[Opinion] Myth of CEOs

It’s not safe to have someone manage your safe, we have been told. Until the end of the 18th century when professional accountants was first introduced in the west, it was the top manager`s job to record every penny coming in and out. It was a large-scale finance irregularity scandal in Britain called `South Sea Bubble` that gave birth to the profession of accountants. Investors, after losing a great deal of money, began to hire professionals to better understand where their money is used. The role of accountants grew more and more important in line with the rising number of corporations, and big-name British consultant firms such as Dilloitte and Waterhouse began to emerge.

▷Accounting system in this country changed dramatically after the 1997 financial crisis. The International Monetary Funds, or IMF, came to hold a tight grip on the nation’s economy and asked firms to be more transparent. Leading the transparency reform with IMF were the so-called Big Six. The multinational consulting firms argued that they take care of things since the system in this country is too shady to get things right. Then, they successfully lured big domestic businesses and financial institutions, sending homegrown consulting firms out of the market along with insolvent firms.

▷When corporate irregularity scandals broke out in the U.S. last summer, however, the big names fell to disgrace. In the wake of the mega-scale scandals that crashed stock markets throughout the world in the following few weeks, people began to voice `corporate reform.` No effective measures to prevent such corporate irregularities have yet to be crafted, however. Recently, the Securities Exchange Commission in the U.S., an equivalent of the Financial Supervisory Commission, named former director of the Central Investigation Bureau (CIA) Webster chairman of a new accounting oversight board. As it was later known that Webster once served as an auditor for a business now facing fraud accusations, the head of SEC was put under fire and had to resign.

▷A transparency pledge by a chief executive officer is now viewed as a potential powerful means to prevent fraud. This summer, the U.S. Stock Exchange changed its provision to require CEOs to send a written transparency pledge. When the Kosdaq crashed in August this year, many here began to insist adopting a similar rule. At that time, however, the move failed to pacify worried investors and the Kosdaq continued to crash. In fact, it hardly sounds convincing given it is said that you have to transfer your apartment to your wife to become a top manager of a company. Nonetheless, a reform plan requiring the transparency pledge was announced two days ago. It remains a question whether it will serve as an effective tool in boosting corporate transparency. Besides, it makes no sense that head of FSC Lee Guen-young, who is accused of arranging the 400 billion loans to Hyundai Marine when he served as president of Industrial Development Bank, is leading the reform.

Park Young-kyun, Editorial Writher, parkyk@donga.com