This monograph summarizes the policies of the successive administrations on the governance of large commercial SOEs in Korea since the early 1980s, explains the forces behind major changes in the policies in the last three decades, analyzes the properties of the current policies that are based on the Act on the Management of Public Institutions of 2007. It also identifies the major problems that exist in the current policy and proposes a set of measures that could potentially lead to the improvement in the internal efficiency of large commercial SOEs in Korea as well as in the allocative efficiency of the relevant industries.

Successive administrations since the early 1960s generally perceived commercial SOEs as policy instruments of the line ministries rather than commercial enterprises. However, during 1993 ~ 2002, two successive administrations attempted to privatize large commercial SOEs or to install a profit oriented governance structure in them. The efforts of the Kim Young-Sam administration to prepare large commercial SOEs for eventual privatization while at the same time expose them to the market principles culminated in the passing of the Special Act on Privatization of 1997, which paved the way to eventual mass privatization of commercial SOEs during the Kim Dae-Jung administration. However, the movement for privatization, efficiency, and competition in the SOE sector in Korea halted in 2003. Further, the Act on the Management of Public Institutions enacted in 2007, which provides details of the governance structures of commercial SOEs as well as a host of non-commercial public institutions, treats commercial SOEs as policy instruments of the line ministries and gives politicians and bureaucrats a near absolute power to intervene in the affairs of SOEs.

Current governance structure gives CEOs, board members, and employees of SOEs a weak incentive to pursue efficiency while giving them a strong incentive to take actions that would significantly undermine the firm value in order to meet the demands of the government. The monograph ends with a set of recommendations for a group of commercial SOEs that could potentially improve their efficiency as well as the allocative efficiency of the industries they belong to, including a proposal to establish a holding company for commercial SOEs. The proposal can be applied to other commercial SOEs in Korea.

Preface
Executive Summary

Chapter 1 Introduction: Background and Objectives

Chapter 2 Evolution and Key Features of Korea’s SOE Governance Policies
　Section 1 Principles for Selecting Economic Institutions for Industries
　Section 2 Policies on Commercial SOEs and Related Industries before the Mid-1990s
　Section 3 Policies and Institutions for SOEs and Related Industries from the Mid-1990s to 2002

Chapter 3 Key Issues and Performance of the Current Governance Structure
　Section 1 Issues in the Governance Structure under the Act on the Management of Public Institutions
　Section 2 Fundamental Issues in the Governance Structure of Commercial SOEs
　Section 3 Performance of Highly Commercial SOEs under the Current Governance System

Chapter 4 Reforming SOE Governance and Industry Management
　Section 1 Policy Improvements for Highly Commercial SOEs
　Section 2 Policy Reform Measures for Selected SOEs and Related Industries
　Section 3 Alternative Policy Options for Other SOEs

Chapter 5 Conclusion

References
Appendix
ABSTRACT