Sep 29, 2011

Getting your Molds Back from a Supplier in Asia

My friends at the China Law Blog have a good post on how to assist in guaranteeing that your molds are returned after the cancellation of an OEM agreement with a supplier in China.

The same advice is applicable when you are doing business in Korea, Vietnam, Laos, Cambodia, Malaysia, the Philippines and the rest of Asia.
The way to avoid having your Chinese manufacturer run off with your molds is to make sure you require the manufacture to sign a contract that makes very clear to whom the molds belong (to you) and what will happen to the Chinese manufacturer if it fails to return your molds to you.
Even better, you should, if possible, get a deposit for your molds, which deposit you will return when your molds are returned to you. If the Chinese manufacturer will not give you a deposit for your molds, (most will not), put in a liquidated damage provision that applies if your mold is not returned when specified.
To reiterate:
  1. Have all agreement localized and drafted in English and the local language.  Yes, an agreement from a lawyer in the U.K. or the states is not adequate for doing business in Asia;
  2. Have the OEM and other agreements formally executed (sealed);
  3. Include a liquidated damage clause in the agreement.  Also, you should have a valuation of your molds that can be substantiated or the clause may not be enforced in court;
  4. Request a deposit.  It will likely be refused, however, if it is not refused, the liquidated damage clause may not be necessary if the value of the molds equals the deposit.
I would add:
     5.  Due Diligence; and,
     6.  Register your IP.  Often your molds and other IP may be protected in Asia.  No, your 
          international filings are not enough.  These filings only give you a grace period for filing
          abroad.

What do you think?
________
SeanHayes@ipglegal.com

Dealing with Korean Employees and Suppliers by Tom Coyner

Tom Coyner posted the following article on our sister blog, the Korean Law Blog. 

Even for so-called Old Korea Hands, knowing what to expect, without knowing why, can lead to needless frustrations and often delays in getting things done in business. As the old adage goes, time is money, so knowing the root causes of delays offers potential insights on how to clear log jams. While we do not have the space here to deeply explore this topic nor map out various work-arounds, we can give you a brief insight as to why Korean corporations often act illogically from a foreign business professional's perspective.

Promotion or Termination

When first dealing with corporate bureaucracies, certain aspects may seem almost quaint to the foreign visitor. However, in time the foreigner may conclude there are some illogical aspects that greatly affect the overall organization behavior - and often creating what seems to the unfamiliar Westerner as counterproductive behaviors.

A paternalistic, family-type corporate environment works fairly well so long as there is a constant demand for young, bright, malleable and lesser paid employees. However, as employees mature and assume greater responsibilities, there is the expected reduction in available jobs. Even taking into consideration of employee voluntary turn over as individuals seek their fortunes elsewhere, general management routinely faces the oversupply of middle-aged managers.

The solution seems to be a page out of the military. Most middle managers are ultimately involuntarily retired before they hit age 55. Some corporations have an unwritten rule that a certain percentage, say 10%, of all executives contracts are not renewed each January so as to allow a few of the best senior managers a chance to be promoted to the next, higher level.

At the same time, many middle managers in their 50s at the beginning of the New Year find themselves with termination notices. Since most corporate managers hope to work until age 65, termination coming in the early- to mid-50s comes as a traumatic event that is feared as many turn age forty.

Fear and Loathing in Departmental Politics
Given the overriding fear of early retirement, individual reputations become of paramount concern of department managers and their bosses.

Interdepartmental cooperation is minimized since to ask for advice and assistance from outside of ones work group or department is in effect to publicly admit that there is some lack of expertise or knowledge to the rest of the company. This situation is exasperated by the routine shuffling at least once a year so that the firm is well staffed with many generalists and relatively few specialists at the middle and senior levels of management.

Therefore, middle managers and often even executives will go to great lengths not to ask for direct assistance from personnel outside of their departments unless such a request is routinely expected without fear of loss of face or damage to one's reputation. And even in that case, what may be considered routine requests by Western standards to someone outside of one's department may be viewed in Korea as an admission of incompetence.

As a result, if information or assistance is ultimately required from outside of the department, the request almost never travels horizontally, say to a peer in another department. Rather, the request must travel upwards to a senior manager or executive whose span of management control extends over to the other department. From on high, the request then descends to that other department. If the request is acted upon at all, the reply traces its reverse course and almost never directly over to the original party. Needless to say, this approach is hardly time efficient and often it is one of the main reasons why foreigners are confused as to why simple requests take surprisingly long period of time to be acted upon.

Another consequence of this dilemma is that often projects are done on time without critical input from other departments such as finance, human resources, information systems, etc. Again, the fear of loss of individual manager reputation preempts what other countries may consider rational action. At the same time, anything, such a business transaction, that may touch a department demands visible action proving or validating that manager's worthiness to the corporation.

Consequently, extraneous requests for information or demands for modification are routine. To allow a matter pass through a department with minimal comment or action may be interpreted as to the irrelevance of the department and/or the incompetence of the manager.

All of these matters may at times seem a bit irrational in the short run, but each senior manager and executive routinely frets how he or she may be viewed - and what may transpire behind close doors each December as the top executives decide who is promoted, who stays and who is terminated.

* * *
So should you be a foreign business professional and are wondering why things are taking as long as they do or facing delays for additional information or discovering your negotiated price is still not finalized, consider the plight of the one or more managers and executives whose career is on the line come each January. You may wish to rethink your strategies and take this sometimes overriding consideration of your Korean counterpart into account.

Tom Coyner runs Soft Landing Korea and is a senior commercial advisor for IPG.
He can  be contacted at Soft Landing Korea.

Sep 28, 2011

Doing Business in Thailand May get a Little more Expensive

Thai Finance Minister, Thirachai Phuvanatnaranubala, has reported to the local media that Thailand and others ASEAN countries decided to create a common fund in fear that investors will avoid developing countries until the end of the European crisis.

