Ottley, Younghee Jin --- "Globalisation & the law: thoughts from a personal experience" [2000] ALRCRefJl 11; (2000) 76 Australian Law Reform Commission Reform Journal 50

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Reform Issue 76 Autumn 2000

This article appeared on pages 50 – 53 & 99 of the original journal.

Globalisation & the law: thoughts from a personal experience

Globalisation has changed the way the law operates, opening up new areas of practice for lawyers. In this article, Younghee Jin Ottley* reflects on doing business across international borders.

As an introduction, I will give a short version of my biography. I was born in Korea into a large family and came to the United States after my university studies. My family still lives in Korea, which I call home after all these years of living abroad. With a degree in French literature and no practical experience in any marketable skill, I followed in the footsteps of many Americans by becoming a lawyer. In traditional Korea, lawyers were disliked and even disrespected. When my father debated whether it was acceptable to him that I marry an American, the biggest issue was the fact that he is a lawyer. Thanks to my husband’s academic position, my father reluctantly decided to forget that he was a lawyer in his decision making process.

_{Unlike in Korea, the US legal education system allowed me to switch from an idealistic dream of becoming a writer to a realistic one of practising law. In Korea, each stage of my education was fixed and was subject to a rigid formula. Even after a long period of wondering,} being able to pursue a totally different career by becoming a corporate lawyer was the first evidence of the acceptance of me by my adopted country.

Moving into law

My first job as a lawyer was with the law department of Continental Bank in Chicago which, at the time, was the sixth largest bank in the US. After three years of working as a transactional lawyer, I moved to New York and worked as a corporate lawyer focusing on mergers and acquisitions (M&As). For the first 10 years of my practice, I intentionally avoided any connection with Korea and, fortunately, did not have opportunities to use my Korean background. Like other young American lawyers, I billed hours with secured financing transactions and asset or stock purchase agreements — all domestic deals. The first major break came in 1994 when the Korean company, LG, decided to approach the US television manufacturer, Zenith, for a possible joint venture.

There are two ways of doing cross-border deals, in-bound and out-bound. We lawyers enjoy challenges and totally different aspects of practicing law. So-called sexy deals, such as M&As, attract my partners’ attention and associates’ enthusiasm much more so than loan transactions. If the M&A deals have an additional dimension of cross-borders, even senior partners come to volunteer their time and services. However, in-bound deals (ie, buying a Korean company) by American clients have a much better chance of success in staffing than out-bound ones (ie, Korean companies’ investments in the US). It is a common trait of all of us to desire a free long trip on a client’s time to an exotic place far away from the office.

When LG expanded its investment in Zenith from a joint venture to majority ownership, at any given time, more than 10 lawyers were working on the matter since it involved a publicly held company. As the only Korean, I became not only a legal advisor to Korean clients, but also a cultural advisor to American lawyers and Korean clients.

Korean businessmen were then less experienced in acquisitions and dealing with their own lawyers, let alone opposing counsel. American clients use their lawyers as an advisor and not as a decision maker. However, Koreans are much more deferential to their lawyers and rely on them heavily.

The 1997 economic crisis in Korea put a halt to all the major investments in American companies by Korean companies. With strong pressure from the Korean government to restructure companies, mainly by selling businesses to foreign entities, and the devaluation of the Korean won, Korea became the most attractive target for the foreign investments, particularly for American companies which had an existing presence in, or business with, Korea.

Negotiating for the Client

I have a client (the ‘Client’) that is one of the Fortune 500 companies in the US. The Client has some presence in Korea and substantial dealings with Korea. The Client has been acquiring companies in Korea since 1997. The last transaction that I closed for the Client was an acquisition of a business line of one of the top five jeobols (conglomerates) in Korea. A brief description of a process deserves a few lines, although it might take some of the mystery out of my story.

A cross-border acquisition involves the same documentation as a domestic transaction. The documents are in English and the negotiations occur in Seoul in Korean. Business meetings sometimes are held in the US, normally without Korean lawyers present. I personally attend business meetings in the US, which is unheard of in domestic deals, since I perform various functions. The Korean system is not truly adversary. The opposing Korean counsel often welcome my presence since I can help both sides with my legal and life experience on both sides of the ocean.

