When I managed the law department of a company, having data in the form of KPIs (key performance indicators) helped me manage the department. It also showed the risks my department and therefore the company was facing. It was in a sense a snapshot of the legal costs and expenses. The KPIs showed legal expenses incurred on a regular basis as well as litigation matters, cycle time for resolution of matters and of course outside legal spend. When summed up- the total legal spend of the company and therefore the approx. legal risk exposure can be ascertained. I had the KPIs displayed on my computer dashboard which allowed me to see all of the legal spend and associated costs, time, external legal spend, etc. on a regular basis as the appropriate data had to be inputted into the dashboard.
KPIs are an essential part of managing a law department. As a risk manager, KPIs when used as metrics also play an important function if used properly and of course if the associated data is properly inputted. Using KPIs, you can determine the number of legal related matters your department, division or company is facing on a regular basis. You can determine the number of compliance related reports that are generated in a given time period, you can estimate the money saved using loss control or the money spent in insurance related matters. If properly set up with accurate data, you can determine the legal risks you are facing or may face, you can determine the cost of or exposure to associated risks that your company face. Combine your KPIs with a Legal Risk Matrix and you can not only see the potential risks, but you can score and or categorize them. Create a heat map as well. This will show Management the legal risks and severity of those risks that the company faces.
So I counsel and advise all corporations as well as in-house counsel and risk managers to establish a set of KPIs that can ( if imbedded with the right data) measure your risk, legal spend, compliance issues, etc. on a regular basis as a tool or process to help manage your risk. For a law department, such KPIs can include:
-law departments total expense
-law department’s expense as a percentage of revenue
-expense of staffing for litigation matters
-number of litigation matters
-cycle time to resolve litigation matters
-total external spend on litigation matters
-number of compliance related matters
-number of insurance claims
-cycle time time to resolve HR related matters
-number of active non-litigation matters
These are but a few KPIs or metrics I would use to get a handle on law department expenses and compliance related exposure and risk. Obviously you can break down outside legal spend more using other metrics. Remember, KPIs if used correctly can help give you a snapshot into the legal risks and associated expenses you may face on a regular basis and therefore help you to manage them.
Recently, President Trump met with Kim Jong Un of North Korea for an impromptu talk. Expectations are high for a resolution to the nuclear dilemma, especially in South Korea. What the meeting of course amplifies, is the geopolitical risk facing those companies and organizations doing business in South Korea. No one knows whether or not the meeting between President Trump and Kim Jong Un was a success. No one knows if it will lead to nuclear disarmament. In fact, what happens next is anyone's guess.
For companies doing business in South Korea, the threat of war is always a risk they face. Seoul is not far from the DMZ and any altercation between North and South Korea would have an immediate impact upon Seoul and its surrounding cities. Companies doing business in South Korea not only have many risks to think about such as operational risk, market risk, legal risk and financial risk, but geo-political risk as well. Therefore, a company contemplating a business project in Korea must at least on a tactical level consider the implications of geopolitical risk as well as everyday market risks.
Considering recent geo-political events, many companies should review old risk management policies and procedures, in case updates are needed. Of course, some risk management processes that should be reviewed are not being considered as they are viewed as too expensive or impractical. Such is the case with political risk insurance.
Companies face many kinds of risks when engaged in offshore projects; of course geo- political risk is one of them. This comes about when a government changes its policy, ideology or even itself which creates instability, disorder, war, strikes, riots, etc. What must be done to manage such a risk? Political risk insurance comes to mind, but some forms of political risk insurance that are offered by capital –exporting nations ( such as OPIC, etc.) is subject to politically motivated conditions or motivations that may not take the needs of the investor into account. Case in point- OPIC can only operate in countries which have a bilateral investment treaty with the US. If you are a US investor trying to invest in a country which lacks a bilateral investment treaty with the US- you are out of luck when trying to obtain political risk insurance from OPIC. This is true of outer countries which supply similar political risk insurance through export development programs. For more on political risk see my previous blog: “Managing Political Risk” at Seoullegalriskmgmt.com.
At a recent ECCK meeting, Ji Chul-ho, the Vice Chairman of Korea's antitrust regulator- the KFTC, asserted that international companies doing business in Korea may face requests from the KFTC to review any international contracts or agreements they have with Korean companies. Ji said the KFTC expected to find instances of unfair contract clauses in international agreements including contracts from online based companies and pharmaceuticals suppliers.
This announcement brings back previous measures that the KFTC had used in the past to review suspected unfair international agreements and contracts as set out in the Korea Monopoly Regulation and Fair Trade Act, or the MRFTA. In the past, under the MRFTA, the KFTC reviewed international agreements and restricted the implementation of unfair contract clauses. The law was initially implemented to protect Korean companies against unfair contracts with foreign companies, but this practice has remained dormant for many years as Korean businesses saw it as preventing international technology transfers between foreign firms and local companies.
As I have written before, Korea’s antitrust regulator, the KFTC is becoming increasingly aggressive and is targeting multinationals. For more information on the KFTC's enforcement trends, please see my blog Korean 2019 Antitrust & Competition Law Reform Trends" at: Seoullegalriskmgmt.com
Apparently a popular heart medication in the US may have been tainted with carcinogenic chemicals, prompting numerous lawsuits in the US , not only against the manufacturer but distributors as well.
This can certainly result in class action lawsuits worth billions of dollars. Much of these losses could have been avoided if the proper risk management processes were in place and properly implemented. Some of the processes include:
Heart medication containing possible carcinogenic chemicals shows a complete collapse of safety protocols. Any manufacturer - and especially a drug manufacturer - should have very strict safety/manufacturing protocols in place. If the protocols were in place but not followed – why? Who was in charge of reviewing safety protocols?