A lack of confidence from bankers, arising from the European debt crisis, in addition to sudden capital outflows, are likely to put the Thai and other developing economies in a precarious financial state.

The fund is expected to be around USD500 million. Thailand will contribute approximately USD 15 million to the fund if the plan is passed by the Thai parliament.

A lingering issue is the recent promises by the government.  The present Thai government made numerous populous promises to win the recent elections including:
  • Raising the minimum wages THB300 (around USD10) a day for laborers;
  • Raising the starting salary to THB15,000 (around USD480) a month for graduate students; 
  • Lowering the corporate tax rate to 23% from the present 30%;
  • Raising the price of rice for farmers.
The Federation of Thai Capital Market Organizations has demanded that the Government gradually increase wages in order not to harm competitiveness, while vociferously noting that an increase in the cost of rice will decrease exports.

The government has backpedaled on most of the promises because of the strong opposition of industry, but for the stability of the economy, hopefully, some of the fund will be utilized to satisfy the often fickle population.

________
SeanHayes@ipglegal.com

Sep 26, 2011

Red China Goes Green: Chinese Government to Support Environmental-Friendly Projects

During the present Five-Year Plan (Twelfth Five-Year Plan: 2011-2015), the Chinese Government has vowed to invest RMB 2 trillion (around USD 300 billion) into the “green economy.”

The amount lends us to believe that foreign investors will also profit from assisting the Chinese government and businesses in more efficiently and cleanly utilizing energy.

Most of the major players, already, have a foothold in China, but the smaller players have plenty of room to maneuver.

Good news for the Chinese people and foreign companies, Vice Minister of National Development and Reform, Xie Zenhua was quoted by the Chinese media extensively that China will focus on projects that will drastically reduce the carbon footprint of China. When a high-level minister makes these statements, often the promise becomes a reality.

As we all know, China is an incredibly polluted nation, however, progress is evident.  Between 2006 and 2010 (Eleventh Five-Year Plan), units of energy per unit of GDP decreased by over 19%, while Carbon dioxide, in China, was cut by 1.5 million tons according to Chinese government statistics.

I have no clue of the accuracy of these statistics, but China has considerably cleaner air than the roaring early 2000s.

The reason for the concentration on cleaning up the environment is the growing middle and upper class that are demanding a cleaner environment.
This has little to do with the international image of China as noted in one of the best books on China: <a href="http://www.amazon.com/Out-Maos-Shadow-Struggle-China/dp/1416537066/ref=sr_1_6?s=books&ie=UTF8&qid=1317097090&sr=1-6">Out of Mao's Shadow: The Struggle for the Soul of a New China.
</a>

30 years earlier these same people were demanding jobs and they got jobs. 20 years earlier these same people were demanding luxury housing and they got luxury housing.

This demand may be more difficult, but I trust that the Chinese government has placed this issue as a top priority and top priorities are typically well managed by Red China - so yes - Red China is going Green.

Sep 25, 2011

Doing Business in Laos: Just May be a Little More Difficult

Laos has become known as a country that attracts small investors looking to gain government concessions, licenses and the like.  These “investors,” then, sell these “rights” to more cash flush investors or sell the project to unwitting small investors.  The initial investors are usually no more than punters looking to cash-in on duping the government and other investors.
Koreans have particularly become successful in this scam.  Korean comes to Laos with pictures of themselves with noted politicians, fancy advertising material and a team of “investors.”  They often take local business people on entertainment junkets 
The government of Laos, often without experience with these type of foreign individuals, offer concessions and licenses. 
Invariably, these individuals are unable to deliver on their promises and have already “sold” the project to other unsuspecting investors.  The project fails and the government is left with a lasting negative image by other foreign investors. 
Starting in October 2011, the Laotian Government will attempt to enforce through the Laos Law of Investment Promotion the proposed project schedule through fines.  The Law will apply to both foreign and local investors.
Most projects will require the depositing of a cash “performance guarantee” with the National Treasury Bank.  This cash guarantee will only be returned to the investor after the successful completion of the initial stage of the project.  Delays could lead to deductions from the deposited sum.
We suspect that in most cases the sum will be trivial, but if the government chooses to require large sums from foreign investors, I suspect that more investors will turn from Laos to the more transparent Asian rivals.
As I always advise, have an experienced lawyer conduct a feasibility study or you will be likely wasting more than just your time. 
_________
SeanHayes@ipglegal.com

Vietnam Government to Increase Scrutiny of Foreign-Capital Invested Projects from early 2012

In most cases, the Vietnamese government has not required environmental impact statements, labor negotiations/CBA or feasibility studies for most projects with foreign investors.
With the success of the Vietnamese economy and the reduced need for foreign capital, the government in Vietnam, under Prime Minister Mguyen Tan Dung, has vowed starting early in 2012, to implement a more stringent reporting, approval and resource license and procurement procedure.
Reports have circulated that approval will not be likely for golf courses, steel mills, mining and other projects that may have a significant negative impact on the environment.  Additionally, licenses for mineral explorations rights will be more difficult to obtain for investors without significant experience in Vietnam.   
The Mguyen Tan Dung Administration, however, has vowed, by the start of this year, to implement programs to encourage foreign investment in IT, agriculture and textile.   We are not sure, yet, what these measures will be, but we expect tax holidays, cash incentives and low-cost leases.
We highly recommend, prior to expending resources in Vietnam, to conduct a feasibility study.  We see too many countries waste time and resources on ventures that are near impossible for foreign investors to conduct in Vietnam or that are more suitable to other Asian locales. 

Sep 22, 2011

The Ten Commandments of Labor Relations in Asia: Korea Legal Times by Sean Hayes

The following was published in the Korean language in the Legal Times' October 2011 edition.

