LEVICK strategic partner and Korea’s leading law firm Jipyong shares legal insight on how the essential role of corporations is being reassessed.
A paradigm shift is occurring as the essential role of corporations is being reassessed. Drastic market and systemic changes are dictating that corporations go beyond the pursuit of profits and realization of shareholder value. In August 2019, the Business Round Table (“BRT”) issued a statement signed by 181 high-profile CEOs which redefined the purpose of a corporation as going beyond shareholder primacy to encompass a fundamental commitment to all of its stakeholders, by: delivering value to its customers, investing in its employees, dealing fairly and ethically with its suppliers, supporting the communities in which it operates and generating long-term value for its shareholders. The media has since reported that the BRT’s “Statement on the Purpose of a Corporation” signals an end to shareholder capitalism, and transformation toward an inclusive capitalism that envisages sustainable wealth and shared prosperity. There was also much discussion at the 2021 World Economic Forum about how corporations should adopt stakeholder capitalism in lieu of shareholder primacy.
Compliance and CSR, a mere beginning
Before ESG (‘Environmental’, ‘Social’, and ‘Governance’), there was CSR (‘Corporate Social Responsibility’). CSR refers to self-regulating practices undertaken by corporations to be socially accountable, rooted in a recognition of past failure to perform societal duties. CSR then evolved into ethical management and compliance management. Compliance management establishes the fundamentals of sustainable business, but compliance is only a beginning. Taking legal responsibility is no longer sufficient; it is now a mandate for businesses to actively take on social responsibility as “corporate citizens”, meaning that corporations need to be as accountable to society as its individual citizens.
CSR has constantly evolved, moving away from a corporation’s passive role of being socially responsible to an active role of creating ‘shared’ value (or ‘social’ value, “CSV”). CSV has been around for a while. In Korea, many businesses have announced that they will pursue social values together with economic values; there are also companies that measure and publish their businesses’ social values along with their financial information. However, CSR has not fundamentally transformed the market. There is a limit to what corporations can do by promoting social contribution activities and undertaking ethical management. The realization of social value has been confused with conducting social contribution activities… Read more