For sellers of products, it pays to have vendors checked out. Do they follow the same safety processes that the Seller has in place? Were inspections of the vendor’s facilities conducted? What reports if any were reviewed? Any Seller of a product that has a high safety risk factor must conduct due diligence on its suppliers to avoid potential manufacturing risks, especially legal risks.
Putting in the right risk management processes in the beginning can help minimize the legal risk a company will face.
The Korea Fair Trade Commission (“KFTC”) has ramped up its regulatory enforcement beyond what was considered normal under past administrations. This enforcement philosophy permeates much of the legislative amendments being sought in the KFTC’s first major overhaul of the Monopoly Regulation and Fair Trade Act (“MRFTA”) – the basic antitrust framework in Korea.
The following are proposed reforms, that if accepted will substantially impact companies doing business in Korea or contemplating doing business in Korea:
To strengthen the deterrence effect, the bill proposes to double the ceiling on administrative fines for most antitrust violations: for cartels, abuse of dominance and unfair trade practices, will go from 10% to 20%, 3% to 6%, and 2% to 4% of relevant turnover, respectively.
The KFTC’s draft bill also proposes to abolish the KFTC’s exclusive right of referral of antitrust violations for investigation by the Prosecutors’ Office. This would enable the Prosecutors’ Office to independently investigate and prosecute antitrust violators, which it currently cannot do without the KFTC’s referral. It could substantially impact leniency applicants.
The bill proposes to allow parties fearing antitrust injury to seek private injunctive relief directly from the courts (i.e. without the need to go to the KFTC first for a finding of an antitrust violation) to stop unfair trade practices that may cause significant harm.
Class actions are currently not available to private litigants in Korea, except under very specifically limited circumstances under certain statutes. The proposed bill provides for class actions to be made available for multiple parties seeking antitrust damages.
Currently, the Korean merger review process only considers the parties’ worldwide and domestic assets/turnover to determine whether a merger filing is necessary. This policy leaves a loophole for parties acquiring start-up companies that potentially have a significant potential upside but insufficient assets to trigger a merger filing. To close such loopholes, the draft bill proposes a new ‘transaction value’ threshold, so that mergers which do not meet current asset threshold may still require notification.
Currently, information exchange is not illegal in Korea, unless accompanied by actual collusion. However, this could change under the proposed bill, especially if there is evidence of anti-competitive conduct.
Recently, the National Assembly of Korea approved the KFTC’s proposed bill for punitive treble damages for cartel violations. The adoption of a punitive antitrust damages regime aims to strengthen the deterrence effects of anti-cartel enforcement.
The KFTC also recently amended its merger review guidelines to address innovation and big data issues arising in mergers in innovative (i.e. R&D-intensive) industries. The guidelines now define ‘big data’ as “Information Assets” and provide guidance on issues such as how the KFTC will define the “Innovation Market”.
The KFTC’s resolve to strengthen anti-cartel enforcement is clearly evident. Compliance programs must focus on such reforms to be relevant. Moreover, the proposed amendments contemplate introduction of class actions for private enforcement, while the punitive damages regime will take effect from September 2019.
It is anticipated that the KFTC will focus on several major areas of enforcement and regulation for 2019: (1) abuse of superior trading position; (2) establishment of an adequate antitrust regulatory framework for emerging and innovative industries; and (3) consumer protection.
In 2019, the KFTC will continue to reinforce its tough regulatory approach to eradicate long established abusive practices by a superior bargaining party. For example, the KFTC wants to prohibit contractors from making payments to subcontractors via promissory notes and seeks to force contractors to make such payments in cash.
The KFTC also recognizes the importance of building a new regulatory framework to keep up with the new and constantly evolving industries in the 4th industrial revolution, such as block chain, Fin-tech, IoT, among others. In addition to the KFTC’s aforementioned efforts to close existing loopholes in merger filing requirements, the KFTC plans to crack down on abuse of dominance in the mobile telecommunications and pharmaceuticals markets.
Finally, in order to promote consumer welfare and protection, the KFTC will strengthen its regulations on cartel conduct involving intermediate goods having a direct impact on consumers’ health and safety. In addition, the KFTC plans to amend legal requirements for standardized consumer contracts to reflect recent changes in consumer trends and correct unfair transaction terms.
The proposed legal reforms and enforcement focus for 2019 reflects the KFTC’s continued efforts to adopt or keep up with the latest global enforcement trends in the antitrust space. Companies planning on doing business in Korea should be mindful of such antitrust issues. Be sure to contact me or Lee & Ko if questions should arise.
Korea’s cryptocurrency environment still remains cloudy as ever. Although the Korean government has taken steps to regulate the use and sale of cryptocurrency by proposing six bills in the National Assembly, it remains to be seen which regulations will finally be implemented. The proposed bills, though all different, contain several common threads such as clauses to protect users and clauses that prohibit money laundering, market manipulation as well as the use of nonpublic information.
In 2018 Korean regulators backtracked on the original threat to ban cryptocurrency trading and now even support it to a certain extent. As one of the most active countries in the cryptocurrency world, with over 3 million citizens trading cryptocurrency on a regular basis, Korea suddenly left its anti-cryptocurrency stance and announced regulations on the use of cryptocurrency. It also blocked some individuals from trading.
It should be noted that cryptocurrency, once touted as digital cash, has run into many regulatory hurdles as governments refuse to categorize it as a financial asset, let alone as a currency. Plagued with illegal uses such as money laundering, drug sales, and terrorism funding, cryptocurrencies such as Bitcoin are facing more and more government regulations designed to curb illegal uses. Korea has hopped onto that wagon, but the future of cryptocurrency in Korea still remains murky.