Korea has one of the most capricious and least efficient labor forces in the world and China is catching up with Korea very fast. Vietnam, Cambodia, Laos, Malaysia, Indonesia and the Philippines will soon follow. The fault is on the employees, but on the employers.

Korean companies have departed for greener fields in China to discover that the fields are not as green as originally imagined. Many of these same companies, as we all know, have packed their bags and moved to the less developed Vietnam, Cambodia, Indonesia, Malaysia, Laos and the Philippines.

In all of these nations, one thing holds true, lawyers are needed, not only to mitigate the ubiquitous legal risks, but to structure a labor relations system that mitigates labor relation risks.

Because of the lack of this advice or more likely the lack of company management willing to hear this advice, Korean businesses have become some of the least favored companies to work for, for the more skilled employees in Asia. Even in Korea, foreign companies are increasingly becoming the favored choice of many of the most skilled employees.

The situation can change with the active involvement of lawyers with the knowledge and guts to push clients to heed this very simple advice.

All of my clients doing business overseas are, always, strongly advised to follow these Ten Labor Law Commandments otherwise they will likely need to move to another green pasture or face the costs of the legal system or the scorn of employees.

For example, one of my clients, recently, departed China to move his factory to Vietnam. The company left China because of an inability to find skilled workers. This Korean Company was blackballed by the local skilled employees, since a employee representative noted that they wished to work for a “kinder and gentler” employer.

I strongly told the Company that they will run into the same issues if the employer is not willing to consider employee relations as their number one risk. Luckily for the Company, the management is, now, heeding my advice. Much of this advice was developed over my decade in Asia working along with Tom Coyner a former human resources professional with a leading international software company.

Ten Commandments of Good Employee Relations
  1. Carefully Draft Employment Rules and an Employee Handbook. The form rules and handbooks being utilized by the majority of the smaller law firms are not adequate. These employment rules and the employee handbook should be drafted with the advice of a knowledgeable international attorney and a local Human Resources professional. The employment rules should be strictly followed and enforced. Always apply rules equally to all employees;
  2. Hold Monthly Meetings between Management and Employee Representatives. Be honest about issues in the company, the future vision for the Company’s Management and the hopes and wishes for the employees;
  3. Publish a Quarterly Newsletter. In the newsletter summarize the Management –Employee Representative Meetings, Job Training Programs, Available Positions, Promotions, Welfare Benefits, Requests to Employees, Personal Stories (Births and Marriages), Charitable Endeavors etc.. If possible, have a monthly newsletter;
  4. Separate Management Compensation from Union/Employee Collective Pay Increases. This helps to alleviate collusion between employees and management. Union/Employee pay increases should primarily be tied to inflation, while management should, primarily, be tied to job and company performance;
  5. Hire a Professional HR Manager. The HR manager should have a position equal to the Finance Manager. In addition, the HR Manager should be trained in HR and not merely moved from a different department of a company. The HR Manager is an essential role in the company and as such should receive the same pay, support and education as the Finance Manager;
  6. Build Good Relations with Labor Boards/Labor Relations Organizations. These organizations are a useful source of information, can assist with hiring and also assist with terminating an employee;
  7. Reward Workers with Token Gestures of Appreciation. A reward for Best Worker of the Month, Least Absence Days, Most Improved etc. goes a long way in building loyalty to the company;
  8. Make Concessions. Some of the concessions made can be utilized to show that the management respects the employees. Most strikes and labor disputes occur because of a breakdown in trust, not the simple lack of enough compensation. The breakdown in trust, usually, occurs because of the perceived lack of respect the employer has for the employee. The breakdown in trust leads to a breakdown in communication, which ultimately leads to labor disputes;
  9. Embrace Good Ethical Management. Differentiate your workplace from other workplaces by leading the company with a respect for the law, best business practices and strong business ethics. The companies that embrace ethical managements, overwhelming, attract better talent and achieve far better results;
  10. Educate Employees to know how their Specific Task Leads to success for the Company as a Whole. This is especially important in manufacturing companies. Often the employees’ role is so mundane that they lose focus on the essential nature of their function. An employee that understands the importance of his or her role is an employee that will be more productive.
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SeanHayes@ipglegal.com

Sep 19, 2011

As China Goes, So Goes the World: How Chinese Consumers are Changing Everything

My friends over at the China Law Blog wrote a post on a book that I bought based on my careless reading of their post. As I mentioned in previous posts, China Law Blog is, simply, the best blog on China Law and should be read daily if you are interested in the Chinese legal system or doing business with or for the Chinese.

The book mentioned in their post is entitled: As China Goes, So Goes the World: How Chinese Consumers are Changing Everything.

I got through about 80 pages last night and I put it down and decided that it is simply a history book on China interwoven with a consumerism-based doomsday prophesy. I read enough history books on China and hear enough rants about consumerism on MSNBC. I enjoy history and rants, but combined they lead me to Pawn Stars on my Slingbox. Slingbox and DVR has changed "everything" for me. Prior to the Slingbox, I would have read the book to the end and maybe would have realized that the book is more than I am lead to believe by the first 80 pages of words that seemed even more dry than Chinese popcorn.

If you want a book on selling to Chinese consumers in China, do not read this book, but, instead, read Chocolate Fortunes: The Battle for the Hearts, Minds, and Wallets of China's Consumers.

If you are interested in a decent history book on China and you can appreciate the benefits of the rant, then, read the book.

