Who should decide corporate profit sharing?

Han Ki-jeong

The author is a professor at Seoul National University School of Law

The sense of unease I felt while teaching corporate law this semester extends beyond academic curiosity. It stems from a deeper concern that traditional views of the corporation are failing to capture the profound changes taking place in the real world.

For decades, corporate law has focused primarily on mediating conflicts among shareholders, managers and creditors. Yet recent public debate over performance bonuses at Samsung Electronics and Labor Minister Kim Young-hoon’s proposal to discuss a “social solidarity wage” reveal how rapidly the legal and economic battleground is expanding. Employees, suppliers, local communities and even the state are now being drawn into discussions over corporate performance and rewards.

The shift reflects the growing influence of what is often called stakeholder capitalism. At its core, the movement is driven by worthy goals, including reducing inequality and promoting co-existence. However, from a scholarly perspective, the critical questions concern not the purpose of distribution but its method and the actors responsible for it.

Modern corporate law scholarship has increasingly focused on the “team production theory” of the firm. Under this framework, a corporation is not viewed as the exclusive property of shareholders but as an organization in which various stakeholders contribute specialized assets and capabilities to create value collectively.

Yet even this theory does not support direct state control over profit allocation. Its central premise is that an independent board of directors should serve as a mediator within the corporation, balancing competing interests and determining how gains are distributed. Government intervention in corporate profit-sharing risks undermining the foundations of a market economy and producing unintended consequences.

One of the greatest concerns surrounding the current debate is that it has been shaped by a handful of exceptional companies operating at the forefront of global competition. Firms generating extraordinary profits are statistical outliers rather than representative examples of the broader economy. There is a danger that issues arising from a small number of highly profitable corporations will be mistaken for universal conditions affecting all businesses.

If distribution models developed for these exceptional firms are applied across industries with vastly different business structures and profit margins, the result could be severe management difficulties and market distortions. Countless companies simply do not possess the financial capacity to sustain such arrangements.

At the same time, broader state involvement could encourage endless competition among stakeholder groups. Once government assumes responsibility for allocating corporate gains on the grounds that profits do not belong exclusively to any single group, every stakeholder will have an incentive to claim a larger share based on its perceived contribution. The social costs of such conflicts could become substantial.

Nor is it realistic to expect governments to establish objective formulas for distributing profits. History offers repeated evidence that centralized planning has failed to outperform market mechanisms. The collapse of the Soviet Union and the socialist economies of Eastern Europe demonstrated the inefficiencies that emerge when the state monopolizes decisions regarding economic distribution.

More importantly, the present moment calls for a greater focus on survival and growth than on redistribution. Global competition in advanced industries, particularly semiconductors, increasingly resembles a war fought without gunfire. If corporate resources and attention become consumed by internal distribution disputes, growth engines that lose momentum may never fully recover.

History also suggests that when growth stagnates, debates over distribution often end not in greater prosperity but in the equalization of poverty.

What, then, is the reasonable alternative?

The answer is to return to first principles and rely on market-based governance rather than state coercion. Whatever the current intellectual trends, shareholders remain the parties who provide capital and assume risk. Decisions regarding the distribution of corporate gains should therefore be resolved through voluntary negotiations involving shareholders and the managers who act on their behalf.

These are the actors best positioned to assess the level of risk undertaken by a company and the investments required for future growth.

A new corporate-law paradigm should focus not on expanding regulation but on expanding legal flexibility that enables companies to fulfill their social responsibilities. For example, legal doctrines and incentive structures could be refined to recognize cooperation with suppliers and enhanced employee welfare as legitimate efforts to increase long-term corporate value. Such reforms would reduce concerns that executives might face liability for pursuing broader stakeholder benefits.

In this process, the government's role should remain a last resort. When voluntary negotiations reach an impasse, public authorities can serve as neutral mediators, facilitating dialogue and providing institutional support. Their role should be that of a supporter rather than a director.

Creating an environment in which companies can survive, compete and pursue mutual prosperity through autonomous negotiations centered on shareholders and management is the healthiest path forward. That, ultimately, is the role the state should play.