Listen to My Mother: JVs in Asia

The following article was written for the Korean language Legal Times.

My mother often told me, when I was much younger, to look both ways before crossing the street, carry an umbrella in the spring, and don’t go out alone in the dark. The advice can go along way for Korean companies doing business outside Korea.

As we all know, Korea companies lament over the fact that it is near impossible for Korean companies, with the exception of the most savvy and cash flush mega-conglomerates, to enter the Chinese, Indian and Southeast Asian markets without local partners if they intend to attempt to penetrate the local markets.

The common cry of Korean companies is to avoid JVs at all costs. In reality the issue is not the avoidance of JVs, but the procedure in choosing and dealing with JV partners. I have seen many Korean, American and European companies succeeded in India, China and Southeast Asia because of the active assistance of local JV partners.

Don’t let your clients attempt a venture alone without at least exploring the possibility of a local partner and normally success will come and the difficulties will be overcome by following my mother’s simple advice.

1. LOOK BOTH WAYS BEFORE CROSSING THE STREET.
Due Diligence, Due Diligence and More Due Diligence. Korean companies, attorneys and business advisors are notorious, throughout Asia, for jumping into roads without looking both ways. Often the situation is caused by an overemphasis on trust, an over respect for Quangxi, and by the greatest quality that most Korean’s hold – perpetual optimism.

The situation has caused criminal prosecutions for some, business failures for many and headaches for most.

Before your company or your client engages in any business, advise your company or client strongly to go through a full due diligence. I often find that Korean companies, often, fear that this will upset the anticipated partner. If this upsets the partner, you have the wrong partner.

All professional potential local partners should welcome due diligence, since it is a clear sign that the local partner is dealing with a true professional.

For example, when I work with American clients in Southeast Asia, all anticipated partners that have done business with Westerners expect that the anticipated Western partner will do a lengthy due diligence and the better potential local partners are even prepared for the sure deligence prior to the first face-to-face meeting.

One of the better-known companies in Vietnam, with JVs with companies from around the world, has an employee with the specific task of satisfying the due diligence needs of foreign companies.

However, my Korean clients, invariably, believe that they have already built “trust” and may lose this trust through the due diligence. All good businesspersons should care, primarily, about building respect and seeing if they can learn through the due diligence to respect the partner.

The mutual respect will lead, naturally, to a lasting trust.
Trust based on drinks, entertainment and casual encounters is either naïve or fleeting.

Additionally, if the due diligence leads to lack of respect by your company or client for the counter-party you have found either the wrong partner or our involved with a company or client that does not understand and will, likely, never understand the value of international partnerships and the uniqueness of international business. Both are clear signs of a non-justifiable risk.

2. CARRY AN UMBRELLA IN THE SPRING
Protect your company or client from the rain through a carefully drafted shareholder, O & M, non-disclosure/non-circumvention, technology transfer and license agreements and the like with liquidated damages, arbitration, and restrictive covenant clauses. I too often see Korean attorneys and Koreans with American law licenses simply using form agreements.

I have seen numerous shareholder agreements from one of the largest Korean law firms that contain so many logical and grammatical errors that the agreement is laughable - at best. In addition, this form agreement excludes many clauses that provide added protection for clients that should immediately come to the mind of any experienced lawyer doing business abroad.

Also, you must have a deep knowledge of local law, customs and practices. In India, for example, many critical company decisions must be made through a super majority. Thus, a client with a majority shareholding may still be subjected to shareholder relationship issues.

3. DON’T GO OUT ALONE IN THE DARK
Your company and client must have a lawyer or an experienced consultant familiar with the local market on retainer. The person should not simply be one of the many ubiquitous Korean consultants with local language skills. Often these individuals have vested interests that prevent them from being trusted advisor. Sometimes, these individuals have nothing more than local language skills and a good smile.

One such person, I met, had a wonderful resume, a list of contacts that made him look like the Who’s Who of Vietnamese business and a warm and welcoming smile. In reality, he was nothing more than a fraud. I talked with one of the individuals that he claimed to be his “HuBae” and the man just commented that he met him once and now has been plagued with numerous uninvited visits, requests for meetings with his clients and unwanted calls.

If someone has a list of friends, a good smile and an entourage of young Korean girls that can speak the local language – he probably is a fraud.
Hire a local law firm that works alongside international attorneys and for your good, skip most of the ubiquitous Korean law firms in favor of local firms with international lawyers.

If you company and clients follow my mother’s advice to look both ways before crossing the street, carry an umbrella in the spring, and don’t go out alone in the dark – they will be well on their way to a successful relationship in China, India or Southeast Asia.

Find this post in Korean here

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SeanHayes@ipglegal.com

Korean Multiple Labor Union Law to Be Implemented in July of 2011.

The Trade Union and Labor Relations Adjustment Act was amended to allow multiple union in the same Korean workplace. The Act will become effective from July 1, 2011.