Here is the note from the publisher. The note is much less misleading than the title.
Although China remains nominally socialist, consumerism has become deeply entrenched, the ramifications of which will be considerable--and global--according to Gerth (China Made), Oxford University professor of modern Chinese history. He paints a vivid picture--and historical context--for the waning of frugality and the traditionally high rates of saving and the rise of pop culture, luxury-brand consumption and car culture, a burgeoning advertising industry, the ubiquity of Chinese counterfeits, and--more sordidly--the development of the largest commercial sex work force in the world, the theft of baby girls for adoption export, and the sale of essential organs. Gerth makes an arresting argument that Chinese consumption may be the panacea for the scrabbling economies of the West; Chinese demand for American and European high-tech goods, financial services, and other products might create jobs and economic growth and, in turn, lead to a stable, increasingly capitalistic, and eventually democratic China. Required reading for those interested in shifting global power dynamics and current consumption patterns.

Dan and Steve will be, hopefully, treating me out to dinner in Seoul or China. I went to Kyobo Bookstore and argued with the cashier that the book is in stock and must be in the backroom. She was less than happy to search through boxes in the backroom, attach the SKU and enter the book into the inventory system.

The post by the China Law Blog on As China Goes, So Goes the World: How Chinese Consumers are Changing Everything can be found HERE

_________
SeanHayes@ipglegal.com

Sep 18, 2011

Dealing with Unions in Korea: The Top 14 Do's and Don'ts

By Tom Coyner

Korea, the Land of Perpetual Crisis, is facing yet another crossroads -- this time in Korea the focus is on renewed challenges facing manufacturing. The weakening Japanese yen together with the growing strength of Chinese manufacturing, not to mention rising costs of Korean labor, is placing Korea once again as the proverbial shrimp positioned between the two whales.

In fact, to a large degree, the real growth of Korean manufacturing is taking place in Korean-owned facilities outside of Korea. While this trend is real, it does not satisfactorily address what needs to be done overall. There are simply not enough Korean jobs in design, marketing and administration. A core of Korea's economy must continue to be in-country manufacturing as a central economic pillar of the Korean market.

I'm writing with the assumption that a disproportionate percentage of readers are expatriates in Korea. Consequently, I am specifically writing to this audience, but what I have to say may also apply to Korean managers.

Though only 11 percent of the Korean workforce is unionized, that small percentage has a disproportionate influence on the overall workforce. Furthermore, I suspect when it comes to foreign-owned factories in Korea, the percentage is considerably higher. While some unions have been discredited in the public eye for all ready being well paid and perhaps spoiled, many media-grabbing labor actions highlight a real or imagined "struggle" between management and other employees in many non-unionized employee's minds.

As the old saying goes, "what we have here is a failure to communicate.'' This is the perennial challenge of any organization, but in Korea with cultural,language and sometimes political divides to cross, this issue has the potential to drive even Job up the wall.

The biggest failure for communication is a breakdown in trust between management and employees -- organized or not. And as much as it is easy to blame radical unions, most of the time the fault must be laid at the feet of management for not putting in adequate time and effort back when problems were minor and relatively easily manageable.

Last year, when I was researching our book on doing business in Korea, I had the privilege to interview some of Korea's leading executives and attorneys. Their comments reminded me of my first professional decade as a human resources manager, first working with a bank union in Seoul and later keeping a union out of a Japanese factory in California. What struck me was even after the decades working in sales & marketing, the principles of good labor relations have not really changed -- no matter where one works.

Given the limited space on this page, I will bullet point some of the most important points that can foster management-employee trust, which in turn may get everyone reading off the same page to reduce waste, improve productivity and increase overall competitiveness. Though much of the following may seem aimed at unionized shop, most if not all applies to good employee relations, regardless if there is a union. Also, most can apply not only to Korea, but China, Japan and most of the world.

1.Establish and hold regular rap sessions between employees/employee representatives and the management team; summarizing the discussion in all-employee memoranda or in company newsletters.

2. Use company training to concretely demonstrate management's commitment to your employees and the Korea operations _ as well as upgrade professional skills and teamwork.

3. Disentangle management's compensation schemes from the union's pay increases. For example, consider keeping management's salary increases on a different cycle from the union's -- and not tied to the same economic benchmarks, such as cost of living, used to rationalize the union's pay increases. Otherwise, you may find collusion between your managers and employees.

4. Hire a new or replace your human resources manager with someone who is not only experienced but also trained. Frankly, from over a decade in international HR, I can tell you there are competent HR professionals but they are in a small minority. Too often general management does not adequately respect the HR function and too often low company expectations allow incompetency to dominate that function.

5. Treat all employees equally at all times, regardless of the manager's natural preferences. This should be a no-brainer, but it's one of those easier-said-than-done issues.

6. Communicate frequently and openly about the real situation of the company to both union leadership and employees so informed employees can in time differentiate between company business concerns and union political concerns.

7. Use athletic and social events as opportunities to signal to the rest of the employees that the union and management are getting along with mutual respect.

8. Put in all the time that is necessary with the union or your employees' concerns -- even if it may seem excessive compared to one's past assignments.

9. Spend at least three times as much time communicating with your Korean management team about dealing with the union as directly communicating with the union. One bad manager can destroy a great deal of union bridge building in Korea. This also applies to non-union shops when it comes to good management-employee relations.

10. Be aware that often senior local managers harbor grudges and prejudices against the union or groups of employees. One may find that 90 percent of your management's thinking needs to change. It is equally important to work for change with your managers as with one's union or one's other employees.

11. Recognize in most instances that management has much more power and resources than the union. If you are a certain distance apart between labor and management, management should travel 90 percent and labor 10 percent -- and then, together, the two can move on and steer back to the center.

12. Don't restrict negotiating to the time of CBA re-negotiations. A skillful general manager is always negotiating. Sometimes he or she will try for a major union concession shortly after a CBA has been signed when the union leadership may be emotionally worn out.

13. Consider unions are often like adolescents in that they are constantly probing to see what their limits may be. It is important to clearly and concretely communicate one's limits and governing principles.