I start with the form that I use for domestic deals and leave the Illinois choice of law provision. Invariably, since all the assets are in Korea and enough people involved in the transaction remain in Korea, as a compromise, I normally agree to the choice of Korean law and Korean court jurisdiction. With all the horror stories of my Washington DC partners and my personal experience as an arbitrator, so far I am not keen on an arbitration clause.

The most difficult part for me is to keep straight who speaks what language. Last year, I was negotiating a non-competition provision with a seller. I was looking at my client on my right side and spoke in Korean and looking across the table at the seller and passionately arguing in English for over five minutes.

I would not bore readers with the details of the legal requirements of Korea for foreign companies to acquire a business. To illustrate certain differences between the two systems, I will give you my last experience as an example.

Prior to 1997, foreign investment was heavily regulated and controlled by the Korean government. There were various industries in which foreign investment and/or ownership were limited or prohibited. Such a system did not make the practise of law involving Korea simple. I used to stay in my office late in the evening to call relevant Korean government agencies. With experience, I became much wiser in these matters. I first contacted the Korean Embassy, the New York office of the Bank of Korea or other government agencies using my Seoul National University connections and was introduced to the right people in Korea. Sometimes, Korean bureaucrats in the US volunteered to get the answers for me.

However, timing was always the issue. Clients never give their outside counsel a long period of time to get the right answers. In part, this is because the longer the outside counsel has, the more time he or she will bill, or an in-house counsel gets an urgent phone call from his or her business person who is ready to sign a letter of intent now.

Since November 1997, the liberalisation and promotion of foreign investment policy of Korea made a lawyer’s job somewhat easier. At least I do not have to struggle with whether a highly technical product name falls under a particular Korean Standard Industrial Classification system or a ‘Negative List’ system.

_{Even today, the Foreign Exchange Control Act governs the flow of funds between foreign countries and Korea. I still remember how often an employee of the Client woke me up at 2am in Seoul to figure out the exact dollar amount to be wire transferred. To minimise the registration tax on the capitalisation, the accountants, Korean lawyers and I came up with a minimum required amount of the paid-in capital for the new company formed under Korean law and 100 per cent owned by the Client. In the US, $1,000 initial capital is sufficient. With all the liberalisation and promotion policies of Korea, the Client was not able to pour unlimited unearmarked dollars into Korea. The paid-in capital was set in Korean won and the Client had to wire-transfer enough money to a} sundry account with Citibank with an authorisation letter to the bank to move money around. When the new company was set up, the currency fluctuated widely. Since the super cautious employee of the Client was concerned about not having enough won, she sent plenty of extra money. Once the wire-transferred dollars were used to buy enough won to pay for the paid-in capital, the remaining dollars were rewire-transferred to the Client to its account in the US, but not to a new bank account of the new company.

As a financing lawyer, I understand how each wire-transfer and currency conversion involves fees and costs which are not uniform. As expected, after the spectacular closing parties and dinners and one month of glowing, I got a phone call from the Client asking where the remaining dollars from the paid-in capital were. The computer system of Citibank traced it and proved that it had been wire-transferred on the day when it was supposed to be. Once the new Korean company was set up, Citibank could open a bank account and then the Client could wire transfer the purchase price in forms of additional capital contribution and/or intercompany loans. When the purchase price is in US dollars, there is less of a problem. If it is in won, the currency fluctuation can cause more risks and headaches.

Whether the purchase price is wire transferred to a new Korean company as intercompany loans or capital contribution and working capital loans are made in dollars from a bank in Korea trigger different foreign currency exchange rules and related approval and/or notice rules. These steps can delay the closing. All the lawyers understand that the closing schedule is somewhat arbitrary and the last one or two days are the most packed hours. If the closing can be handled solely by lawyers and their clients, we all happily utilise nights and work with a 24-hour-a-day attitude. However, when the closing involves the Korean government, Korean banks and Korean court clerks, even with all the grabbling by lawyers, clerks and bankers can do only so much.