One of the key purposes for the new law was to diminish management disputes. The thought is that the more radical of unions now may be moderated by the new less radical unions.

Recent disputes have helped to tarnished Korea’s reputation abroad. In fact, according to the Joongang Daily, “Labor demonstrations have been one factor that makes foreign companies reluctant to invest in Korea since it raises uncertainties about the investment environment.”

Many of IPG Legal clients mention this as a key risk of doing business in Korea and one of the reasons that they, often, choose not to locate their Asian headquarters in Korea.

In a nutshell, the new law allows more than one labor union in any given company. Since multiple unions will be allowed in companies, the law requires, for efficiency purposes, that a bargaining representative union “BRU” be selected among the unions in each company to engage in the primary act collective bargaining with the respective company. The selection of a BRU depends upon the number of members of each union. Typically the largest union will be selected, but in some circumstances a coalition of unions can form a majority. The Labor Relations Commission has the power to, in some cases, decide issues relating to the selection of BRU and to resolve labor disputes.

The changes will have immediate effects that will change the landscape of the Korean labor market for domestic and foreign firms. If a firm is currently operating in Korea or has plans to locate a business in Korea, downsize, draft labor rules, terminate an employee, or structure a retirement system it is strongly advised to consult with an attorney experienced in Korean HR compliance and consulting issues

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SeanHayes@ipglegal.com

Criminal Lawyers in Korea: Defense Lawyer to Hire and Not to Hire?

In all cases, in Korea, where you are accused of a crime and you fear that you may be sentenced to time in jail, may be deported or the conviction may harm your future, hire, quickly, an experienced and proactive Korean criminal attorney prior to any interrogations by the Korean police or prosecution.

Sadly, few lawyers, in Korea, are useful for criminal matters, since few lawyers are proactive when it comes to matters concerning the Korean government, experienced in criminal matters for foreigners or willing to upset the status quo (aggressively engage the prosecutor and court).

Please do your future a favor,  forgo any options provided at no or low cost unless you have no other options.

If you can't afford an attorney, the Korean court, normally will appoint an attorney to assist you.  In most cases, the appointment of the Korean government-appointed attorney will be useless for your defense/sentence, since the appointment will be after interrogations, after the decision of the prosecutor to indict and often is an attorney that will only be going through the basic processes necessary for him to complete the matter and go on to the dozens of other matters that he has in front of him/her.

If you are in the U.S. military, the military will appoint you an attorney.  Also, the attorney will be appointed too late in the investigation stage.   The attorney appointed, overwhelmingly, in the cases that I have seen will simply go through the motions.

The handful of attorneys picked by the military are some of the least proactive attorneys I have seen in Korea and want, in the majority of the cases, to simply be on the good graces of their bread-and-butter (a Korean employee of the U.S. military).  If you are convicted of a crime, you will be discharged from the military.   This was not true a decade ago, but the military, even for "minor" violations of law have been quick to discharge soldiers.

Signs that you May Have Hired the Wrong Korean Lawyer

• Your Korean lawyer is not operating based on a contingency fee (success fee: not guilty/no time served in jail etc.).   The best arrangement is a discounted hourly fee combined with a success fee, since you will receive a bill noting what the attorney is doing and the attorney will be motivated to do work on the matter even when the chance of "success" is slim.
• Your Korean lawyer is too young (Early 30s) or too old (70s).  The lawyer will, likely, not have the experience necessary to handle the matter or will, simply, not be handling the matter.
• Your Korean lawyer is directing you, consistently, to talk with a less experienced lawyer.  The less experienced lawyer is likely, only, doing the work and the more experienced lawyer is simply a rainmaker.
• Your Korean lawyer has poor English language skills.  Without someone fluent in English, you run the risk of never getting your side of the story heard. 
• Your Korean lawyer has few non-Korean clients.  Handling criminal matters for foreigners is vastly different than handling a typical criminal matter for a Korean.  Often, deals can be obtained with the prosecutor in non-violent crimes for foreigners, that are unavailable to Koreans.  Also, violent and public crimes, often, need to be handled with a decree of media and cultural savvy, since judges and prosecutors are heavily affected when the victim is a Korean and the perpetrator of the crime is a foreigner. 
• Your lawyer never speaks.  A lawyer that never speaks is, typically, not a proactive lawyer.  Criminal cases are best handled with strategy and a proactive counsel willing to engage the police investigators, prosecutor and judge.  If your lawyer won't speak to you, he won't be speaking to anyone else and will likely simply go through the process, receive a guilty verdict and the typical sentence.
• Your lawyer seems not to be listening.  Too often, lawyers, ignore clients.  Great defense lawyers  in Korea develop great defenses by listening and responding to clients.  If you have a lawyer that is not listening, he will likely just go through the process, receive a guilty verdict and the typical sentence.
• Your lawyer in Korea has too many cases.  If he seems too busy he probably is too busy.  Criminal cases, often, need a great deal of time.  If the lawyer is not able to spend the time to talk with you, you may never be able to get the attorney to provide the time necessary to handle the matter.
• Your lawyer in Korea hates you.  Koreans are passionate people.  If the lawyer hates you, he will likely take your money and do nothing for you.    Passion, too often, can lead Korean lawyers to be less than reasonable.   As we know, this is not only a Korean trait.