14. Do not allow unions to have a voice in promotions. Promotion is a key management control vehicle. Koreans highly value promotions for social as well as economic reasons. Management should have full control in this area as a way to keep employees in line.

Regardless of how many of the above points may apply to your company, the truly effective manager is the one who personally takes the initiative to learn about his or her employees by walking about and asking questions about them both on a personal level and professional level. Korean employees sincerely appreciate senior managers taking sincere interest in them as human beings and they are often proud to demonstrate their expertise in their given company roles. Often the difference between a successful manager who instills strong employee loyalty versus the remote manager who is often at odds with the employees is whether that executive takes a regular initiative to spend time really trying to get to know the employees and to learn from them how they are making company contributions.

Tom Coyner is a senior commerical advisor (HR and employment) with the IPG and runs Soft Landing Korea.  www.softlandingkorea.com

The article first appeared in the Korea Times.
_________
SeanHayes@ipglegal.com

Sep 15, 2011

Limited Liability Companies under the Amended Commercial Code of Korea

Yuhan Hoesa is a form of a company in Korea similar to a western Limited Liability Company.  It has only been utilized, to date, by small privately held corporations and some financial companies under the Korean Asset-Backed Security Act, Korean Capital Markets Act or the Financial Investment Services Act. The revised Korean Commercial Code (KCC) allows for the more efficient and effective utilization of the Yuhan corporate entity.  I will be advising the use of this company form for some of my clients.  In the past, few clients would be advised to form a Yuhan Hoesa. 

The new Korean Commercial Code is scheduled to be implemented in April 2012.  No benefits from the amended KCC may be availed of prior to the implementation of the amendments. 

Major Revisions KCC Respecting Yuhan Hoesa:

  1. Unlimited Number of Members.  Prior to the amendments only 50 members was authorized without the express approval of the courts. (KCC Article 545);
  2. Liberalized Restrictions on Transfer of a Unit.  Units may be transferred under the amended KCC even without a Special Resolution being adopted at the General Members' Meeting. The present KCC allows for the minimum procedure for transfer to be a Special Resolution at a General Members Meeting. (KCC Article 556);
  3. No Minimum Capital Requirements.  Under the present KCC, the minimum capital contribution needs to equal or exceed KRW 10 million. The amended KCC eliminates this requirement. However, foreign companies will still be required to comply with the Foreign Investment Promotion Act which requires a KRW 100 million capital contribution to establish a foreign-capital invested company. (KCC Article 546);
  4. Yuhan to Chusik (Joint Stock Company).  Prior to the amended KCC in order to convert a Yuhan Company to a Chusik Company the unanimous vote at a General Members' Meeting was required. The amended KCC allows conversion to a Chusik through a special resolution with 50% of total members in agreement and 75% of the members voting.  (KCC 607)
I would welcome an amendment that would allow Yuhan's to issue bonds.  What is the rationale behind not allowing Yuhan's to issue bonds?  Can fiduciary duties be respected through enforcement of commercial law and criminal law and not simply tying up company management because of the perception that a breach is likely?
I wrote other updates on the Korean Commercial Code which may be found below:

________
SeanHayes@ipglegal.com

Sep 14, 2011

Irish Interested in Doing Business in Asia: Farmleigh Fellowship

The Irish Ambassador to Korea has recently forwarded me this message. I personally know of this fellowship program and highly recommend any recent graduates interested in doing business in Asia to apply.

I assume recent lawyer graduates are also welcome to apply. I understand that one person has been placed at the Irish Embassy in Seoul and is enjoying his time and has, also, been very useful to the Irish and Irish-interested business community. I happen to be an American and also Irish national with a face my Irish father notes is "Like the Map of Italy," thus, I am very interested in seeing this program expand. The Irish have a great opportunity to seize more opportunities in Asia, but have lacked enough individuals with expertise in Asian business to be successful. They have also done a very poor job in using the vast network of Irish-Americans as a tool, thus, I hope this program will also be open to all Irish passport holders.

The message from Eamonn McKee, the Irish Ambassador to Korea:
_____
Please find information on the Farmleigh Fellowship for 2012. The Fellowship offers a Masters in Business Studies in Asian Business to successful candidates. It is essentially a work-study scholarship programme for people who want a career in international business in Asia.

The Fellowship was founded in 2009 following the Global Irish Economic Forum where it was agreed that while Ireland had vast opportunities to grow its business interests in Asia there was a lack of qualified business professionals on the ground. Follow-up discussions in Singapore, supported by the Ambassador at the time, Dick O’Brien, led to the Farmleigh MBS which was established and is run by members of the Global Irish Network. It is a not-for-profit charity organisation based in Singapore, supported by the Irish Government and a joint undertaking by Nanyang Technological University, University College Cork and a range of Irish companies. Each company sponsors a candidate on a 12 month work-study program (3 months Ireland, 9 months Asia) during which they identity market opportunities, generate a practical Asian business project and start building networks for their sponsor.

The Farmleigh Fellowship is NOW accepting applications. The online recruitment portal for the MBS will remain open until the deadline of 23rd of September. Asian language skills and some experience of life and culture in this part of the world are an advantage. Further information can be found at http://www.farmleighfellowship.com/.

Please share this message with anyone whom you believe would be interested in applying (or indeed a company that might be interested in participating).
_____
SeanHayes@ipglegal.com

Korean Labour Relations by Tom Coyner

Korean democracy is a new and relatively recent development. Many Koreans feel it is natural to protest as part of their newfound freedom. Marches and rallies are part of daily life, albeit less intense than one might think from the news coverage. Only a small percentage of these demonstrations ever get out of hand. The press tends to focus on what makes up perhaps a mere 1% of the story. Only on relatively rare occasions do some Koreans act unruly and out of control. If the reality was as represented in the media, as one resident foreign CEO challenged, why is Korea doing so well compared to many other countries? His answer: the fact is 99% of the real story is about a highly educated, very hard working labor force that is fiercely loyal and committed to company goals
Still, the prudent manager needs to pay close attention to employee sensitivities. This applies especially to foreign businesses that lack deep roots in Korea and, therefore, are more susceptible to labor problems among their potentially skeptical local employees.
To acquire a basis for dealing with some sensitive labor issues, the international executive may benefit from a summary of potential management responses to common situations.

