BUSINESS ASIA

FEBRUARY 2, 2012

Lone Star and the Women of Korea

The country will lose a lot more than a few dollars if foreign investors stay away.

By JOSEPH STERNBERG

Seoul has garnered criticism for its shabby treatment of Texas-based private equity firm Lone Star, which last week finally secured regulatory approvalon its third try, after six years of political, regulatory and prosecutorial haranguingto exit its 2003 investment in Korea Exchange Bank. In the view of most foreign observers, Lone Star attracted so much heat because its success wounded Korean national pride; the danger is that this negative example will dissuade future foreign investment. Less discussed is the precise relationship between foreign investment and Korean prosperity. For a few thoughts on this, note Seoul's recent announcement that the number of women in the Korean work force surpassed 10 million last year for the first time. This is connected to Lone Star in a tangential but consequential way. The recent milestone notwithstanding, Korea Inc. has a problem with women. Korean schools churn out class after class full of well-educated women who then aren't able to put their talents to use. Roughly

Opinion Journal: Seoul should appreciate foreign investors more for their impact on

society, Joseph Sternberg of the WSJ Asia editorial page tells Abheek Bhattacharya.

61% of Korean women with a university education were

working in 2008, the latest year for which data are available, according to the OECD. That was 28.4 percentage points below the rate for similarly educated men, the largest gender gap among developed countries. The gap for the European Union as a whole was 7.2 percentage points for university grads. In a modern service economy, female labor participation is one measure of how well a country is mobilizing its knowledge workers. Back when Korea only manufactured ships and chips, workers were valuable chiefly as bodies alongside an assembly line. Now, however, prosperity depends on individual employees' ability to innovate new products and solve unique problems, and women constitute fully half the working population that could be doing both those things. A 2010 white paper published by the Harvard Business School found that increasing the number of women in management increased the return-on-assets for companies in Korea both domestic and foreign. The precise reasons for the Korean gender gap are many and varied. A big part is culturalwomen face enormous social pressure from both family and company to drop out of work entirely for the full period during which they raise children. Day care is expensive; working mothers an anomaly. A business culture in which old-style managers prefer working with men and camaraderie is built and deals are done in late-night drinking sessions at so-called room saloons (really, venues for prostitution) effectively excludes women. The courts have also

allowed companies to fire women disproportionately in cut-backs "because the male workers have to provide for their families." Prominent women such as Hyundai chairwoman Hyun Jung-eun and presidential contender Park Geun-hye are the exception. Low female labor participation has not gone unnoticed. Seoul has a Ministry of Gender Equality and Family, and the government has tried various quotas and other regulatory ploys to encourage higher female employment. But this risks merely creating a different form of the same problemthe market's inability to allocate human resources by facilitating efficient decision-making by companies and individual workers. Enter foreigners such as Lone Star. A key innovation of the private-equity firm's turnaround of KEB was better humanresource management. In 2005, KEB introduced a new hiring method that focused less on university diplomas and more on People walk by the headquarters of Korea skills and life experience to Exchange Bank in Seoul. attract a wider range of job applicants. This marked a major departure from typical Korean bank recruitment. In 2007, some 40% of 114 employees promoted to management positions were women. In the male-dominated world of Korean finance, this was a shock.
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It shouldn't have been. Korean companies may be reluctant to hire

women, but foreign firms feel less ambivalent. The HBS study found the proportion of female managers at a department-head level was 13 percentage points higher at foreign companies compared to Korean firms in 2007, the latest year for which the HBS researchers analyzed data. Foreigners view Korean women as a valuable resource completely ignored by local companies. As-yet unstudied is whether the greater competitiveness of womanhiring foreigners is forcing change within Korea Inc. It may. The financial services industry was forced open to foreign investment following the 1997 financial crisis, and now seems to be leading in terms of greater opportunities for women (relatively speaking), though females still don't fare as well as men on either promotion or pay. A fillip concerns Japanese companies. While Japan remains hostile to female managers at homeit's right behind Korea in that OECD ranking of the university-educated employment gapJapanese companies happily hire female managers in their Korean offices for the same reasons other foreign companies do. (One wonders what might happen to Japan Inc.'s own treatment of women if the country opens up to foreign firms under the auspices of a Trans-Pacific Partnership trade deal.) More employed women means higher household incomes for Koreans and also potentially more products and services developed by the now-larger number of intelligent individuals finding employment opportunities. And female employment is only one example of a foreign-induced innovation. There are others. All of which suggests scaring off foreign investors may be costlier for Korea even than Seoul's critics necessarily realize.

Mr. Sternberg edits the Business Asia column.