Unless the deals are very small, most of them have to go through the Fair Trade Commission, to be approved or cleared or notified depending on the structure and size. In the US, my experience tells me that I have to wait for a period for the Hart Scott Rodino filings and SEC filings. So I make plans and schedules based on the maximum applicable waiting periods.

In Korea, my local counsel or I do not wait for a waiting period as written in laws or regulations. We call friends and relatives and wait for the answers in person. Thanks to this sort of friendly way of doing business, I make promises to my clients to close deals with an unreasonable time period and end up keeping my promises every time (at least so far).

My American husband points out that Seoulites never walk, they always run. Koreans do not talk but spit out words like bullets. When I have a regulation to comply with, I call my classmates from Seoul National University, who are at the very top in every field, or my brother, who is the CEO of a major chemical company, or a brother-in-law, who is a top executive of one of the top five jeobols. Someone I know always has a friend. We are truly six inches apart from each other in Korea. To Australians, 45 million Koreans sound huge, but it is a very closely-knit community where a small group of top elites controls the country.

Labour relations

American companies are willing to work with their advisors and follow all the steps required under written laws and regulations in Korea. However, the labour issues are not merely legal but truly cultural ones. After the closing of the acquisition for the Client, I spent five days in the plant with the American CEO meeting with all the transferred workers. For the third shift of workers, we had to schedule our meeting at 2am. The goal of the meetings was to convince the employees that American companies do not fire employees at whim but will not follow the ‘iron rice bowl’ policy either. Young unmarried male employees were concerned that an employee of a foreign company will not be a good candidate in match making for a bride. To give up one of top five jeobols as an employer was a big adjustment to make to all the Korean employees.

When Korea moved from a developing country under President Park’s dictatorial political system, it moved to the other extreme of being strongly pro labour. Workers’ wages went up to the level of other member countries of OECD and managed to maintain the Confucius relationship of lifelong employment. Management had to negotiate with the strong union every two or three years. Since the 1997 crisis, there has been a major amendment to the labour law, but change is gradual.

^{The compensation system is a combination of western annual salary} and Korean traditional one-family concept, such as birthday bonus, education subsidy, funeral cheque, meal and dormitory subsidies and employee loan program for housing. A lawyer who deals with cross-border deals has to understand why the other side has the system as it is. It is not merely drafting documents and negotiating. He or she must know why the other side argues for and/or against certain points in a transaction. In the US and Australia, we call each other by the first name. In Korea, we use the last name and a person’s title. There are certain points to be addressed to a particular title. The Korean language is much more formal. I have to address each individual with an appropriate ending of each word. Can I come up with a formula? No, I have to feel it and sense it according to each situation.

When I have a new in-bound deal involving Korea, I am ecstatic for the following reasons, in order of importance:

• I have a new business deal of my own.

• I am going home to see my 83-year old mother who lives on her own and who is very proud of her tough lawyer daughter negotiating against Korean businessmen. It is her chance to live vicariously.

• I am going to see my brothers, sisters and many nephews and nieces.

• I am going to see my friends and other clients to develop more out-bound future businesses. The fact that I am representing American clients is the best marketing for me for Korean companies.

• I earn lots of mileage and stay in five-star hotels and workout regularly thanks to rising early due to time differences. My body does not adjust to 15 hours ahead of Chicago time overnight.

• There is a charm in leaving the office and daily routine for a week at a time and living out a jet-set international corporate lawyer image.

• It is nice to impress all my partners and associates and Chicago clients who for some vague reason think that it is very sophisticated to negotiate in a foreign language in a male dominated society and understand a totally different legal system to close a deal.

• It is nice that clients believe that the deal could not have closed without my legal skills and understanding of Korean men and culture.

Whenever I feel tired in the packed business class lounge in Narita Airport in Tokyo during a five-hour layover, I try to remember these eight reasons why I should be grateful, although I swear to myself quietly that I am too old for this. After a month or so without an in-bound deal, I become restless like a gypsy.

*Younghee Jin Ottley is a partner in the Corporate Department of the law firm Winston & Strawn, Chicago, Illinois.