Collective Bargaining Agreement (CBA)
Employers are expected to go beyond the basic monetary compensation by providing various other benefits that also satisfy their employees psychological needs. These provisions can satisfy employee concerns and act as preventive measures against potential labor agitation. At the same time, its important to put a cap on anything that is negotiated -- never leave anything open ended such as an open value of education assistance. This may seem like common sense, but managers have often made this mistake. The real danger comes from the turnover of expatriate managers, some of who may be tempted to negotiate an easy close to a CBA session and let future general managers deal with the fallout years later.
According to the law, each company’s collective bargaining agreement with its union must be re-negotiated every two years. There is no legal requirement on wage negotiations, but by established nationwide practice, they are annual events -- all of which can be very draining on company resources.
Also by law, the union must vote for new leadership every two years. This makes things difficult for everyone since it means starting all over. Management has to build new trust with the union’s new leadership, who often comes in with a mandate to be tougher than the previous team. This forced turnover of leaders often creates factions in a company’s union. At best, union leaders have just two years in office and then they must return to the work floor to wait two more years until the next elections. Though some wage agreements have passed on the first vote last year, one can often expect them to lose in the first vote due to union factionalism rather than the contents of the agreement.

Social Ties
One stabilizing factor in labor relations is the recognition of personal ties among the personnel in a business organization. The strongest of these stem from clan, school, military and regional roots. Informal as they may seem, these links conform to a strict hierarchy based on seniority. They can often serve as a breeding ground for corporate or office politics, but at the same time they can provide efficient, informal communication channels up and down the organizational, hierarchical structure. Employers may often utilize these ties in resolving the conflicts that inevitably arise in human organizations.

However, according to my interviews with expatriate executives, the truly effective manager is the one who personally takes the initiative to learn about his or her employees by walking about and asking questions on both personal and professional levels. Korean employees genuinely appreciate senior managers taking a sincere interest in them as human beings, and they are often proud to demonstrate their expertise in their professional roles. Often the difference between a foreign manager who instills strong employee loyalty and the more remote manager who is often at odds with the Korean staff is that the former executive regularly takes the initiative to spend time really trying to get to know the employees and learning from them how they are each making a contribution to the company.

When labor relations become tense, management is required to develop greater sensitivity and skill in negotiating and in resolving the growing causes behind labor unrest. Since one cannot improve relationships retroactively, the smart executive prepares the communication groundwork from the beginning.

Communication
Maintaining lines of communication with employees is of the utmost importance for a responsible executive. This requires both formal and informal channels of communication. If already established, the Labor-Management Council is an effective, official channel.

But it is also necessary, particularly for an expatriate manager, to open natural, but discreet communication channels with the local staff, preferably at different levels and departments. A deliberate avoidance of bureaucratic protocol will make general management more accessible to the employees, allowing lines of communication to develop. As long as there is a conscious effort to remove all obstacles and restrictions to the free flow of communication between labor and management, disputes can be prevented or defused.

However, in communication with labor, management has to preserve a benevolent but firm and consistent position. Koreans have learned how to respect authority. When privileged information is shared with the union leadership, it is not unreasonable to try to get some kind of quid pro quo agreement from the union leader. The skillful manager maintains with his or her union counterpart a relationship of mutual respect and trust, with a sense of give and take. It is critical that the senior-most executive maintains his or her composure -- no matter how exasperating the situation may be -- by demonstrating maturity and sincerity while being clear in consistently communicating and upholding the company’s principles. This may require the patience of Job at times, but no one said managing at the top is easy.

(Following section ultimately not printed due to newspaper page space limitations)

A Leading Edge
Another way to dilute the possibility of labor conflict is to provide employment benefits that are superior to those of other companies. If an employee is sure he has a better compensation package than is possible elsewhere, he will have no basis for pressing demands for additional compensation. Thus, he will be less inclined to rock the boat where he obviously has a better deal.

For sustained growth and success, it is imperative for a company to have a competitive compensation scheme. For many foreign businesses of relatively small size, it is often difficult to find out what comprises competitive compensation. Therefore, some are below par in compensation, and sometimes they lose key workers to other companies with higher pay systems.

Some foreign managers rely on survey reports published outside the country that may be out-of-touch, providing a warped picture because of distorted samplings. Sometimes these surveys do not take into consideration various informal benefits, which are included in the compensation packages.

However, things have improved in recent years. Some international human resources consulting firms have established Korean offices and can provide assistance, including compensation advice. Also, the larger foreign chambers of commerce have committees focused on personnel issues and these groups can offer invaluable help.

In the case where budgetary restraints do not allow companies to provide a basic pay system on the upper end, unique supplementary benefit schemes can be devised. Such benefits as stock offers can be novel and attractive to most white-collar workers.

By Tom Coyner at Soft Landing Korea www.softlandkorea.com

Tom works with IPG as our senior commercial advisor.  The article appeared in the Korea Times in 2006, but most of the comments hold true today.  Please note that a new irregular worker law was passed that has added a greater degree of labor flexibility in Korea.
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SeanHayes@ipglegal.com
www.ipglegal.com

Sep 7, 2011

America Needs the Korea-U.S. FTA: Politics Trap Trade Pack – StarTribune

A great article appears in the StarTribune entitled - Politics traps trade packs.

