The corporate opportunity doctrine, which prohibits directors and officers of a company from usurping certain business opportunities that come to their attention, was newly introduced in the Korean Commercial Code in 2011. In response to many question...
The corporate opportunity doctrine, which prohibits directors and officers of a company from usurping certain business opportunities that come to their attention, was newly introduced in the Korean Commercial Code in 2011. In response to many questions and complaints about this newly introduced doctrine, this dissertation attempts to elaborate on the conceptual elements of ‘corporate opportunity’ and provide a reasonable interpretation and application of this doctrine under Korean law. For such purposes, this dissertation is based on a comparative study of the corporate opportunity doctrine in other jurisdictions (US, UK, Germany and Japan), an analysis of more than 80 cases and their fact patterns in various jurisdictions, an economic analysis of the policy underlying this doctrine, and a critical analysis of recent cases in Korea.
The purpose of the corporate opportunity doctrine is to avoid or minimize conflict-of-interest situations involving business opportunities. Such issue, which stems from the asymmetry of power and information between fiduciaries and shareholders, becomes salient when (i) the corporation can utilize the business opportunity more efficiently than the fiduciary or (ii) the fiduciaries misuse their information and power to obtain and utilize the business opportunity. This observation justifies, and sheds a light on how to interpret, the key conceptual elements of corporate opportunity: (i) “business opportunity having a close relation with the corporate business” implies situations where the corporation may attain greater efficiency by taking the opportunity than the fiduciaries and (ii) the “opportunity learned by use of corporate information or in the course of performing duties” indicates situations where there exists high risk of abuse of the fiduciary’s power and information.
Although the underlying policy of the doctrine provides some helpful insights in interpreting its key elements, the concept of the corporate opportunity is inevitably broad and hard to define. A comparative review also reveals that various types of fact patterns are loosely labeled as ‘usurpation of corporate opportunity’ without doctrinal coherence. The classification uniquely proposed by this dissertation (namely horizontal, vertical, and conglomerate opportunities) helps recognize and analyze these various fact patterns in a more organized manner, but the doctrine is still far short of being clear. Given this inevitable vagueness, it is reasonable to lean towards a procedural approach by inviting the fiduciary, if dubious, to make full disclosure and obtain corporate approval.
In terms of expertise, neutrality and effectiveness, the board of directors or its subcommittee is the most suitable corporate organ to review and determine corporate opportunity matters. A decision on a corporate opportunity matter is substantially different from the approval of self-dealing, since the board members engaged in the former lack any benchmark to rely on such as a “fair market price” available in case of the latter. A decision on a corporate opportunity matter is in essence a business judgment since it requires a forecast and comparison of the expected values of different scenarios that the corporation may choose. Therefore, the board members who decided on a corporate opportunity matter should not be held liable in hindsight, but should be protected by a business judgment rule so long as they made a good-faith decision based on reasonable information with due inquiry and without conflict of interest. The purpose of this doctrine can be best attained when promoting disclosure to the board (in case of listed companies, public disclosure as well) of any dubious transactions, facilitating careful review by the board and also respecting the reasonable discretion of the board.
In spite of public criticism, usurpation of the corporate opportunities by controlling shareholders or their family members is not directly regulated under the statute. Such a problem should be regulated by more proactive enforcement of the statutory right against the de facto director. Also, the directors and officers who design and implement the usurpation of the corporate opportunity for the benefit of the controlling shareholders should be regulated by the corporate opportunity doctrine, which is possible by way of a contextual interpretation of the current statute.