation between the employer and the employee.  NMKSFU6Z4JWP


As always, deep understanding, creativity, and experienced and proactive guides will get most companies over the unique challenges apparent in doing business in Korea.
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SeanHayes@ipglegal.com

Jul 3, 2011

Playing by Local and/or International Rules in Korea by Tom Coyner

The old axiom of "when in Rome, do as the Romans" may seem like practical wisdom. But sometimes that may not be your best option. First of all, going native is a pretty tough thing to do as a foreigner. Usually, at best, an expat can act approximately Korean and hope to get some sympathetic appreciation from the local populace. Other times, one can be in what seems to be a hopelessly disadvantageous position given the cultural and language differences.

At the same time, being a Korean in Korea hardly comprises a bed of roses. Often there seems to be more thorns than petals given the various social and regulatory obligations and responsibilities. In this context, there are some inherent advantages of being foreign since by being alien one is not inferior or superior but simply separate from the mainstream. As such, one can work by slightly different rules.

Often these rules are technically in place within Korean business and legal parameters, but generally are not observed due to overriding social and political concerns. Since as a foreigner -- and even as a foreign business -- the expatriate manager may be surprised at how this can work in his or her favor.

For example, with some small Korean companies, oral agreements may be preferred to written ones. A foreigner's insistence on long, written agreements can be regarded as almost insulting. Nevertheless, it is imperative to have written agreements. Generally a foreigner can insist on this easier than a Korean. He or she has the option to demand negotiated agreements to be as explicit as possible due to the business cultural differences.

This is not to say one needn't be sensitive about practical considerations that may seem unique to doing business in Korea. A comprehensively detailed agreement drafted by a Western company's legal department may seem to cover all bases. Yet such a document can confuse and cause major problems during and following negotiations. The expatriate business professional should be prepared to redraft the head office's prepared document to say exactly the same thing but in simpler language. Not to do so is likely to confuse the Korean counterpart with Western "legalese,'' that in turn can lead to major misunderstandings.

One simple approach is to break up long contractual paragraph blocks, with the sub-clauses presented in easy to find and understand outline form. It is often a good idea to add hypothetical examples of unusual or complicated concepts or conditions to ensure not only agreement but also complete understanding by all parties.

Being culturally sensitive, one should be careful in discussing indemnification for malfeasance so as not to insult the other party. This issue normally does not exist in purely Western business, but often a Korean may take exception to how a Western attorney may describe the other party being liable for potential penalties.

Addenda should be freely and fully included to contracts to specifically point out issues such as payment terms and timing so that there is no misunderstanding or possible variance of interpretation.

Now, all of this is a lot of extra work for the Western business person -- but it's worth it given the likely headaches and incriminations that may follow if one doesn't do this kind of preparation.

Not only are the business cultures different, basic commercial concepts may significantly vary in the details -- or possibly not even exist within one's Korean counterpart's normal activities. So it can be dangerous to assume understanding. When in doubt, define in writing.

Furthermore, Korean employees are quite frequently transferred among the various departments. Rarely is there time for a decent handover of responsibilities. It is not uncommon for the exiting employee to neglect to mention to his/her replacement where one's contract has been filed. Consequently, an extremely detailed, heavily illustrated, and well-organized agreement, with full addenda, can be critical for getting the replacement employee up to speed.

This kind of document can also get the new employee off the hook with his or her boss should a disagreement arise. If the disputed matter is covered in the agreement, clearly explained as a contingency or possibility -- complete with hypothetical examples, the new employee can report that the matter has already been contractually settled.

Keeping a Practical Balance

Now should it not be already obvious, the important lesson is not to get suckered into the "cultural gotcha'' of surrendering good business sense due to cultural differences. The Korean cultural trait of not wishing to put things down on to paper or taking contracts as literally serious as Westerners should be accommodated just so far. To repeat, the Westerner is not a Korean and thereby is not part of Korea's social web of obligations and potential penalties. As the Westerner regularly works across the "cultural divide,'' he or she must protect the company's interests by refusing to compromise the company's core values and policies.

It is critical to be as clear and as explicit as possible when negotiating a strategic legal agreement in Korea. It is also important to keep in mind that ultimately Korean contracts are fully enforceable. But be aware that these documents are literally as good as they are written. There are almost no additional legal safeguards beyond what appears on the paper.

So be prepared and be explicit. Most important, do not assume, but always confirm, genuine understanding, in writing, of all points with one's Korean negotiating partner.

Business negotiation is an exacting and demanding matter, particularly complicated when playing by a different set of cultural rules and business practices. The more the expatriate executive is familiar with the rules, the more there can be a meeting of minds -- and the more success he or she can achieve at the bargaining table. It is all to the expat's advantage to be thoroughly familiar with the counterpart's set of mind and behavioral patterns. At the same time, consider what one's strengths may be -- including those that may not strictly fit in the normal Korean cultural context. The fact that other, Korean companies may not have these qualities should not prevent the expat from leveraging those advantages in Korea.

To give an example, if one's company is challenged by government regulator, one should establish a legal defense much as one would in one's native country. Resist _ or at least seriously question -- advice from your Korean employees -- and even Korean legal counsel -- to settle and compromise if one is convinced that the company is totally in the clear. Even if there is indeed a problem, a Western legal defense can be the best course of action.

Korean government officials are accustomed to sometimes unfairly getting their way, since most Korean companies will quickly try to settle, even when they are completely innocent. If the regulatory challenge is unjustified, it is often best from the first moment to emphatically state so and get one's legal ducks in a row. The regulator will probably not be amused, but will also realize that dealing with the foreign company is going to be more work and it may not be worth the hassle. Even if the regulator decides to proceed, be prepared to act "un-Korean'' and cite chapter and verse of the government's regulations, since often they can be used to one's advantage.

Keep in mind that Korean business practices, though often based on deep cultural foundations, are rapidly changing. The marketplace is becoming more open to international practices. Women and those Koreans who have lived extended periods abroad are making their impacts, along with the changes resulting from the wide application of broadband communications.

The above-discussed points are what one may consider being bedrock when it comes to doing business. Bear in mind the rules are changing. Therefore, it is wise to occasionally review and test one's understanding with a Korean colleague, while being sure not to give up some of the advantages of being a foreign business professional.
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Tom Coyner is President of Soft Landing Consulting(www.softlandingkorea.com), a sales and business development consultancy, and serves as senior commercial advisor to J & S Law Firm's International Practice Group. His professional involvement with Korea began in 1975.

The original appeared in the Korea Times and may be found HERE.