The StarTribune, a Minnesota-based daily, quotes the director of international business relations at Cargill. Cargill is a leading international meat exporter headquartered in Minnesota.

Time is critical . . . If we don’t pass these agreements, other countries get the deals and other countries get the jobs. Canada started later then the U.S. negotiating with Panama and Columbia, but passed agreements sooner.

We have already seen this issue occuring in Korea. European countries are increasingly interested in and  increasingly penning deals in South Korea.  If a European company gets its foot in first, then, American companies will be at a stark disadvantage.

The reality is that the first Korean importers, wholesalers and retailers that team up with foreign companies will be the more effective partners for the foreign partners.  American companies will be simply grappling for the leftovers.  Leftovers that, often, lack adequate access to the Korean market. 

In Korea, get in with the big guys and you are set - wrestle with the small guys and you will be prematurely grey and a little lighter in your pockets.

The article goes on to quote U.S. Trade Representative Ron Kirk.

Korea completed a trade agreement with the European Union that went into effect July 1 . . . Some anecdotal evidence suggests that Europe’s exports are already up 16 percent. There is plenty of economic modeling that will show that the overwhelming majority of jobs lost in manufacturing in this country over the last 20 years has been due to increase in automation and innovation, not trade.

The political bickering and emphasis on political survival is crippling America's chances of recovering from our recession through private sector growth and we know that Obama has already failed to spend us out of this mess.

As in the words of Kirk, “The only people who are happy that the United States is in this impasse are our competitors. They would love nothing more than to have the United States sit on the sidelines.”

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SeanHayes@ipglegal.com

Don’t Mess with the Big Boys in Korea: The Google Korea Saga Continues

In the past, raids have been conducted by the National Police Agency concerning alleged violations of Korea’s privacy law stemming from mapping software that is in direct competition with a product from the same parties that filed this present complaint.

This time, the Korean Fair Trade Commission (FTC) raided Google headquarters in Seoul. The raid is intended to reveal information that Google is prohibiting or using tactics to delay the use of Korea’s Naver browsers and other browsers on the Android operating system.

A complaint by the owners of Naver was filed to the FTC in April alleging, in short, that Google Korea has restricted the ability of smart phone manufacturers from pre-loading search engines onto the Android operating system.

According to a Wall Street Journal article, a Google spokesperson is credited with noting that “Android is an open platform, and carriers and OEM partners are free to decide which applications and services to include on their Android phones. We do not require carriers or manufacturers to include Google Search or Google applications on Android-powered devices.”

I have no clue if Google is involved in these types of actions, but isn’t it time for the government to consider the ramifications of these archaic “raids” on the reputation of Korea? Without foreign investment and exports, Korea will be relegated to being in the ranks of one of the numerous less developed Asian nations.

Korea needs the world and needs to improve its image tarnished by the Lone Star, Ssangyong Motors, President Roh's suicide, mad cow disease, fist fighting politicians and other like fiascos. Korea needs the World and the World, as I can see, is not in great need of Korea.

We also can’t forget that without Google, Samsung Galaxy phones would be without an adequate operating system. Samsung’s Bada is not even an operating system, it is simply a kernel to be placed on an operating system.

As the U.S. did to Google for a related matter, would a subpoena to produce documents and other evidence be enough? Should a raid be only used if the government has a belief that evidence will be destroyed or was refused to be given?

I question why the Korean government even needs these hardball posturing tactics. It seems to just have me, and others like me, receiving more calls about Korea's transparency, unique government agencies and archaic enforcement tactics? Many of us on the front lines worry that Korea is increasingly isolating itself from the developed and recently developed world.

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SeanHayes@ipglegal.com

Sep 6, 2011

Protecting the Right to Free Speech? MBC’s PD Notebook on Trial

An interesting case has worked its way through the courts on free speech in Korea.  As we all have become aware, not one human case of mad cow disease has been linked to the consumption of U.S. beef.  With the Lee Myung-Bak Administration reassurance that Mad Cow disease would not affect citizens, the Administration decided in 2008 to resume the import of U.S. beef with strict restrictions.

MBC's “PD Notebook” emphatically asserted that U.S. beef poses a risk to the Korean population.  The argument was backed up by numerous mistranslations of U.S. data and information that was later found to be false or misleading by other news sources, the prosecution, and the courts.

The program was credited for fueling a 2 million-person demonstration in the capital. The march, on many occasions, turned violent.

Many demonstrators were schoolchildren brought to the demonstration by their teachers, college students that were organized by professors and even housewives and office workers.  The later two categories seemed to be heavily influenced by the PD notebook program.

Most of those less influenced by liberal hysterics, at the time, realized that this was nothing more than radical liberals utilizing the sentiment of a fickle population to destroy the presidency of Lee. The liberals won. President Lee Administration has been crippled through most of his five-year term.

Oh, still not one person has contracted mad cow disease in Korea or the United States.

The investigation into the program led to the realization that much of the key evidence in the program was either falsified or manipulated.  The realization led to lawsuit and prosecutions.

The Korean Supreme Court, recently, held five producers of the program not guilty of criminally defaming former Minister of Food, Agriculture, Forestry and Fisheries, Woon-chun CHUNG. The Supreme Court opined that:

We need to be cautious when punishing journalists in the form of personal defamation against public officials who were engaged in policy decisions [And, Since]. . .news reports acknowledged the iteration of false information [thus] there is no direct bearing on the reputation of public officials and it cannot be viewed as malicious attacks, the original ruling was justified in determining that [defendants] are not liable for defamation.

The Court seems to have employed the American Public Figure test.  Thus, a person may only be found guilty, in the United States, of defamation if the statement was false and iterated with “malice.”  Malice is defined as either a “reckless disregard for the truth” or “knowledge that the statement was false.” It seems evident that if a plaintiff filed a civil suit against PD Notebook in the states, then, PD Notebook would be found liable.

