Change Coming to Korea's Frozen Corporate Culture

There’s much to like and admire about Korea. Its corporate culture isn’t one of them. Intense cronyism, toadyism and sexism born of a social system built entirely around old-boy networks formed in junior high and high school make Korean companies a minefield for women, individualists, foreigners, even Korean Americans.

This kind of inbreeding isn’t a factor for businesses exporting commodities, but is a severe handicap for those having to compete against the global cultural elite as many Korean corporations will have to do if the nation is to continue its rise to the top. Without a systemic change, Korea’s Miracle on the Han will soon drown in a cesspool of executive inefficiency.

One symptom of how closed Korean business is to anyone not an old boy is the number of hard-driving Korean female golfers. Talented women who could help invigorate hidebound corporations are shunted into duties like serving tea and accompanying senior executives on their travels as personal assistants. Many disillusioned women have come to see golf courses as one of very few meritocracies available to Korean women and push their daughters to enter the sport. For each fanatical golfer who makes it into the LPGA, ten thousand don’t. The resulting waste of talent is costing the nation tens of billions in annual productivity.

This stifling system makes for absurd levels of inefficiency in Korea’s service sector where productivity is just 56% of the manufacturing sector — far below the 93% average among OECD members. It’s hard to be productive when your best energies must be devoted to keeping up with the network on which your status and livelihood depend. One reasons for Samsung’s world-beating success so far was the push it made 20 years ago to change the corporate culture from one built around nightly drinking binges to one that encouraged more free time for family and personal recreation. Even so Samsung lags many world-class rivals in creating a culture that nurtures individuality and creativity as well as collegiality — as thousands of Korean American executives have discovered.

Fortunately many Korean leaders and thinkers abhor this very aspect of Korean society, and have been seeking to change it. As is often the case, the easiest way to bring about an epochal change in a national culture is to bring in outsiders. That’s exactly the role that the more visionary among Korean leaders see for the U.S. – S. Korea Free Trade Agreement (KORUS FTA) which was revised last week for likely passage in both nations 3 1/2 years after the original pact was signed.

For Americans the focus of the KORUS FTA has been the specter of Samsung, Hyundai, Kia and LG flooding the U.S. in even bigger numbers while U.S. cars, rice and beef are locked out by exclusions and prohibitive taxes. In fact, the most important aspect of KORUS for both nations will be the virtual elimination of laws that have kept Korea’s services sector out of practical reach of most U.S. firms.

Korean regulations currently prevent businesses from sending customers’ personal data outside the country for processing — even to the firm’s own overseas data facilities. The cost of reproducing such facilities locally has kept U.S. financial firms from setting up branches in Korea. The KORUS FTA eliminates this restriction for U.S. firms. The result will be an influx of U.S. banks, insurers, investment firms and real estate brokerages. They will be able to hire from a labor pool comprising millions of highly capable Korean women currently being underemployed as personal assistants to male inferiors and the talented individualists who never quite fit into the crony system. The productivity that these workers will unleash for their U.S. employers will force Korean companies to evolve away from a corporate culture that puts gender roles and personal connections above ability.

For the past half century Korea has risen steadily up the ranks of the industrialized world on the strength of its hyper-productive manufacturing sector. The forced social evolution that will be spawned by the KORUS FTA will let Korea continue its rise to the ranks of economies like Singapore and Hong Kong at the very top of the global economic food chain. At the same time, U.S. corporations will get a shot in the arms from the influx of Korean talent which, hitherto, had been suppressed by Korea’s anachronistic corporate culture.