Related Articles

• Signs that You Hired a Great Korean Defense Attorney
• Misunderstanding of Suspension of Criminal Sentence in Korea 
• Foreigners' Drug use in Korea

What do you think?
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SeanHayes@ipglegal.com
NY attorney Sean Hayes is the only non-Korean to have worked as a government attorney for the Korean court system.  He leads the Korea Practice Team at IPG

Korean FTC Fines Korean Refiners for Collusion

In a possible reaction to Korea’s rising inflation, the Korea Fair Trade Commission (KFTC) fined the four major Korean refiners a total of KRW 434.8 billion (USD 442 million) for preventing competition through collusion.

The KFTC noted that: “In their meeting in March of 2000, officials of the four refiners agreed to respect the rights of former exclusive oil suppliers to gas stations and refrained from supplying their products to even gas stations with ties with a particular brand in the past.”

The KFTC claims that this alleged collusive act, led to consumers being forced to pay increased margins to suppliers even when prices of a barrel of the unrefined product decreases in the international markets.

Korea government is attempting to do anything to reign in on inflation seemingly in every manner with the exception of raising interest rates and the suppliers of fuel, food products, autos and other top consumables are, thus, the target of the present administration.

The tactic will likely force Korean conglomerates to lower margins temporarily.

The answer to the problem, however,  is not simply for the Korean government to engage in these types of aggressive measures, but to lessen the burden on SME Korean businesses and foreign business and decrease the benefits to the big Korean players that are increasingly involved in more and more business lines and more abuse tactics to suppliers.

The refiners, from recent Korean news reports, seem to be set to appeal the decision. In Korean Antitrust cases, the Seoul High Court is often less aggressive than the KFTC.

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SeanHayes@ipglegal.com

Failed Korean Corporate Compliance and the Role of Attorneys in Korea

The following article appeared in the Korea Times on May 6, 2011.

The National Assembly of Korea, recently, voted in favor of a bill that requires listed companies with large market capitalizations to establish independent compliance support offices. Business organizations strongly opposed the bill.

The details of the system are not yet known, since many key aspects of the bill have been delegated to the president through an enforcement ordinance.

The surface purpose of the bill is to improve companies compliance with Korean law, thus, upgrading the image of Korean companies domestically and abroad. Some scholars have noted that transparency and other corporate governance issues, within Korean companies, have led to the “Korea discount” and that the discount may be overcome with more active compliance departments.

Additionally, fear has spread that an Enron-type scandal may hit Korea in the future and that the implementation of this system may contribute to lessening the risk. An Enron-type scandal, in Korea, may have a more far-reaching affect, since the scandal may contribute to a market-wide sell-off by foreign shareholders.

The greatest risk, according to many foreigners, is the accuracy of corporate information and transparency and a large local scandal could lead to a spreading of fear and a collapse of the markets.

The effectiveness of implementation of the system has good support in the financial service sector in Korea. The structure of the bill is based on the successful implementation of a like compliance system for financial institutions.

After the 1997-98 Asian currency crisis, the International Monetary Fund (IMF) and others pushed for the implementation of the system to financial institutions in order to avoid the potential need for another IMF bailout. Many have considered the implementation of the system a success that may have contributed to Korean financial institutions survival during the recent financial crisis.

Critics, however, have noted that the purpose of the bill is, in reality, to accommodate attorneys who have recently found it difficult to secure decent employment. Of course, this is one of the motivations for the bill and as noted is not the only.

Many of the details will be in the pudding ― the presidential enforcement ordinance. For example, we are not yet certain, how the independence of the compliance support officer will be guaranteed, what the qualification will be to qualify as a compliance support officer, the effectiveness of the system on the respective company, and how the relationship between the officer and the in-house legal team will affect the effectiveness of the system.

These issues will be resolved in the near future, since the bill is set to be promulgated in April 2012.

The matter seems to be more of an issue of “who shall hang the bell on the cat’s neck.” If lawyers are not going to bring to light corporate compliance issues and shareholders are unable or unwilling, who will be able to correct these Korean corporate realities?

It seems rational to consider that those with legal training working in more broad areas of society will increase the capabilities of organizations to comply with law, thus, moving Korea closer to a most developed nation status.

Therefore, the system seems to have little chance of creating any downsides with a large potential for upsides. The opposition of the companies is on the surface based only on expense, but seems to be based on much more. Companies of the size needed to trigger the law will never see or feel their burden in their large corporate budgets. The expense will likely be less than the expense of the bonus of any C level employee.

Thus, the issue seems to be more about corporations not wanting another “mother-in-law” meddling around in their corporate moat protected castles.

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SeanHayes@ipglegal.com