Not withstanding the fact that this is a criminal matter (some states still punish defamation through criminal courts), in Korea, say sorry and admit your fault, and you will not be held criminally liable for defamation?

Is this the right solution for Korea?
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SeanHayes@ipglegal.com

Sep 4, 2011

Conflict of Interests in Korea: Lawyers as Outside Directors of Listed Korean Companies

The Korea Times published an interesting article that all of us at local law firms in Korea know very well.  Korean listed companies love to hire lawyers as outside directors.  Many of these companies know that these lawyers will make very little noise when it comes to board action or inaction because of the often strong financial relationship between the firm and the company.  Additionally, many of these lawyers are hired by majority shareholder or friends that are company directors. 

The Korea Times article notes that:
According to the report by Chaebol.com, of the 454 outside directors hired by the top 100 listed companies in the country, 76, or 16.7 percent, are lawyers or advisers for local legal firms . . . The Financial Supervisory Service, meanwhile, said it has no authority to regulate outside directors hired by companies, while the Justice Ministry said it could slap fines on violators for hiring lawyers, although no such action has ever been taken in the past.
Other loopholes that make it hard for authorities to crack down on such practices is the fact that legal services companies do not technically hire so-called advisers of law firms directly.

"There are even claims that advisers should not be barred from working as outside directors," a government official said.

In terms of resolving this issue, Kim Woo-chan, professor at the state-run Korea Development Institute, said there is a need to change the country's fair trade law so no conflict of interest can occur.
Because of tight Korean social networks, their is more of a risk for an outside director neglecting his duties than in most western nations.  Additionally, in all but the most flagrant of cases, the outside director will never be prosecuted, fined or have to give up a dime of his director pay for breach of his fiduciary duties to the company and its shareholders. 

I suspect that the best solution is drafting a law that specifically addresses this issue.  It is also interesting to note that many Korean National Assembly members work for law firms - including at my Firm.
The concept of conflict of interest is vastly different in Korea than in the West and much of developed Asia.  

It seems the issue, in Korea, is not as much the impression of a conflict, but finding and adequately punishing conflicts, interested transations and breach of fidicuary duties in and the like when they do occur.

What do you think?
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SeanHayes@ipglegal.com

Korean Legal Trends for 2011

This year is a year of change in Korea because of the upcoming Korean elections, the significant increase in the inflation rate and the increased need for the government to increase tax revenues.

The global financial crisis did not hit Korea hard, but waves are moving through the real estate markets that have destroyed the solvency of many savings banks.

The following are some basic observations on the Korean Legal System that we have noticed.

  1. The Korean government is doing everything in its power to fight inflation, including using government agencies to push retailers and wholesalers to lower prices. The Korean Fair Trade Commission has been very active “enforcing” Korean Competition Law.  Their target has been gas stations, car dealers, travel agents, and other retailers and wholesalers. Korean FTC Fines Korean Refiners for Collusion 

  2. The Korean Fair Transactions in Subcontracting Act has placed more power with the Korea Federation of Small and Medium Businesses, thus, increasing the risk to those that are conducting business with subcontractors in Korea.  Expect aggressive enforcement of the new Act.   Fair Transactions with Subcontractors Act of Korea: So Buyer Beware or Simply Avoid the Risk and Buy the Seller?

  3. The Korean government is squeezed for tax revenues, thus, increasing the need to borrow. This, normally, leads to more pressure on the National Tax Service to collect taxes, thus, increasing the risk of a tax audit.

  4. The Korean legal system has an increased focus on raising its low international transparency ratings. This and other realities have led to the courts to be more willing to assign significant damages in cases where directors have violated their fiduciary duties to the company.  Limiting Director Liability under Korean Law: Don’t Drop the Insurance Policy Yet

  5. The prosecution is systematically losing investigative powers to the police, thus, increasing the power of the police. The police are strongly asserting that most investigative powers should be in the hands of the police and not the prosecution as is the case in the United States.  With the increased respect for the police, it is likely that with each incoming administration, that the police will usurp more power from the prosecution. Fundamental changes to laws, however, will need to be made in order for the police to have true investigative powers.  These changes are not likely to come anytime soon.

  6. The courts are more willing to protect the right to free speech when the right doesn’t infringe on "privacy rights."  This was evidenced in the “PD” Notebook case.  An article will be posted on this matter in the future.

  7. Law Firms are getting larger and junior lawyer pay is decreasing. Some law firms are struggling to stay afloat.

  8. Korean lawyers and Korean law firms are increasing looking abroad for more business.  Many local firms, including this one, have established foreign branches or associations.

What do you think? Any additional items needed?
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SeanHayes@ipglegal.com

Sep 1, 2011

Korean Corporate Tax Changes Affecting Businesses in Korea

I hate taxes, as I assume you also do, but my M & A and other corporate clients in Korea may be hating Korean taxes just a little bit less after the recent changes in Korean Corporate Tax Law.

First, the Enforcement Decree of the Corporation Tax Act of Korea was amended this year to allow expanded preferential tax treatment in an acquisition of a Korean company.

Before the present amendment, a majority/controlling shareholder could avail of “preferential tax treatment” in Korea only if the shareholder in the Korean company retained the shares for at least three fiscal years.

The amendment provides an exception for instances when the shareholder is required to dispose of shares because of Korean legal prohibitions in owning the shares.

Additionally, the amended Enforcement Decree will allow foreign corporations operating in Korea to deduct the untaxed reserve income from taxable income.

The updated Korean Enforcement Decree of the Corporation Tax Act also allows the more convenient utilization of deductions for donations to charities in Korea.
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SeanHayes@ipglegal.com