KOREA EQUITY
Presentation
on
Corporate Governance
December 14, 2001
John J. Lee
Managing Director
Scudder’s View on Valuing Korean
Companies
 Management Quality
 Corporate Governance
 Management Integrity
 Business Capability
 Financial Strength
 Industry
Korea Fund, established in 1984, considers
management’s quality as the most important
factor investing in Korean companies.
Scudder Korea Fund
2
Korea Fund Proves the Importance of Corporate
Governance
Total Returns as of October 31,2001
NAV
(Average Annual)
KOSPI in US Dollar
(Average Annual)
Quarter
2.38%
-0.11%
1 Year
0.40%
-7.90%
3 Year
26.42%
10.86%
5 Year
-1.06%
-14.64%
10 Year
4.63%
-7.69%
Scudder Korea Fund
3
Performance Comparison Between
Foreign & Domestic Managers As of October
31, 2001
150
130
103.3
110
102.07
90
76.92
70
47.43
50
45.45
39.63
30
33.4
12.95
10
-10
-35.29
-30
-50
ea
op
r
Eu
los
C
n
Scudder Korea Fund
nd
E
ed
nd
Fu
l os
C
US
n
-E
d
e
1
nd
u
dF
l os
C
US
n
-E
d
e
2
nd
u
dF
me
Do
d
un
F
c
sti
1
me
Do
d
un
F
c
sti
2
me
Do
d
un
F
c
sti
3
me
Do
d
un
F
c
sti
4
me
Do
d
un
F
c
sti
5
me
Do
d
un
F
c
sti
6
Source: HSBC
4
Scudder’s Observation on Korea’s
Corporate Governance
1984 - 1990

No Concept on Corporate Governance

No Understanding on Shareholders Rights

Directors Don’t Understand Their Responsibilities

Shareholders Not Aware of Rights

Most of Shareholders Day Traders

Stock Market was Not a Major Source of Capital
Needs

Scudder Korea Fund
Unreliable Accounting & Independent Auditors
5
Scudder’s Observation on Korea’s
Corporate Governance
1991 - 1997

Poor Corporate Governance Especially by Chaebols
Led to Economic Crisis

Hostile Attitude Towards Foreign Investors

Arrogant Management Frustrated Institutional
Investors

Lack of Legal Infrastructure

Unreliable Accounting and Independent Auditors
Scudder Korea Fund
6
Scudder’s Observation on Korea’s
Corporate Governance
1998 - Present

Government’s Accomplishments








More Attention on Corporate Governance
Foreign Capital is Welcomed
Legal Framework to Enhance Shareholders’ Right
Reform on Chaebol
PSPD’s Role has Become Critical to Reform on Korea
Much Improved Quality of Accounting & Independent
Audit
Improved Public Awareness
Improved Management Attitude
Scudder Korea Fund
7
What’s Next

Class Action by Minority Shareholders Should be Allowed

Enhancing Shareholders’ Legal Rights Not Enough

Education & Training Regulators and Law Professionals

Severe Punishments For Managements’ Wrong Doings

On-Going Education of Outside Directors
Scudder Korea Fund
8
What’s Next Con’t

Institutional Investors Should Be More Involved

More Local Presence of Foreign Asset Managers

Good Corporate Governance is Critical to Korea’s
Long-Term Economic Prosperity

Western Style Transparent Mutual Funds Needed

Scudder Launches Corporate Governance Fund
Scudder Korea Fund
9
Cross-Border Valuation Comparison for Korea’s
Top Market Capitalization stocks
Company
Market Cap.
(W bn)
Discount (%)
October, 01
Method
Samsung
Electronics
40,026
40%-50%
SK Telecom
25,319
22%
Relative to Global Average on EV/EBITDA
Korea Telecom
16,546
34%
Relative to Global Average on EV/EBITDA
KEPCO
15,074
50%
Relative to NJA Average on
EV/EBITDA
POSCO
10,996
33%
Relative to Global Average on
EV/EBITDA
Kookmin Bank
14,894
68%-72%
Sum of Part Analysis
Relative to regional peers by all traditional
measures, including P/E, P/B vs. ROE
Source: CSFB
Scudder Korea Fund
10
Historical Stock Market Trends
August 1984 - October 2001
KOSPI in Won
1,000
800
600
400
200
Scudder Korea Fund
01
20
00
20
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
19
90
19
89
19
88
19
87
19
86
19
19
85
0
11