Is Governance Just a Cost Center? The Korean Experience Provides the Answer
This phenomenon is known as the Korea Discount. Weak corporate governance, including the dominance of controlling shareholders, inadequate protection for minority shareholders, and limited board independence, were among its primary causes.
The importance of governance was evident in practice, but it was this experience that prompted me to write about it now, as it demonstrated that the market does not value a company’s profits alone, but also how it makes decisions and protects its shareholders’ rights.
Faced with this challenge, Korea did not treat governance merely as a regulatory file, but as an integral part of a strategy to enhance market valuation. Since 2025, reforms have expanded the duties of board members toward shareholders, strengthened the role of independent directors, tightened rules for electing audit committee members, and enhanced the influence of minority shareholders. In 2026, the process was completed by tightening treasury stock regulations.
In 2025, the KOSPI index rose by 75.6%, recording the best performance among major markets. This performance coincided with the reforms, but it cannot be attributed to governance alone; semiconductors and artificial intelligence played a key role. The essence of the experience lies not in the index’s movement during a specific period, but in governance itself becoming part of the equation of trust and valuation.
The Korean experience is not an isolated case. A global study published in the Journal of Financial Economics, which examined board reforms in 41 countries, found an increase in company value following reforms, with the most pronounced effects observed when board and audit committee independence was strengthened. This does not mean that governance alone guarantees profitability, but it confirms that it enters the equation of performance and value.
Herein lies the paradox in private sector companies: sales, investment, and operations are classified as activities that generate revenue and create profits, and are therefore viewed as (profit centers).
Governance does not generate direct revenue, and thus is not considered a profit center in the accounting sense. However, this does not reduce it to merely a cost center, as it affects decision quality, capital allocation, risk magnitude, conflicts of interest, cost of capital, and investor confidence. While its return may not appear as a separate line item in the income statement, the losses it prevents, the decisions it improves, and the trust it builds are reflected in the company’s valuation and its ability to attract capital.
Therefore, governance tolerates no superficiality, as it is not merely an internal procedure concerning management alone, but involves shareholders’ rights and their funds. Merely meeting formal requirements on paper is insufficient; what matters is decision independence, effective oversight, and fair treatment of all shareholders.
The point is not to change its accounting classification, but its position in managerial thinking: it should be present before a decision is made to help test and protect it, rather than being summoned afterward to complete procedural formalities. Those who improve decisions and protect capital are not peripheral to results, but partners in creating them.
Here lies the lesson for Kuwait and the Gulf Cooperation Council (GCC) countries. Investors do not evaluate companies based solely on their current profits, but also on the quality of their management, the independence of their oversight, and their ability to protect the rights of all shareholders.
Amid major economic transformations in Kuwait and the GCC, the attractiveness of markets will no longer depend solely on the size of projects and financing. When governance becomes an authentic part of the decision-making process, rather than just a checkbox in a form, it transitions from a supporting function to a genuine center for creating and protecting value.
