Ex-civil servants a favorite for large firms’ outside directors

[THE INVESTOR ] A large proportion of outside directors at large enterprises are former civil servants, a recent report showed, raising concerns that the system may be being abused to gain advantage in dealings with government bodies.

According to a report by the Economic Reform Research Institute, about a third of outside directors employed between 2006 and 2015 were former civil servants. 

The report analyzed the backgrounds of those who served as outside directors at 292 companies that are publically traded affiliates of 31 conglomerates.

The report showed that of the 4,838 individuals who served as outside directors, 1,572 were former civil servants. Of this number, 698 had worked at economy-related government organizations. Those who had worked at the National Tax Service were the most common, amounting to 238.

“There are calls for the outside directors system to be abolished, but a fundamental reform of the system is needed,” the ERRI said in the report, adding that raising the bar for outside directors will not be enough.

“(There also has to be) diverse measures such as changing the nomination system and giving more say to independent shareholders,” it added.

Outside directors were introduced as a mandatory requirement for listed companies in 1998. However, the system has long been criticized for having almost completely lost its efficacy. Past reports have shown that many outside directors fail to attend board meetings and serve as little more than “yes-men” who side with the management.

A survey by a local daily in 2014 showed that 27.7 percent of 1,000 firms listed on KOSPI and KOSDAQ had outside directors who attended less than half of board meetings. The survey also showed that only two of the 341 outside directors of 91 firms belonging to Korea’s top 10 conglomerates had voted “nay” to an item in 2013.

By Choi He-suk (cheesuk@heraldcorp.com)